There is no shortage of information out there about different types of insurance – of all types. Figuring out what risks make sense to cover with life and health insurance can be a daunting task!
Have you ever bought a printer or coffee maker and been asked if you would like coverage to replace it if it breaks within the first two years? In all likelihood, having to replace your home electronic equipment is not going to derail your financial plans or disrupt the lives of your loved ones.
Where insurance makes the most sense is where you are insuring a catastrophic event; attempting to cover an event that may be unlikely, but would be devastating.
The first step to figuring out what you should put in place is a needs analysis:
Debt Elimination: Mortgages, car loans, lines of credit would be included in this list.
Provide income replacement: If a surviving spouse would suffer financially without their deceased spouse’s contribution to the family income, then income replacement should be considered. Income needed to fund post-secondary education or to support a disabled dependent should also be considered.
Final Expenses: The costs for funeral, legal, and accounting fees can mount up quickly if an unexpected death occurs.
Once those needs are considered, it’s time to build coverages that would protect what we value most:
Life Insurance: The amount of coverage could be different for each spouse. When children are young, the need is often significant but is expected to decrease over time. As we get older, it might make sense to use life insurance to transfer our wealth tax-effectively to loved ones or a charity.
Disability Insurance: The amount of coverage for disability is affected by how much coverage is in place with their employer. With group disability coverage, the biggest risk stems from the change in definition from being able to do your “own occupation” for the first two years of disability to being able to do “any occupation” at the 24-month mark.
The more education, training, and experience you have, the more likely you are to be able to do another job becomes once that definition changes. It doesn’t matter if there are jobs available in your area.
Critical Illness Insurance: When one spouse has a critical illness, it can have a devastating impact on the other spouse. Being able to cope financially while you take time away from work and ensure that you aren’t forced to draw down other savings and potentially derailing retirement plans.
Life and Critical Illness Insurance for Children: Coverage is available as both a rider on an adult’s policy or on a stand-alone basis. There are some great programs with limited payment periods or that build cash values over time. Protecting kids’ insurability in case health issues arise in the future – and also planning in case they become critically ill while still dependent on you, can put your mind at ease.
Long Term Care: As Canada’s population ages, putting pressure on our health care system to care for those who can no longer perform activities of daily living as a result of cognitive or physical impairment, Long Term Care coverage can provide peace of mind that retirement resources won’t run out if serious health concerns arise after age 65. Disability insurance terminates at age 65. More about this type of coverage here.
Can we help? We'd love to chat about your situation and help determine if insuring some of the most significant risks we face.