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Insurance needs follow a lifecycle

Change, we all experience it, every day.  Change occurs in unlimited quantities, at home, at work and at play.  As investors, we often fight change.  We strive to make our investment portfolios rock-solid and secure, ready to fight any market climate but when you think about it a bit more, that’s actually not what happens.  Sure, the portfolio structure should be sound but it’s only good for a point in time; your investment strategy and financial plan should actually change over the years as you move from one life stage to the next.  Financial and investment needs are rarely the same from one 20-something to another let alone when compared to someone ready to retire.  For these reasons, your insurance needs probably need to follow a lifecycle as well.  Let’s take a look at your potential insurance lifecycle.

20-somethings

You just landed your first career job – congratulations!  Insurance, why bother?!  I’m young and invincible!  Actually, even young professionals should consider locking up some permanent insurance for exactly the reasons above, they are young, (somewhat) invincible and probably in the best health of their life.  20-somethings can take advantage of their youth by buying a universal life insurance policy at very low costs when compared to other generations.  Another alternative is buying a whole life policy that pays dividends which can be used to purchase more insurance on a yearly basis.

30- and 40-somethings

The honeymoon phase is over and potentially for your job as well!  Kidding aside, I bet you’re not the same person in your 30s or 40s as you were in your roaring 20s.   With some experience under your belt, your financial priorities probably changed as well, maybe you started to contribute to RRSPs, TFSAs, and possible an RESP or two for the kids – good on you.  What about your insurance needs now?  As a not-so-young professional and potentially a family to take care of, your insurance needs could be diverse.  You may want to consider some term life insurance policies, for 10, 20 or even 30 years to make sure should anything happen to you, you’ve got the appropriate amount of coverage for liabilities likes mortgages and loans.  You may also wish to consider some long-term disability insurance, critical illness or personal health insurance, especially if you are self-employed.  This way, your family is protected from your loss of income and medical expenses if you become seriously ill or injured.

50-somethings (pre-retirement)

So you kicked the kids out, those kids are struggling through university but at least you’ve got your freedom back!   In your 50s, you’ve probably started to think about retirement if not already longing for it.  With those days on the horizon, it might be a good time to look at converting a portion of your term life insurance into some permanent life insurance.  This will help you on a few fonts in the future.  Holding some permanent life insurance will:

  • help cover expenses/liabilities if you suffer a premature death,
  • reduce taxes payable on assets deemed disposed after your death, and
  • provide financial security to those you love associated with your estate.

I recognize these are not cheery things to write about but they are facts of life and as a 50-something, they are important considerations to mull over.

60+ (retirees)

While the career was a success it was even better to pack it all in.  During your career, your time was always precious but you’ve recognized this even more as a retiree; life is for the living after all and you’ve got many things you want to do and people you want to spend time with.  As a retiree, you probably gave up some great insurance benefits you were privileged to have at your place of employment.  Furthermore, the 20 year term life insurance policy you bought years ago is now done.  What insurance needs do you have now?  Applicants who are unlikely to qualify for traditional life insurance policies in their 60s should look at securing simplified or guaranteed issue life insurance if they do not have existing coverage.  Simplified issue life insurance will ask a reduced amount of questions on the insurance application and will not require any medical tests to be underwritten.  Guaranteed issue plans are ‘no questions asked’, since most of these plans are deferred, meaning the death benefit is reduced to a return of the premium plus interest should the insured die with a deferred period (usually two or three years).

To summarize, there are many life insurance products on the market that provide a range of solutions to address personal, professional and family needs – there is no one-size fits all.  Just like good financial advisors can help you with your investment lifecycle, a trusted life insurance specialist can help you with your insurance lifecycle.  Take time to understand what insurance you might need and why you need it; then work with a qualified insurance professional from there.

Thanks to the team at LSM Insurance  for providing some information about this subject.

What are your thoughts on life insurance?  Do you think your financial and insurance needs might change with time?  Have you already experienced these lifecycle changes?

Filed in: Insurance

13 Responses to "Insurance needs follow a lifecycle"

  1. Max Power says:

    What a crummy article.

    This is nothing more then a 8 paragraph advertisement for expensive, high fee life insurance. The ‘team at LSM Insurance’ should be thanking you for giving them the free exposure – posing as ‘advice’.

    Simple Term insurance policies continue to be the cheapest and best value for 95% of the population. Whole Life, Permanent Life, Universal Life, etc. are nothing more then term life insurance policies combined with a very high fee/commission savings or investment accounts.

