Talk­ing about life in­sur­ance may be dif­fi­cult, but needs to be done: ad­vis­ers


Talk­ing about life in­sur­ance can be un­com­fort­able be­cause it means con­tem­plat­ing what hap­pens if you die, so Rob Knight has a trick when dis­cussing the topic.

Knight, an in­vest­ment ad­viser and di­rec­tor, pri­vate client group, with Hol­lisWealth in Cam­bridge, Ont., asks clients to imag­ine what would hap­pen if they died yesterday.

“Since they are alive to­day, they don’t worry about it as much,’’ he says.

But de­spite the dis­com­fort in talk­ing about it, Knight says in­sur­ance can play an im­por­tant role in your fi­nan­cial plan.

If your death isn’t go­ing to af­fect any­one fi­nan­cially, then you prob­a­bly don’t need life in­sur­ance. But if it will, then you need to start think­ing about how you can use in­sur­ance to pro­tect your loved ones.

In de­ter­min­ing how much life in­sur­ance, Knight says you need to con­sider what you owe and what you may want to re­place in terms of in­come for those that re­main.

If you’re a high-in­come earner and the sole bread­win- ner in your fam­ily, then you may need to con­sider more than if that’s not the case.

“The ques­tion that I ask clients is, ‘How much of this in­come do you want if some­thing hap­pens to per­son A?’’’ Knight said.

“It is some­times a gut an­swer and other times it is pure math.’’

Jeff Hull, a se­nior fi­nan­cial ad­viser at Man­ulife Se­cu­ri­ties, said it is im­por­tant to un­der­stand the pur­pose of the in­sur­ance.

“For a young fam­ily with a big mort­gage, that could be safety and se­cu­rity as their prime ob­jec­tive or goal, and if they were to lose their bread­win­ner they would be des­ti­tute,’’ Hull said.

“For some­one later in life, it could be an es­tate plan­ning pur­pose to buy­ing life in­sur­ance to leave a legacy for a cher­ished ben­e­fi­ciary or to do­nate to char­ity or to cover in­come tax at death.’’

Life in­sur­ance can take dif­fer­ent forms.

With term life in­sur­ance, you’re cov­ered for a set pe­riod of time, of­ten 10 or 20 years. Depend­ing on your age, term poli­cies can of­ten be re­newed un­til you reach a cer­tain age. Per­ma­nent life in­sur­ance con­tin­ues un­til your death.

Hull said most peo­ple tend to­ward term in­sur­ance be­cause it can ap­pear to be cheaper, but per­ma­nent in­sur­ance poli­cies of­fer some ad­van­tages.

Most per­ma­nent or whole life in­sur­ance poli­cies have a sav­ings com­po­nent that grows as the years pass.

“It might be a lit­tle more ex­pen­sive up front, but over time as you build the sav­ings com­po­nent into it, over time there is a po­ten­tial of hav­ing that in­sur­ance pol­icy pay for it­self with the sav­ings that are built up,’’ he said.

It is also im­por­tant to regularly re­view your life in­sur­ance be­cause your needs will change as your own per­sonal cir­cum­stance evolve.

Mar­riage, the birth of chil­dren, the pur­chase of ma­jor as­sets such as a home are key points when you will want to be sure to re­view how your life in­sur­ance fits within your fi­nan­cial plan.

“You don’t nec­es­sar­ily have to change your pol­icy, but it is good to re­visit it, just to make sure the plan and the pur­pose and the need as to why it was pur­chased still ex­ist and whether it has to be up­graded or down­graded,’’ Hull said.

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