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MORTGAGE INSURANCE VS INDIVIDUAL LIFE INSURANCE
We begin with an in-depth discussion of your current finances and future objectives.
Lets begin with an in-depth question table to help your objectives.
All terminolodgy from A through Z
There are many different factors used to determine the proper amount of life insurance that you should own. We all have varying needs and life insurance can be used to meet those potential financial needs:
Buy/Sell Agreements along with a life insurance policy with your business partner ~ should one of you pass away; the insurance proceeds will fund enough money to provide you with the means to buy-out the spouse if this is the new business partner. Legal council needs to be involved when designing these particular agreements.
- If your family relies upon your income, life insurance can provide the money your spouse and/or dependents need should you die unexpectedly.
- Repayment of debts including the mortgage ~ this will ensure that your spouse and/or dependents don't have to sell the house and can maintain their standard of living.
- Life insurance proceeds can also cover child care costs and education; this includes a nanny/daycare, ongoing school expenses and post secondary education.
- You should also consider funeral and final expenses such as probate and executor fees. A modest funeral can cost thousands of dollars ~ these expenses can add thousands more. Probate fees do vary by province. The last thing a grieving family wants to do is sell off key assets to pay for these expenses.
- You may not have a spouse or dependents but you are loyal to a charity ~ you may want to consider a Charitable Gifting Policy.
- Life insurance is often used to meet longer-term estate planning needs, such as covering capital gains taxes due at death or providing a guaranteed pool of money for a beneficiary.
Key Man Insurance is for that important employee whose death would cause your business financial ruin.
Succession Planning is all about what your plans are to do with your business after you pass away.
If you have employees you may also want to consider Group Life and/or Critical Illness Insurance. This is a great added value for your employees and to you for retaining your valued employees.
Very important to know that your premiums will vary depending on the amount of insurance you purchase, the type of insurance you purchase, your health, age and medical history. Always remember to disclose your medical information when applying for life, health and travel insurance. If you don't, your insurance company may decline your claim.
There are two major categories of life Insurance available ~ commonly referred to as "Temporary" and "Permanent".
Temporary means just that, it is an insurance policy that will end at a specific event or point in time. For example; if you have life insurance at your place of employment ~ that usually ends when you leave that employer. If you have insurance on your debt at the bank ~ it ends when you pay off that debt or change banks. If you have "Term" insurance ~ it ends at a specific Age (i.e. age 75 or 80) chosen in advance by the Insurance Company. This type of insurance is usually cheaper, so it can be a good fit if cash flow is your top priority. However, a common risk with this type of insurance is that it is not very flexible… i.e. should you miss a payment, your insurance policy may be cancelled. It can also start to increase in cost in later years, so consumers often find themselves wanting to cancel it as it becomes unaffordable.
I would like to specifically address some of the downside features of creditor insurance you get at the bank… commonly referred to: "Mortgage Insurance".
Be aware that:
- The beneficiary of these policies is the Bank ~ not your spouse or family
- The death benefit (or payout) goes down in value as your debt balance decreases… however, the monthly cost does not decrease
- If there is a claim, the underwriting is done at the time of death… this means you may not be eligible for any benefits due to a health/medical condition check out this alarming article: www.cbc.ca/marketplace/in_denial/
- The cost may be higher than a similar policy personally owned directly from a life insurance company
- It is not transferable when you buy your next home, you will need to start the process all over again
Permanent, means the policy lasts for as long as you live and is not affected by things like your job, your choice of bank, etc. The cost is usually slightly higher than temporary insurance policies; but you may get a much better value for your dollar. These policies tend to be much more flexible and can be a very powerful planning tool when it comes to retirement, passing on wealth to the next generation, and protecting your Estate. Many of these types of policies have a cash or investment component to them; this allows you to build wealth in a tax-favorable environment at the same time you are providing that critical protection for your family's financial well being. The fact that there is an investment component means that there may be a financial cushion to keep the policy in place in case of a short term cash flow crisis like the loss of one's job.
As life changes ~ so will your insurance needs. We do suggest that you speak with a financial advisor so that your proper insurance needs can be determined…. and don't forget about that annual review!