    A term life policy combined with something as simple as contributing (on a monthly or quarterly basis) to a broad index, low cost ETF – such as HXT or VFV – will get you more insurance coverage at a lower out of pocket expense.

    • Hey Max,

      I agree with you that some simple term insurance policies continue to be the cheapest and can be the best value for many! I have a policy just like that actually.

      Curious…how long have you invested in VFV? I was looking at this guy. Is this hedged in CDN $$ ?

  2. Chantal says:

    Term Insurance can be a good fit to cover a need which ends after a specific period. e.g. a mortgage, line of credit

    But what about long term needs like money to offset taxes a family business transfer or the sale of a cottage.

    The total commissions paid out on a Term 10 policy would actually be much higher when you factor in that person would likely take out at least 3 policies over their lifetime. If Permanent products are so profitable why has virtually every company raised their rates by almost 30% or pulled of the market all together. See attached Globe and Mail article http://www.theglobeandmail.com/globe-investor/personal-finance/home-cents/the-cost-of-life-insurance-is-set-to-jump/article619054/

    • Thanks Chantal. I appreciate the reference to the article for readers. If you are taking multiple 10-year terms out after they expire then permanent insurance might make good sense for many clients.

      What are your thoughts on 20- or 30-year term products?

      Mark

  3. Max Power says:

    @Chantal

    But what about long term needs like money to offset taxes a family business transfer or the sale of a cottage.

    That is what Accountants are for.

    Just think about this one for a minute – you’re relying on an insurance salesman for tax and family wealth planning.

  4. Max Power says:

    @My Own Advisor
    I like VFV a lot. It is not CDN$ hedged and that’s ok for me. I’m happy to let Vanguard do any currency exchange transactions as they will always get a better rate then I could.

    If you want a CDN$ hedged S&P500 Index ETF consider HXS.

    Because of its real return swap derivative format there are no currency exchange spread costs or tracking errors. National Bank (the counterparty for HXS and HXT) simply pays the total return of the S&P500 (or TSX60 in the case of HXT) in CDN$.

    It’s a low cost and effective way to run an ETF and I have no concerns about National Bank as a counterparty.

  5. @Max Power
    Don’t be so dismissive – you’re being as one-sided as the life insurance industry you’re maligning.

    Any accountant worth their salt should be telling their clients that life insurance is a perfectly viable option for paying the taxes that result from passing a cottage down generations.

    And relying on life insurance agents to plan for the need of a lump sum of capital when you die makes perfect sense.

    You’re way too emotional about this. Most people are fine with term insurance. But it’s only most, not all. If you’re requiring that ‘all’ people have to get term insurance, than you are not dealing with a full set of facts.

  6. Dave says:

    Good article. The perception of and reasoning behind buying life insurance has changed over the generations, as have the products that the life insurance companies offer.

    These days, straight term is the best option for most people. The reasoning behind buying life insurance is a persona preference to provide a level of comfort and security.

    Unfortunately though, the companies are generally not out for the best interest of their customers. Insurance of all kinds is often a necessity and sometimes a legal requirement, and the companies realize and exploit that for profit. It’s pretty sad actually.

    • Thanks Dave, I appreciate your comment. I personally like straight term insurance. It provides good comfort (for me) at a reasonable price. I’m a believer in buying enough insurance to cover income loss and debt obligations in case of a loss of life/catastrophe.

  7. @Dave
    >>>>>Insurance of all kinds is often a necessity and sometimes a legal requirement, and the companies realize and exploit that for profit. It’s pretty sad actually.

    They should be doing it on a non-profit basis?

  8. Max Power says:

    @LifeInsuranceCanada.com
    I like how you make up a ‘quote’ from my posting and then tell me that I don’t have all the facts.

    And your ‘viable’ tax solution (for the family cottage no less) still costs more then simply putting aside what would have been all those premiums into a low cost index ETF. This way I can pay the taxes and a fair part of the mortgage too.

  9. Brian So says:

    @Max Power
    “And your ‘viable’ tax solution (for the family cottage no less) still costs more then simply putting aside what would have been all those premiums into a low cost index ETF. This way I can pay the taxes and a fair part of the mortgage too.”

    That could be true…if we all lived into our 90s. For the rest of us who don’t have the power to predict our death and may pass away before that low cost index ETF compounds into anything substantial, we’ll stick with our permanent insurance.

  10. @Max Power
    Max,

    You like renting? Do you like having more. Money to spend in retirement?
    How about paying less taxes?

    Term helps if you plan on an early death.

    Read my other posts on this subject.

    Brian

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