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 The
Money Management Newsletter: Insurance
Products
You're dead or worse - who's to pay the bills?
A candid look at personal insurance
coverage and protecting your loved ones, why you should have insurance
protection, and how much you really need
By David Newman, Fiscal Agents Insurance Ltd
Money Management Newsletter, May 2005
When you buy insurance, you're protecting the things you consider valuable
against permanent damage or loss. Whether you're insuring your home against
a catastrophic disaster such as fire or the contents of a rented apartment,
you're paying the insurance company a premium to assume the risk for you.
In the event of a loss, they write you the big cheque. So in essence,
you're buying peace of mind.
That being said, life and health insurance coverage are not simple matters.
It requires insight and serious consideration of your current and future
financial needs and obligations. Over time, as your circumstances change,
our insurance needs to reflect those changes. Insurance is also a major
component when formalizing your personal financial plan. Beneficiary designations,
final tax-return considerations and estate planning that provides for
family members may require insurance to protect capital for the estate,
provide liquidity or assist in structuring charitable trusts or funds
for business such as buying out a deceased shareholder upon death.
One of the most common mistakes made about life insurance is forgetting
that you are your most valuable asset. Your capacity to earn a living
and provide for your family is difficult to replace. Life insurance and
disability coverage protect your dependents against the financial hardship
that your death or disability would bring.
- Disability insurance: Provides you and your family with the
security of knowing your income is protected should a disabling accident
or illness occur.
- Critical illness: Thanks to continuing advances in medical
science, today more than ever before Canadians face a high probability
of surviving a critical illness. Most people who suffer major illnesses
such as a heart attack, stroke or cancer survive the initial event and
continue to live productive lives for many more years. Some, however,
require significant care and need funds to offset medical expenses or
loss of income.
- How much is needed? A good way to begin to understand life
insurance is to think of it as "emergency money." Should the
person who is insured pass away, the insurance provides for the family
left behind by replacing the income of the insured.
The amount of insurance that you should have at any given time will vary
over the span of your life, as your overall financial picture changes.
As a general rule, when calculating how much life insurance you should
have, plan for roughly between five and 10 times your annual income depending
on your personal circumstances.
For example, a young couple with one wage earner and several children
would need enough life insurance to cover several years of living expenses.
The following main factors should also be taken into consideration when
determining the minimum amount of insurance needed for your particular
circumstances:
- 1) Monthly Expenses: Calculate the amount that is spent on
expenses. This should encompass all of the items that your income presently
provides for.
- 2) Debts: Include the amount of money outstanding on your
mortgage, car loan, other loans, credit cards and personal income taxes.
- 3) Future Expenses: Do you have plans to send your children
or grandchildren to college? What about trips and holidays you would
support them on, even if it's without you? Other items that can crop
up include expenses like the replacement of a roof, the cost of healthcare
needs for your spouse or your parents, and your future retirement goals.
Without your income to pay the way, are they obtainable? (see worksheets
links below)
By calculating the money required for the above expenses, you should
have a better idea of how much insurance you need.
The Need to Know checklist
- Are you buying the right type of insurance? How much do you need?
- Not having guaranteed renewal rates can make "cheap" insurance
expensive.
- Do you understand the conditions of your coverage? Should you replace
your existing policy?
- What happens if you become critically ill? Critical illness insurance
coverage provides an answer.
- Who's the major beneficiary of your mortgage insurance - you or the
bank?
- Without "key-person" insurance, the death of a business
owner/operator could seriously jeopardize the business.
- The breadwinner becoming disabled can be more financially devastating
than dying!
- Is disability insurance suitable?
Consult your Fiscal Agents insurance professional prior to changing any
insurance policy.
If buying insurance by mail, on the phone or over the Internet, check
to determine if the insurance company is legally allowed to sell coverage.
Every provincial government in Canada has an insurance commission that
you can consult for this purpose.
Fiscal Agents Insurance Ltd. is a full service independent insurance
broker and can provide life and health products along with a wide array
of investment and savings products from the industry's finest names.
Here are some of the more than 40 financial institutions we consult with
each day while reviewing insurance and related products: Manulife Financial,
Standard Life, Canada Life, Transamerica Life, Great West Life, Empire
Life, Desjardins Financial, Equitable Life, Great West Life, ING Life,
Industrial Alliance/IAP, National Life, RBC Insurance, and Sun Life Assurance.
Useful tools available at FiscalAgents.com
Life Insurance Protection
Worksheet: How much is enough?
Total debt Worksheet:
Determine the amount of debt you currently owe in order to asses how well
you are managing it. This will also be a good indicator of how well equipped
you are to handle additional debt.
Related articles:
Critical Illness Insurance
Thanks to continuing advancement in medical science, today more than ever
before, Canadians face a high probability of surviving a critical illness.
Most people who suffer major illnesses such as a heart attack, stroke
or cancer survive the initial event and continue to live productive lives
for many more years.
Life & Disability Insurance
One of the most common mistakes made about life insurance is forgetting
that you are the biggest and most valuable asset. Your capacity to earn
a living and provide for your family is difficult to replace. Life insurance
and disability coverage simply protects your dependents against the financial
hardship that your death or disability would bring.
The Learing Centre- Insurance
When you buy insurance you are protecting the people or posessions
you consider valuable against permanent damage or loss. We illustrate
the need to adjust your insurance needs with your changing lifestyle,
and the potential pitfalls to be wary of.
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©
, Fiscal Agents Money Management Newsletter
25 Lakeshore Road, Oakville, On L6K 1C6.
(905) 844-7700
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