Protecting your family
Insure your most valuable assets.
If you weren't around, could your family manage financially? Could they remain in your home or would they be facing major hardship? Insurance is one of the best ways you can protect the people you love. Here's what you need to think about.
Despite the best of intentions, many families may be caught short in the event of a premature death. Life insurance† can provide financial continuity to help your family maintain their present lifestyle while coping with your loss.
When it comes to buying life insurance, your choices essentially come down to two main types of coverage: term or permanent. In some cases, you might opt for one type now and the other later, or even combine the two.
Term insurance – “rent” your protection.
Term insurance can meet your family's financial needs and obligations, providing a lump sum pay-out. This could be used to pay off a mortgage, cover personal or business loans or replace income – whatever your family needs to remain financial healthy. Once the policy's term is up – usually 5, 10, 15, or 20 years – so is the coverage. Term insurance has the following features:
- Defined expiry date
- Usually has the lowest initial cost
- May be renewable at a higher premium
- Generally is unavailable after a set age
- May be convertible to permanent insurance
Permanent insurance – “own” an asset.
Permanent insurance can provide a similar lump-sum payout, as well as additional protection such as lifetime coverage and tax-deferred savings. While premiums are typically higher, this kind of policy offers:
- No defined expiry date
- Fixed premiums, which end once the policy is paid off
- A cash reserve you can use
- The ability to build tax-deferred savings
- Coverage for your family's long-term goals, including estate protection to provide a legacy
How much insurance do you need?
There are a number of factors you need to take into consideration when determining how much life insurance you need. It begins by focusing on your family's situation, taking into account these five key elements:
1. Ongoing support for family needs.
This is the most important reason most people want life insurance – to ensure that loved ones won't face financial hardship if you die. You and your spouse will each need to have enough coverage to replace your incomes so that your beneficiaries can maintain their current lifestyle.
Age is a key consideration when calculating potential financial needs for the future. For example, if a main income-earner were to die prematurely at age 40, that could represent a loss to the family of at least 25 years of income. Your insurance advisor can help you forecast other income needs, such as retirement savings for your spouse, education savings for your children, and the cost of inflation.
2. Future earning power
When looking at how much financial protection you need as a family, it's important to factor in not only your current household income, but each person's future earning power. If you or your spouse is a stay-at-home parent and a secondary breadwinner now, consider income-earning potential (and potential loss) once child-raising responsibilities ease. Or perhaps you're earning a post-graduate degree such as an MBA and anticipate moving up the career ladder in the near future. Whatever the case, the future income potential of both you and your spouse should be considered to make sure you have enough insurance to replace it.
3. Childcare and maintaining the household.
An income-earning parent isn't the only one who needs life insurance. It's also crucial to calculate coverage required by a parent who is home raising children. In his or her sudden absence, replacing all those unpaid tasks may mean hiring a nanny or babysitter, paying daycare fees, arranging for a housekeeper or paying for services such as shopping, tutoring, and home and yard maintenance.
4. Expenses and debts.
If one spouse dies prematurely, it can leave an expensive debt load for survivors. The mortgage, property taxes and utility bills still need to be paid. Your family will also need to cover any debts, such as a car loan, business loan or line of credit.
5. Final expenses.
Your beneficiaries will need to have funds available to settle your estate. This can include funeral costs, probate fees, and capital gains taxes on assets such as a cottage or other vacation property.
With professional advice from an insurance advisor, you can be confident you'll have the right amount and type of life insurance to meet your goals. And, because your family's circumstances and needs change over time, be sure to have your plans reviewed and updated periodically.