Life insurance strategies for every stage
Whether you're just starting out or planning for retirement, life insurance† can play an important role in protecting your family's security, your business and your investments – and helping you achieve your financial goals.
Over time your priorities will change according to your family's needs. Here are examples of different strategies for when you're at different stages in your life).
Young and free
As a young adult, you become more independent and self-sufficient and no longer rely on your parents for your financial well-being. And while tragic at such a young age, your death would not likely create a financial hardship for others. It can be argued that you should buy life insurance now, while you're in the peak of health and the rates are low. This may be a valid consideration if you're at a high risk for developing a medical condition (such as diabetes) later in life. For most young singles, however, life insurance is not a priority.
University or college graduate
If you're recently graduated, your death could present a difficult situation. If you have big student loans, credit card bills or a car loan, these debts could become a weighty burden on the people you leave behind. Life insurance would pay off these debts (and could cover funeral expenses as well), and at this stage of your life, would likely be obtainable at a very low cost.
As a newlywed you have much the same debt (and likely more) as you did as a single. You may now have a larger rental home to accommodate two people, or perhaps you have bought a home and have a substantial mortgage. If your spouse isn't working, you now have a dependent relying on your income for day-to-day living expenses as well as mortgage and car payments.
Life insurance now takes on greater importance. Should you die, your spouse will be solely responsible for all these debts and living expenses. The right life insurance policy will ensure that he or she is financially secure should you die. Aside from life insurance, it's important to have adequate disability insurance to ensure a supplemental cash flow should you sustain a long-term injury and are unable to work.
Providing for your young family
People typically purchase life insurance when they start a family. This is when the importance of protecting the surviving spouse and children if one partner should die becomes clear. If you're employed, you may have life, disability, and health coverage through a group plan. While this is a good start, you'll likely need to supplement your coverage. You'll want to ensure all mortgage and loan payments are covered, while maintaining their standard of living – not just now, but in the future when high-ticket items such as post-secondary education come into play.
It's also essential for both parents to have proper coverage. It's not uncommon for people to assume that stay-at-home parents or parents who work part-time, need minimal or no life insurance because they bring in little income. But it's important to consider the many kinds of contributions – financial and otherwise – that would be lost in the event of a premature death. An at-home parent provides valuable services such as childcare, housekeeping, home repair, yard work, tutoring, and transportation which would typically need to be replaced. Premature death can also mean the loss of a future full-time salary as well as other benefits. All these factors need to be weighed when determining appropriate coverage.
You also need to protect what may be your most valuable asset – your ability to earn income. Disability insurance replaces a portion of your income if illness or injury prevents you from working.
A business owner
If you have your own business, it's vital to create your own safety net to protect your family, business operations and employees. Ensure your life insurance policy is adequate to cover both personal debt and any business loans. Disability insurance is essential for the self-employed, but when choosing a policy, it's important to understand exactly how you would qualify for benefits, how much income you would receive, and exactly how long benefits would continue.
As you move through life, your income and assets grow, as do your family obligations. Look at whether your insurance is adequate or whether you may need additional coverage. If a university education for your children is a priority, ensure that the funds will be there should you die, especially for a professional school. Tuition for programs such as business, law, or medicine can easily exceed $10,000 a year. If you have a summer cottage or winter vacation property, you may want to keep it in the family for future generations. Your insurance should cover any capital gains taxes or outstanding debts on the property.
After the kids have moved out
Once your children are grown, life insurance can still be an important part of your financial strategy. For example, it can provide financial support for a non-income-earning spouse or adult children, or for your favourite charity in the event of your death. Some life insurance policies also have a cash value that can continue to build tax-deferred wealth while you're living. Life insurance also can play an important role in wealth management as it can help offset estate taxes and create wealth for future generations.
As you move into retirement
With most of your major financial obligations behind you, your financial choices can now better reflect both your values and your personal wishes. Perhaps you have a favourite charity, hospital, or environmental cause, or you’d like to set up a scholarship in your name. Using life insurance for charitable planned giving can help you make a more substantial donation than you could otherwise afford, without affecting your other estate planning goals. Moreover, your plan can be structured to maximize tax benefits.
It may be important to you to leave a legacy for your children. Do you want to leave the same amount to each one? If, for instance, you have two children but only one would benefit from inheriting your house or cottage, you may want to name the other as the beneficiary of your insurance policy.
Professional advice will help you and your spouse choose the insurance that reflects your values as well as meeting your needs, goals, and budget.
Your insurance requirements change throughout your life and it's important to ensure that your policy meets those needs. Review your coverage often, especially when you go through any major life change such as a change in marital or employment status, or the windfall of an inheritance.
Our professional insurance specialists and financial advisors can help you work through your individual needs and recommend the ideal coverage. They’ll help uncover any gaps, assess your current and future needs and recommend appropriate strategies to ensure you have adequate protection no matter what life stage you're at.