What you need to know
Generally speaking, the only reason most people with dependents think they can’t afford life insurance is because they don’t understand what they should buy.
So we are here to help explain-away the complications and confusion that you may have about possibly owning the wrong kind insurance or being underinsured.
The mentality that has to change is the thinking that it’s okay to inquire about life insurance when you’re on your way home from the doctor’s office after being diagnosed with a serious illness.
It will hit you hardest when you realize that a sufficient amount of basic life insurance could have been purchased for less than what most people spend in a day on coffee. Yet even today, most young families are still underinsured.
The fact is it happens. People can still find the money for things they “couldn’t afford” when financial priorities are reviewed in such a low light.
Don’t wait until this happens to you to make some of the most important decisions of your family’s life.
Life insurance is probably the most unselfish thing we ever purchase. In its purest form, you, as the insured, will never directly enjoy the benefits of the coverage, except for the peace of mind that comes from knowing you have looked after your loved ones properly.
But, when you consider the financial disaster that a family can suffer when income stops due to a sudden death, and the fact that it could have been averted so easily, it becomes clear why this topic should be one of the top priorities in your financial life.
Our purpose is to help you understand the various products that can be used to cover the risk, and how to do it – adequately and for life, without wasting your hard-earned money.
What you need to know when relating life insurance to your needs
To understand the basic concept of what we are trying to achieve with life insurance, it is important that you understand the basic life insurance strategy we offer.
With the exception of the special situations that crop up in life that may produce a special need for life insurance, most people can categorize their basic insurance needs in to three distinct time periods.
Period One: When you are a single person with no others depending on you for support. Do you need life insurance? You may – to pay for your final expenses if you should die, and to pay off any debts that you might leave behind.
Realistically, most young single people don’t give this much thought or planning, so it is often up to parents to keep a small policy on their single, adult children, because in most cases they are the ones that would end up being financially responsible if an adult child were to die.
Period Two: The moment that you become financially responsible for someone else, your life insurance needs change dramatically. As a matter of fact, you go from a very small need to the greatest life insurance need you will ever have.
For the majority of people, this is when you get married and/or have a child or children. If you take your responsibility seriously, you should have enough life insurance to supply your family with their financial needs when you are suddenly out of the picture and not able to provide for them. Life insurance proceeds should be sufficient enough to do just that.
Period Three: When your family is grown and your children are responsible for themselves, and there is now just you or you and your spouse to care for, your needs are almost back to where they were in level one, except it is unlikely that your parents will be available to pay for your final expenses or cover your liabilities. So, again, your needs involve having enough to pay for your final expenses and to cover any debts that you may have.
What do you need to know before you buy life insurance?
Life insurance does not need to be complicated. There are really only two life insurance products that most people should consider. One of the disturbing financial issues of our time is that most people are underinsured. Also, many own the wrong kind, or wrong combination, of life insurance products, and/or are paying way too much.
These issues can lead to hardship for those left behind in the case of a premature death. Fortunately, they are easy to fix if you understand what you are buying and have the help of a good financial planner.
At Stratford Financial Planning you will learn:
- What is the evolution of your life insurance needs?
- Why you should or shouldn’t buy life insurance, and if you do, how much you really need?
- What are the three basic kinds of life insurance?
- Why you should not renew term insurance if you are in good health?
- Universal Life: is it for you?
Why You Must Shop For Life Insurance
At this point we are assuming that you have an interest in buying life insurance or are interested in reviewing your present level of coverage.
You must establish what you really need and the best way to get what you need. Remember, at any time during this process, you can ask for help.
There are three reasonable options to fill your needs:
- Purchase Term insurance only
- Purchase Permanent Insurance only
- Purchase a combination of the two
Option 1: Term Insurance only
Consider purchasing term insurance only if any of the following three conditions apply:
1. It’s all you can afford
The most important thing is buying enough coverage to look after your family if you die prematurely. Make sure you do that first, especially if you have young children. If you are young, you might be surprised at how cheaply you can acquire enough coverage for 10 or 20 years.
2. You are certain you will accumulate a substantial amount of money by the time your term insurance runs out
This option works if you know for sure you are not going to need life insurance when you get older because you will have acquired enough assets to look after your final expenses and any debts that you might still have. Or, if you are satisfied you will leave behind a tax efficient estate that you will be content with, then you can use term insurance as a temporary means of coverage until you build up and organize your estate.
