Last week, when we mentioned that life insurance can serve a certain need in retirement, we specifically noted the use of permanent insurance. Since all term policies expire at age 80 or 85, they cannot be relied upon to pay out a death benefit. Therefore, a permanent policy must be used to ensure that the funds will be available when needed. Many of the estate planning goals do not require a benefit to be paid on each death. Instead, the goals can be achieved by having a single death benefit paid on the last survivor's death. An effective and relatively inexpensive life insurance policy that covers two people but only pays on the last survivor's death is called joint last-to-die life insurance.
Last week we looked at insuring the different stages of life, with emphasis on the importance of life, disability, critical illness and long-term care insurance at each phase. Here, we want to elaborate on life insurance during retirement. While some people believe that life insurance is absolutely necessary even in retirement, others argue that it's a waste of money. We won't comment on which group is right and wrong, since everybody's situation is different and there is no right or wrong. However, we will present the arguments of both sides so you can make your own decision.
Many people assume their life insurance needs decrease as they become more successful financially. They believe that their dependents can survive on their accumulated wealth, so life insurance is no longer necessary. While this is true to a certain extent, other life insurance needs will arise as their net worth increases. Some people have built up a significant amount of wealth over their lifetime. They've worked hard and have put their blood, sweat and tears into accumulating their assets. What is most important to them, after they have achieved their retirement goals, is to keep their estate intact for the next generation. In Canada, the biggest impediment to this is taxes. There are several options available to Canadians for funding this tax liability. Which method is the best?
What if there was a way to give a birthday present to your child or grandchild every year, even after your death? A method that doesn't involve costly trusts or confusing clauses in a will? With a lifetime gift annuity, you can ensure that your child or grandchild will have you in his mind as his birthday comes along. A lifetime gift annuity pays out a tax-efficient annual income for the rest of his life. Like the insured annuity, the lifetime gift annuity is another strategy used as a solution for some of the common problems facing Canadians today.
There are many reasons to purchase life insurance. The death benefit can be used for income protection, to pay off debts such as the mortgage or provide for final expenses. Some permanent life insurance policies also have cash values that can be accessed throughout life for many purposes. Although these are the primary uses of life insurance, there are other features that accompany a life insurance policy. One potential benefit is creditor protection.
Charitable giving is an important part of many people's lives. Charities depend on benevolent individuals and corporations for funding so that they can improve our communities and help those in need. As a donor, you are contributing to an organization you feel strongly about and ensuring that it can continue to enrich people's lives. In Canada, you are also rewarded for your gesture with the charitable donations tax credit. The tax credit provides tax relief for donors and incentive for them to give.
An insured annuity is a retirement strategy that can increase your after-tax income while leaving a large estate to your beneficiaries. It makes use of a life insurance policy to provide the legacy and a prescribed annuity to provide the income. As the case study shows, using the concept of an insured annuity increases the income that you can receive over a GIC strategy.
Permanent life insurance has long been compared to term life insurance in terms of suitability and usage. While some favour term, permanent has its own set of benefits and uses. In this post we highlight permanent life insurance and its 5 most common uses: final expenses, investment/insurance hybrid, legacy, estate equalization, business applications.