Carrey Financial Group    (204) 771-9211
Winnipeg, Manitoba

 
       
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Life Insurance


Why You Need Life Insurance

Many people think they don’t need life insurance. If you’re one of those people, read through the four main reasons that we think you do need it. Then decide. There are definite benefits to purchasing a life insurance policy that can address a number of needs your family may have after you pass away.

1. It provides income while your family is adjusting

There is a significant impact on the finances of the surviving family when an income provider dies. Family income will very likely decrease and there’s a good chance that the survivors will find themselves in a lower standard of living. The death benefits of a life insurance policy can prevent this from happening, or greatly decrease this circumstance by replacing lost income. When the insured is adequately protected, the surviving family will have financial support during the time they need to deal with their grief, get reorganized, find other sources of family income, and adjust to their new income level.

2. It funds specific financial goals

Proceeds from a life insurance policy can also provide funds to achieve specific goals that the insured may have planned for his or her family. These goals could include funds for university or college education of any children or grandchildren, the purchase of a home or income property, or capital for a business. A portion of the death benefits of a life insurance policy can be set aside to provide for such funding needs.

3. It covers medical and funeral expenses

It’s very possible that the insured will incur growing medical expenses prior to death. A prolonged illness can easily run up to several hundred thousands of dollars, especially if you need to seek medical services outside of Canada. A funeral or memorial service, even the most basic one, is a cost that also has to be dealt with. These final expenses can easily be covered with the proceeds of a life insurance policy.

4. It pays for taxes and debt

The insured may leave behind debts that need to be settled. If he or she has accumulated a considerable estate, inheritance and property taxes, along with other fees, these have to be paid before the assets can be distributed to the heirs of the deceased. Life insurance benefits can provide cash for the settlement of such bills. Without available cash on hand, the heirs may have to sell some or most assets (possibly below market value) to pay the taxes and other debts promptly. Penalties, or forfeiting ownership of the estate, could happen if these commitments are not paid in a timely manner. The right amount of life insurance will help to preserve the estate and keep it with the family, who will be grateful that you had the foresight to take care of their wellbeing after you passed on.

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Life Insurance Needs: Life Stages

Life insurance is designed to protect your family and other people who may depend on you for financial support. There are situations where life insurance is beneficial even if you have no dependents, such as your desire to cover your own funeral expenses and/or pay off your debt.

Here are some guidelines to help you decide if life insurance is the right choice for you:

1. Children: Children do not need life insurance, in general, since no one depends on income from them. One may choose to get life insurance for a child to ensure later insurability, however. Your 14 year old may be very healthy now, but he or she may not be at age 30 or 40 and could have difficulty getting any insurance then. Critical Illness insurance for children can be very helpful, however. If your child succumbs to one of many critical illnesses like cancer, a critical illness policy will pay you a lump sum and help you take time off work to be with your child or to pay extra medical expenses that may arise.

2. Single Adults: The reason a single adult, regardless of age, would typically need life insurance would be to pay for their own funeral costs or if they help support an elderly parent or other person they may care for financially. In addition, many people are carrying a debt load when they pass away, so life insurance can cover those expenses rather than leaving family to struggle with the debt collectors.

3. Beginning Families:
Life insurance should be purchased if you are considering starting a family. Your rates will be cheaper now than when you get older, and your future children will depend on your income.

4. Established Families: If you have a family that depends on you, you need life insurance now! This does not apply only to the individual working outside the home. Life insurance also needs to be considered for the person working in the home. The costs of replacing someone to do domestic chores, home budgeting and childcare can cause significant financial problems for the surviving family.

5. Working couples-with no children: Both people in this situation would need to decide if they want life insurance. If both people are bringing in an income that they feel comfortable with living on alone, then life insurance may not be necessary except if they wanted to cover their funeral costs. In many instances, one working spouse contributes more to the household income or may want to leave their significant other in a better financial position. In this case, purchasing a life insurance policy is an option.

6. Retiring or Retired: Purchasing a life insurance policy at this age can be very expensive. However, there still may be tax advantages and other benefits to having a policy that will protect your estate. If you have not already done some estate planning, you should consider doing so at this time.

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Two Types of Life Insurance

There are many different types of insurance suited for a variety of needs, life stages and specific situations. On a basic level, there are two main types of insurance: 1) Term and 2) Permanent.

Which type of insurance is best for you? The answer is found in your reason for buying insurance.

-For example, if you want insurance to pay off your mortgage so your family is not burdened with debt, term insurance may be what you need.

-On the other hand, if you want insurance for the long term, such as in estate planning, then a permanent policy is probably more appropriate. 

Consider the following when choosing the amount of life insurance you will need.
  • What percentage of your current income do you want to leave your survivors and for how many years?
  • What is the expected rate of inflation?
  • What expenses such as a mortgage, car payments, and children's education do you want covered?
  • What might the rate of return be on the benefits that are invested by your survivors.
  • Use a life insurance calculator to help you find out roughly how much insurance you’ll need.

Term Life Insurance

Term insurance is referred to as temporary insurance. Term Insurance is designed to cover an insurance need which will not last forever. Generally term insurance is sold in "terms" of 10 or 20 years. This type of coverage can renew for successive terms; however, the premium increases dramatically as you age. Term insurance can often be converted into a permanent policy.

Permanent Life Insurance

Permanent Life Insurance is designed to be in force for long periods of time. A permanent policy is often guaranteed to remain in force until age 100. This type of coverage is valuable when planning for long term needs such as retirement and estate planning issues. Permanent policies come in many different forms and fulfill different needs. For example, if you wish to own coverage for your entire life, yet you wish to stop paying premiums in 20 years, you might consider a 20 pay life policy. This policy would create cash values which are accessible to you for income purposes later in life. A Universal life policy is similar; however, the investment risk sits with the policy owner rather than the insurance company. Proper planning and advice can help you make an informed decision on which type of policy is right for your position and objectives.

Additional advantages of Permanent coverage are:
  • Life-long coverage
  • Lowest net cost of insurance
  • Canada Revenue Agency allows cash to grow tax sheltered
  • Cash values provide liquidity (which is lacking in most portfolios)
  • Enhances Retirement savings
  • Provides security for generational planning

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