Life Insurance Protection – Page 2

Will my life insurance planning change over time?

Life insurance is an essential component of your financial security. Evaluate your policy as you move into a new stage of your life. Be sure it meets your current needs. As we journey through life, our circumstances change dramatically. So do our needs for life and disability insurance. Review your life insurance at these times:

When you get married. Assess your life insurance coverage to ascertain if it will meet your objectives if you die. Carry adequate coverage to allow your surviving spouse and surviving family to maintain their current lifestyle.
It may be best to name your spouse as the policy beneficiary rather than leave bequests via your estate’s will. This will ensure that your spouse receives the monies without having to go through the process of probate.
If your group insurance is being reviewed. One spouse may have an employer-sponsored group insurance package that you can review. Establish coverage for the other spouse if offered in the plan; and/or purchase additional insurance directly from a life insurance representative.
If one or both spouses are in business, consider putting income replacement insurance in place, in case of an illness or disability.
When you have a young family. When you are starting a family, life insurance is purchased to provide new tax-free capital in case one or both of the parents should die. If one parent’s income is currently relied on to provide all living expenses, the death of that individual may cause financial insecurity and stress for all family members. Equally important, consider the financial cost of a stay-at-home parent. Compare potential increased daycare and housekeeping expenses if a spouse needs to work. Both parents can carry adequate life insurance to cover any potential expense that could result from their death.
As the family grows. Re-evaluate your life insurance in view of your changing goals. Where two parents depend on each other’s combined income, consider the duration a surviving spouse would need to stay home with the children. Life insurance can help the family meet its financial obligations and maintain its current lifestyle.

Your life insurance needs will be affected by:

the number of children and their ages
educational expenses of the children
the current value of your assets
your current income
debt accumulation
your future employment goals versus stay-at-home parenting
your overall financial goals

Beneficiary Strategy You can place young children as secondary or contingent beneficiaries; thus allowing them to receive the death benefit if your spouse or preliminary beneficiary, predeceases them. A trust can manage funds on behalf of the children. It can directly invest the proceeds of the death benefit to create necessary guardian income.

Managing family insurance risks Each of these areas of risk may benefit from careful life insurance planning:

At the time your children go to college or university. When children go to college, many of us tap into our savings to help meet their tuition and housing expenses. We may purchase a child’s first car, or provide an income for one or more years. If you die without providing continuing support, your young adult child may need to quit seeking a higher education due to a shortage of funds.
When you want to protect your income in case of a disability. Have you thought about how becoming ill or injured could affect your family’s financial security? Would your income be reduced, placing the family under duress? Disability insurance is designed to replace approximately 70% of your pre-disability income and is especially necessary for the self-employed.
When making the decision to protect your lifestyle in case of a critical illness. This insurance pays out a lump sum in case of a critical illness such as heart attack, stroke or cancer.
If you have ageing parents and are concerned about expenses. You can insure your parent with life insurance to provide enough money to pay for funeral expenses and or pay off debts. If your parents are dependent upon you for care, you may want to consider insuring yourself, naming a dependent parent as the beneficiary, to provide elder-care income that will still provide for their care in the event that you pass away.
When you will face a large tax liability in your estate. As you approach retirement, you may have accumulated assets that will be taxed on capital gains, such as a cottage, a business, or your accumulated savings. Life insurance can provide for final income tax that will come due if the estate is not passed on to a surviving spouse or a dependent. This can include paying taxes that may be due on remaining retirement savings assets.
When you’re considering a donation to an organization or charity. Individuals may wish to provide money to a cause or organization that they strongly believe in and life insurance can be a valuable tool in providing such assistance. By naming an organization or charity as a beneficiary you can ensure that your wishes are followed. Additionally, there may be tax benefits associated with donating life insurance policies to recognized foundations, charities or schools.

How does a family adjust their level of life insurance?

As life insurance needs change through your lifetime you can parallel those anticipated changes with multiple life insurance policies. A capital needs analysis or review reveals the money you would need to meet your current and future needs. This capital need can lessen over your lifetime as you accumulate assets.

For most families The years of child-rearing present the largest life insurance need to create capital for income replacement, child care, clothing, food, college education and the extras.

What plans are best?

Young families may purchase a large personally owned term insurance plan, or combine it with a small amount of permanent life insurance, depending on affordability. The most important is that the family’s needs are covered properly. Note: Group insurance from work may run out if you change your employment or lose your health. It is not owned independently thus there is no real control over such a plan. If possible shift monies paid for group term to your own term plan.

For empty nesters Life insurance needs may be less when the children have moved out. However if a wage-earning spouse dies, a life insurance benefit can offset the loss of income, pay off the mortgage and/or accrued debt, create an emergency fund, and help shore up capital needed for retirement. Thus life insurance is usually still needed.

What plans are best?

If the capital need remains high, consider converting a portion of any term insurance you own into a permanent plan, or use a hybrid plan where term is mixed with permanent insurance. You may be able to reduce the face amount while adjusting the total coverage to meet your current need and work out an affordable payment.

Paying for final expenses During retirement every man and woman will one day present the need for his or her spouse or family to have capital to pay for final expenses in relation to and depending on the funeral expenses. Not everyone has saved up sufficient funds for this expense. Where there is life insurance it can save children and/or siblings the possible need to pay that expense for you.

What plans are best?

It is wise to have a certain amount of permanent life insurance to offset these expenses. At the age of 50 plus consider converting some or all your term insurance if you do not yet own a permanent life-time plan. Aim to own at least $25-50,000 worth of permanent life insurance just to pay for the final expenses.

What is the purpose of life insurance?

Individual life insurance is primarily designed to protect against the financial loss that can occur with the death of a loved one. While individuals are typically very good at insuring their car or their home, they frequently do not insure their most valuable asset; their ability to earn an income. Life insurance provides a death benefit that can provide much-needed income to support your family, your business, or to send your children to college. Additionally, life insurance may offer many tax advantages.

There are two types of individual life insurance: Term life insurance and permanent life insurance. Both term and permanent policies offer an income tax-free death benefit to the policy beneficiaries. There are, however, several key differences to keep in mind when purchasing the right life insurance. It is one of the most important decisions that you can make.

How does life insurance protect my income in the future?

In the event of the death of the insured, life insurance is designed to create capital precisely in the unpredictable event of death. It provides a precautionary financial strategy to stabilize the financial security of loved ones reliant on your income or your capital provision.

Current one-time capital uses are provided by life insurance, such as:

Pay off liabilities such as credit cards, bills outstanding, loans, and/or estate taxes upon death.
Pay for the final expenses associated with a funeral and burial.
Create money to pass on to heirs such as children or a spouse.

An ongoing future use of capital is provided by life insurance, such as:

Investments can be purchased from which to create an income to cover the living expenses of a family; often providing for the retirement of a spouse.
Funds can establish a trust, from which family can acquire income.

What if an insured lives and cannot work due to a disability?

The individual should include some form of disability coverage to replace his or her income. Talk to your advisor about the following other types of insurance:

Income Replacement Insurance: This covers a percentage of your income in the event that you cannot work for a certain period of time due to a disability; some allowing coverage for a lifetime.
Critical Illness Insurance: In the event of a critical illness such as a stroke or heart attack, a significant lump sum benefit can be paid, depending on the plan’s coverage.

Check your group insurance benefits at work which should be considered when buying the above insurance.