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Insurance considerations for changing needs

When you were starting a family or buying a home, chances are you set up a basic life insurance plan to protect the income you were earning then and cover the debts you had, such as a mortgage or car loan. But whether that was a few years back or more than a decade ago, your financial needs and priorities have almost certainly changed.

As you become established in your career, earn a higher income, and accumulate more assets, the purpose, type, and amount of insurance that you need are likely to change. If you're in your prime earning years – usually between the ages of 35 and 65 – it's wise to review your insurance coverage and see how it fits into your complete financial plan.

Accurately assessing your family's insurance needs at each stage of your life is not so much a science as an art. Instead of focusing solely on numbers, it may be helpful to consider the specific purposes for which you require insurance, and then to rank them in terms of priority. These typically include:

  • Income replacement
    In the event of your death or that of your spouse, not only will income need to be replaced for regular expenses, extra income may be needed to hire outside help for child care, home maintenance, and so on.
  • Repayment of debts and taxes
    When one spouse dies, many expenses continue at the same level. Mortgage and car payments are prime examples.
  • Estate settlement costs
    Your family will need sufficient cash to cover final expenses, which can include funeral costs and probate fees.
  • Special bequests
    Life insurance can be used to leave a legacy to children, grandchildren, or a favourite charity.
  • Equalization of estate assets
    If you have major assets that differ in value, such as a house, vacation property, and an RRSP, insurance can be used to ensure that each of your children receives an inheritance of equal value.

More income to protect

Insurance reviews are essential not only after dramatic changes – a birth, marriage, or divorce – but during gradual changes, too. Perhaps you've had a steady increase in your income. Maybe you've started your own successful business or received an inheritance.

You and your family may be living in a more desirable neighbourhood than when you first started out, and you may be enjoying a more affluent lifestyle. In this situation, you may need more insurance to protect your family's standard of living.

Look at how your debt load may have changed as well. If you've paid off your mortgage and other loans, you might require less debt coverage. On the other hand, if you've purchased a larger home or a vacation property, you may need to increase your insurance to keep up with the increased debt.

Prime time to save

If you are in your peak career years and most of the initial expenses of raising a family are behind you, now is the time to look toward maximizing your retirement savings. In addition to maximizing your RRSP, you may be in a position to set up additional retirement savings through life insurance. For example, if you originally bought term insurance with a convertible feature, you may want to consider converting it to a permanent type of insurance to meet lifetime protection needs.

If you have a universal life (UL) insurance policy, this could be the ideal time to build the savings component of the plan. While most of the premiums for a UL policy initially go toward covering the cost of insurance, as time goes on a larger portion of the premiums goes toward tax-deferred savings, which can be a key component of your retirement and estate plan.

Regular professional reviews can help ensure that your insurance plan and accumulation goals are keeping pace with your changing priorities at each stage of your life. A BlueShore Financial insurance advisor can provide a variety of options to best meet the needs of you and your family.

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†Insurance services provided by BlueShore Wealth.

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