Insurance everyone needs to consider

Insurance everyone needs to consider

The following is a guest post with LSM Insurance. 

Let’s face it.  Life insurance and insurance is general while critical to financial planning is not exactly a sexy topic.  Now that I wrote the word “sexy” maybe I have your attention!

Whether you’re young and single, young and married, you have children to put through school, or you’re getting ready to enjoy your empty nest, insurance to protect yourself or your family against a catastrophic loss should already be part of your financial plan.  If not, this post will turn you in the right direction.  Let’s look at some questions you should be asking yourself when it comes to insurance and some insurance products that may help answer those questions.

What to ask yourself before buying anything

Most needs in life, notably financial ones, start by recognizing you have a need in the first place.  Consider answering these questions when it comes to identifying your insurance needs:

• How much present income do I need to sustain the lifestyle? (consider all current financial obligations, such as household bills, mortgage payments, car loans, and more)
• How much future income will I need to uphold the lifestyle? (consider all future financial obligations, such as long-term mortgage debts, lines of credit, children’s education costs, and more)
• How much money will be needed at time of death? (consider funeral expenses, outstanding medical bills, estate-settling costs, and more)

Answers to these questions may not be top of mind but they are important to figure out, to own the right types and right amounts of insurance.  Consider these products, for these reasons.

Go Short, Go Term!

You may already know life insurance is generally grouped into two (2) major buckets:

1. Temporary
2. Permanent

Temporary Insurance (Term Insurance) – Term insurance may be popular for people with mortgages, small business owners with debts or entrepreneurs experiencing major start-up costs.  If these costs (or risks) will not last forever, term can be a good choice.  Consider term insurance for 10 or 20 years.  I think term insurance is a good product for short-term financial obligations.  In our case, we have term insurance and we intend to keep it at least until our home is paid off.

Go Long, Go Permanent!

If you’re planning on renewing term insurance a few times over during your lifetime then permanent insurance could be a way to go. Let’s take a look at some selected types of permanent insurance.

Whole Life

These policies are generally structured to last your entire life and thus provide a guaranteed benefit.  For some whole life policies there is a cash value that builds up over time so the insurer can take advantage of that cash value or cash surrender value (CSV) later in life if they so choose.  There is more to this type of insurance and I’m just scratching the surface.  I think guaranteed whole life insurance in particular might be a good choice for long-term financial obligations and for the CSV available, should the insurer decide to take it.

More than Whole Life?

Guaranteed whole life isn’t the only type of permanent life insurance to consider.  Other permanent policies may include universal life and term 100 insurance.  Universal life actually has two components associated with it, an insurance component and an investment component.  It’s important to understand how these components work since one might assume the investments are always guaranteed.  They are not, and that’s an entirely separate post I hope to cover at some point on my site.

Term 100 is yet another product.  Premiums for term 100 insurance are set for life but the policy has no cash surrender value.  I would consider speaking to a life insurance professional before buying any insurance products to ensure you’re getting the appropriate protection to address your unique needs.

How Critical?  Choosing between critical illness and disability insurance

Critical illness is a product designed to provide income replacement for a serious illness. If you are taken out of the workforce due to contracting a serious illness, then the lump-sum payment (from critical illness insurance benefits) are intended to bridge the gap between a lapse in work income  and when disability benefits kick in. Do you need critical illness?  Well, that depends on your ability to self-insure to cover this gap. This gap could be many months or more.  I guess I see critical illness coming into play in some circumstances but when it comes to disability insurance, this is a must have.

I think disability insurance is a “forgotten insurance”.  I think every working Canadian with any modest debt load (a mortgage, car loans, lines of credit or all three) especially Canadians with dependents should have protection from an unexpected income loss.  The reality is, your ability to earn a living is important and you need disability insurance for those that depend on you on your human capital.  For what it’s worth, we have disability insurance through our employer and I’m very grateful we have it.

Insurance, although not the most sexy financial topic is a very important one nonetheless.  

What’s your take on insurance? Got enough? Need more? Don’t know?