It's no secret that life insurance becomes more expensive as we age. Premiums are related to the mortality rate and the decrease in our life expectancy as we get older is reflected in the increased premiums. What you may not realize is that this risk is not represented by a linear line. If you graph the probability of death from an actuarial life table, you would notice that the probability of death increases exponentially as we age. What this means for term insurance is that renewal premium also rises exponentially, such that they become unaffordable during retirement. So, what are your options for your term insurance policy as you head into retirement?
While life insurance is an integral part of a comprehensive financial plan, we'd all like to pay as little as possible for the protection. Life insurance premiums are often much lower on the priority list than bills, groceries and other mandatory expenses, so people skimp on the coverage to fit it in their budget. But coverage should be the last thing you reduce when trying to save on life insurance, since having enough coverage is the main objective for purchasing life insurance in the first place. For those of you who are looking for other ways to save on life insurance, layering your life insurance may be a strategy you can use. Here we'll introduce the concept of layering your life insurance, and how it saves you money long term.
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.
As we travel through the journey of life, our financial needs and obligations undergo constant change. For example, your financial obligations increase once you are married, and continue to do so as your family grows in size. It should come as no surprise that insurance varies in importance at different stages of life. Proper planning at each stage of life is necessary to ensure that you and your dependents are protected. Without knowing the risks and a plan to minimize the risk, you are potentially exposing your family to a financial disaster. Here are which types of insurance you should be aware of at each stage of life.
One of the reasons holding Canadians back from applying for life insurance is the perceived cost. Many don't feel like they can afford what they deem to be an adequate amount of coverage. We've mentioned in the past that many consumers cited costs that were three to four times higher than the actual premium. With that big of a discrepancy, it's no wonder many of us are underinsured. In order to paint a clear picture of the true cost of life insurance, we've put together several tables with the best rates in the industry to show you how much life insurance actually costs.
In Canada, income is taxed using a marginal tax rate system, where high income earners are taxed more heavily on each dollar they earn than a lower income earner. Tax planning strategies usually involve some kind of tax splitting with lower income earners of the family, such as a spouse or child under 18. The government restricts the benefits of income splitting with attribution rules, which are designed to attribute income back to the high income earner of the family.
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?
In an earlier post, we discussed the different underwriting decisions that can be handed out to applicants of life insurance. One of the outcomes is an approval at preferred rates. As the name implies, these policies have a lower premium attached to them, rewarding the applicant for a healthy lifestyle. Qualifying for preferred underwriting is one of the most effective saving methods for life insurance, although it is also one of the hardest to achieve. How exactly is eligibility for preferred underwriting determined? This post will review some of the criteria that insurance companies look at when applying preferred rates.
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.
Last week we looked at when you should perform a life insurance review. One of the suggestions that was brought up during a review was to replace your current policy if a new one would better serve your needs. How do you determine if a new policy is more suitable for you? In which way is it better? Worse? Is there a cash surrender value in the old policy that would trigger tax if you cancelled it? Would you qualify for a new policy for the same or better rate? These are all questions that you need to ask before replacing a life insurance policy.