Are you covered? 5 Reasons you may need Life Insurance
There are different types of life insurance available and each one has its benefits that can be selected to fulfil an individual’s specific needs. Term life insurance pays a death benefit if the person insured dies within a specific period or before they reach a certain age. A whole life policy provides a set amount of coverage for the insured person’s entire life. Lastly there is universal life (UL) insurance that can cover an insured person for their entire life. With UL the fee is splits into two parts: One covers life insurance and the other goes into a savings and investment account with the goal of enhancing the death benefit. Knowing what the different types of life insurance products that are available is the first step before determining if life insurance should be part of your overall financial plan.
Reason #1: Pay for funeral expenses
The average cost of a funeral and burial in Canada is $8,500. At the same time, the current CPP/QPP death benefit for all eligible contributors is a flat rate of $2,500. There is a gap of $6,000 that could be covered by a life insurance policy.
Reason #2: Protect your family’s standard of living
If your family depends on you financially for their livelihood, then life insurance is a must as it can replaces your income when you die. This is especially important for parents of young children who would find it difficult to sustain their standard of living if they no longer had access to the income provide by their spouse.
Reason #3: Pay off family debts
You may need life insurance to cover any outstanding debts that can put undo stress on your family (example: mortgage, credit cards and car loans). You do not want your loved ones to be left with any extra financial burdens in addition to the emotional burden they are already suffering.
Reason #4: Cover a tax liability with insurance
The Canada Revenue Agency (CRA) values the taxpayer’s non-registered accounts, business interests, and real estate assets (other than the principal residence) as if they had been sold on the day prior to the date of death, and the assets are subject to tax on the deemed disposition. If the taxpayer has a spouse, the assets can pass to the spouse through the spousal rollover provision. When the assets pass to an individual other than the spouse then the potential estate tax liability has the effect of reducing the net estate value. Moreover, some assets like business interests and real estate holdings may be difficult to sell in the near term to cover any estate taxes. A life insurance policy can be used to cover any potential estate taxes.
Reason #5: Leave an inheritance
Even if you have other assets to leave to your heirs, you can supplement their inheritance by buying a life insurance policy and naming them as beneficiaries. This is a solid way to set your family up for a financial future filled with success by providing for any monetary needs that will arise.
Next step: How does life insurance fit into your financial plan?
A financial professional can help determine whether life insurance is the best option for you and your family. Financial professionals have the tools to analyze your personal situation. More importantly they have the knowledge gained through experience and educational training.