But also remember, many have started out with this plan and then life threw a curve ball that changed everything. A little permanent coverage will reduce the risks and provide some peace of mind.
3. You only need temporary coverage
If you are borrowing money for any one purpose like a mortgage or for a business then life insurance can be used to pay off the debt if you die prematurely. Term insurance is a cheap way to fill that need. Special Note: Ask us about Mortgage Insurance… it functions in a slightly different way than term insurance.
Option 2: Permanent Insurance only
You may want to buy nothing but permanent insurance like whole life or universal life, if any of these three circumstances describe your situation:
1. You are determined to leave behind or pass-on a certain amount of money when you die; even if you live to old age.
2. You can afford the coverage and you intend to use universal life as an investment program by making reasonably higher deposits of cash or the long-term. In this case, the more insurance you purchase, the higher the maximums you can deposit into the investment program tax-shelter. A great option for those who have already maxed out RRSPs and TFSA contributions.
3. You have a dependant who is going to be dependent on you for the long-term, such as a handicapped child or other loved one who would suffer hardship upon your death even if it is many years from now.
Option 3: A combination of the two
For most people, this approach fulfills their needs at the most reasonable cost.
Most people have their greatest need when their children are young. Fortunately, most parents are still fairly young at that time as well, so life insurance is reasonably priced if you are in good health.
If you are like most people, you might consider a reasonable permanent universal life policy, and add the term you need inside the same policy – it’s a great way to save on insurance administration costs. Then when you no longer need the additional term coverage, you can cancel it from the policy and maintain the permanent coverage only.
This way you will always have enough coverage to look after your final expenses, even at old age; you will save on your term coverage by not having multiple policies outstanding but just one. Also, you will open one of the best investment doors available to you. A good Universal Life policy offers the best permanent coverage for most people and well-priced term coverage, so even if you never used it for its investment features, it is still the best way to cover all your insurance needs.
After making your decision on the kind of policy you should own, now you must decide on the amount.
With term insurance, you should establish how long you need the full coverage.
If you have a new family, you will need a large amount of coverage for at least 20 years. If your had two children, ages 10 and 12, you would need coverage for at least 10 years, and so on. What you are trying to do here is protect your family as long as they are wholly dependant on your ability to provide for them.
If you need the coverage for more than 10 years, you should consider both 10 and 20 year term.
Remember, most term insurance is renewable, which means at the end of the term you have the option to renew the coverage for another term if you still have a need for the insurance. However, the price is going to increase to reflect your attained age. Therefore, you should consider purchasing the 20 year term now. At younger ages, depending on your lifestyle, you may be able to purchase 20 year term at a cost only slightly higher than the 10 year term.
Make the Necessary Changes
Now, all of this is of little consequence if you don’t make some necessary changes. These products can be purchased from the licensed brokers at Stratford Financial Planning. We believe that there is no better way to solve this need then to sit down with a properly educated financial advisor who has your best interest in mind.
Although there is much advertising today to entice people to purchase insurance over the Internet, via credit card companies, and from banks, etc., it usually costs no more(and often less) to sit down with a qualified financial planner to get professional help when establishing what you really need, and to find the best source to buy it from.
*If you think a credit card company, or a “non-insurance” financial institution like a bank is more concerned with your best interests than a qualified financial planner, maybe you should pull out one of your credit card statements and look at your interest rates and service charges.
Most people do need some help finding the best products, which is why we are available to help you make the most appropriate decision that is truly in your best interest.
The material presented above is for information purposes only and should not be acted upon without first consulting a licensed life insurance agent or broker.
Definitions, Terms and Conditions vary from insurance company to insurance company, and for that reason, we encourage you to read, in detail, your existing policy and/or insurance quotes thoroughly. If you require assistance at any time, please contact your licensed life insurance agent or insurance company for more information.
Stratford Financial Planning and its life insurance brokers, insurance providers and MGA are not responsible for any actions taken, misuse, or misunderstandings regarding the materials presented.
Stratford Financial Planning strongly recommends that you consult a qualified and licensed investment specialist and life insurance agent/broker before implementing investment products or strategies with any insurance product.
In the event that your licensed life agent is unavailable to assist you, we encourage you to call or write to us with your inquiry.