I’d like to introduce you to LIAM.
September is Life Insurance Awareness Month and instead of saying that mouthful, finance folks have wittingly come up with the name LIAM. Who says we’re boring, huh?
So why exactly is life insurance important enough to have a whole month dedicated to its awareness?
WHAT IS LIFE INSURANCE?
A Life Insurance policy is a contract between you (the insured) and an insurance company, for a certain amount of coverage that will be paid to your loved ones (beneficiaries) when you pass away.
You pay either monthly or annually to maintain this contract.
In Canada, when someone passes away, his/her beneficiaries receive life insurance proceeds tax-free and directly (since it bypasses the whole probate process).
WHY WOULD YOU NEED LIFE INSURANCE?
- Pay off debts
- Think of your current debts, if any: lines of credits, credit cards, student loans, car loans, business loans.
- When someone passes away, unfortunately the debts don’t die too. Creditors can harass your next of kin until your debts are paid off (especially for self-employed people and small business owners like ourselves). Bank accounts and other assets can be frozen during probate, so where will the money come from?
- Pay off the mortgage
- Did you know if one spouse passes away the other will have to requalify for the mortgage on his/her own? If you own a home, think of your outstanding mortgage balance.
- Leaving enough money to pay off the mortgage ensures your family stays in a familiar home instead of being forced to sell while grieving.
- Take care of your children’s education
- If you have young children, do you know how much it will cost for them to attend post-secondary school?
- It’s estimated that a child born today will pay $100,000 for a 4-year degree by the time he/she is 18 years old.
- If you pass away unexpectedly before your children are ready to attend college or university, who’ll foot their education bill? There’s no guarantee that government loans will exist or even if your family will qualify. Also, wouldn’t you like your children to have a head start in life and not pay loans?
- Replace your income
- Your family’s lifestyle is determined by the amount of income in your household. If you pass away unexpectedly, what will happen to your family’s standard of living?
- If you are the sole breadwinner, this is especially important. If you are a stay-at-home parent, it’s equally important as well, since your ability to take care of things at home allows your significant other to work outside of the home.
- Plan your estate
- Did you know that your assets can be taxed like income when you pass away?
- Think of your savings, investments and even cottages and rental properties. These are assessed at fair market value and your family can end up with a huge tax bill. Life insurance is a great way to pay off these taxes and ensure your family keeps the assets.
- Protect your business
- If you have a business that relies on key people running it, what happens if those people aren’t around anymore?
- Having “key-person” life insurance, paid for by your company, ensures your business will continue operating.
- Leave a legacy
- What do you want to be remembered for?
- Perhaps you’d like to build an orphanage in a third-world country, or leave money behind to cancer research. You may simply just want to make sure your great-great-great grandchildren remember you.
- Life insurance proceeds allow you to make an impact long after you’re gone.
- Building wealth
- What would you do if I told you there was a way to pay for your life insurance coverage and save money in a tax-sheltered environment at the same time?
- And that you can use these savings in retirement as another source of income?
- Certain types of life insurance plans are structured this way and can be a great win-win option for you and your family: you get to use your money and your beneficiaries still get something when you’re gone.
There are many ways life insurance can be used, and I’ve found that it’s never a one-solution-fits-all plan. The amount of coverage that’s right for you, as well as the type of coverage depends on your current situation.
Your finances, family dynamics, business requirements and life goals usually change over time so your life insurance plan should reflect all of these stages. I would encourage you to make sure you have yearly reviews with your advisor.
Kim Lowrie is an insurance agent and mutual fund representative with World Financial Group.
She and her husband have made it their lifelong mission to help families, individuals and business owners succeed financially.
To find a solution that best fits your needs and goals, connect with Kim: