Deciphering Life Insurance Options: How Choosing the Right Policy Can Help Safeguard Your Earning Potential and Savings

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1 How Choosing the Right Policy Can Help Safeguard Your Earning Potential and Savings 1

2 Many people think of life insurance as something they ll need when they get a bit older and want to ensure their loved ones are protected from financial instability. Did you know that life insurance can be a key element of a strategy to safeguard your savings and your earning potential? Having the right life insurance policy in place can offer significant financial support to the people who matter most to you and that all-important peace of mind at several key times in your life. We ve created this guide to help you discover how a life insurance policy could help you to take care of your loved ones if you pass away suddenly; protect your estate or business; help you access much needed funds during your retirement; and how to determine which policy would best meet your needs. When to Begin Considering Your Life Insurance Options Just like there s no wrong time to plan for your future, there s never a bad time to consider your life insurance options. In different periods of your life, you might decide that a whole life policy or a term life policy makes more sense. Whichever option you choose, the result is that when you pass away the people you most want to protect are able to carry on for a length of time without your income. Like many things, the earlier you decide to put your policy in place the better. However, you can establish a policy into retirement so don t worry that you ve missed your opportunity. Your best options might change depending on your life stage but up until age 85, it s never too late to put a policy in place. 2

3 Life Insurance with Your Mortgage Many banks offer a life insurance plan as part of your mortgage, but if you pass away unexpectedly these policies often benefit banks more than your loved ones. The life insurance you have with your mortgage is designed to ensure that there is enough money available to repay any outstanding balance on your mortgage not help protect your loved ones financial security. These policies are tied to the outstanding balance of your mortgage but your life insurance premiums remain the same each month regardless of how much you ve paid back. The result is that you can end up paying more than you could get back. In contrast, with a term policy the death benefit stays the same and is always paid to your loved ones not the bank. How the Right Policy Can Help Safeguard Your Earning Potential You earning potential is the amount of money you can expect to earn over the course of your professional career. If your life is cut short, your earning potential is too. When people like your family or a business partner are counting on your earning potential to maintain their lifestyle or business, they will likely struggle to do so if you pass away. There s no doubt you ll want to secure your potential income to protect them. Life insurance offers a guaranteed payout to your beneficiary upon your death and because you choose the face value of your plan, you determine the amount of money you ll need to ensure that your family can thrive in your absence. Similarly, if you re growing a business, you will want to ensure that no assets need to be liquidated to continue to pay the bills. Your policy will be paid in a lump sum. If you select a business partner as the beneficiary of your plan, this can have a great impact, allowing you to continue to meet your financial commitments and protect your venture even after you pass away. Business partners could even consider taking out policies against each other to ensure that the business is protected from unforeseen circumstances. 3

4 How the Right Policy Can Help Safeguard Your Savings When you choose the right policy, permanent life insurance can be a wise strategy for protecting your wealth for three reasons. First, because most often you will not have to pay the same high level of tax as you would for a Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF), or Tax-Free Savings Account (TFSA), life insurance helps you keep more of your hard-earned money. You could even consider taking out a loan against the cash value of your life insurance policy as a retirement supplement. This can be a good strategy to help ensure you have a tax-free income stream when you need it most. Second, because with certain permanent life insurance policies, such as whole life plans, you have the opportunity to receive dividends throughout the life of the policy. Whole life policies provide guaranteed premiums and cash values which your insurer has based on conservative assumptions about mortality, expense projections and investment returns. The more you have invested, the more you can expect to gain. Finally, life insurance policies provide your beneficiaries a tax-free death benefit so the people you love will not have to pay extra to receive what you wanted to leave behind for them. Life Insurance as a Retirement Income Plan Drawing on your life insurance plan can be a clever way to supplement your income when you retire. The earnings from your life insurance policy grow tax free, just like they would in an RRSP. When you re ready to rely on those funds, you simply borrow against the policy s cash value. This allows you to receive regular tax-free payments. The outstanding balance is repaid after your death with the remaining value of your policy, with the residual funds going to your beneficiaries. 4

5 What is the Difference Between the Policy Options? There are two categories of life insurance: term life and whole life. A term life policy covers you for a set amount of time, like 10 years or 20 years. A whole life policy covers you from when you put the policy in place to when you pass away. Both types of policy offer their own unique benefits. Term Life Coverage As a temporary policy, term life insurance is most often purchased for a shorter time than a whole life policy. Typically, term life is also purchased during a point in your life that you, your family or your business partners would struggle without your income if you were to die suddenly. For instance, many times a term life policy is purchased when your children are young, when you re starting a business or you ve just bought a home and are in the early stages of paying down a mortgage. Term life policies are often based on a calculation of five to seven times your annual income and the rates are guaranteed for the duration of the contract. You will be able to choose the value of your policy and it can be renewed at the end of the initial term at a newly negotiated rate. Term life policies can also be more affordable than whole life policies, but they are not as flexible. Often, there is no waiting period for a term life plan once you ve been approved, so if you die suddenly your beneficiaries will receive a payout. 5

6 Whole Life Coverage Whole life, or permanent, insurance covers you from when you first purchase the policy until you pass away, without the need to renew at the end of a certain period. Whole life plans are a great option for people who are young and healthy because these factors can make it easier to qualify. Once your plan is in place, you ll have it for the rest of your life, regardless of any illness or disability you might be diagnosed with in the future. Whole life plans offer fixed rates and are guaranteed throughout the duration of your contract. You can choose the face value and the policy is payable upon your death. If you cancel your policy, you are entitled to get some money back. Typically, whole life policies have a two year waiting period before they can be paid out. For both of these policies, it is important to note that coverage is contingent upon all premiums being paid on time, in full, each month. Children and Life Insurance More and more people are purchasing whole life insurance policies for their young children to help them later in life. When you purchase a policy early in their lives, your children can avoid being denied coverage at a later date because of health or other problems. Further, thanks to the way some whole life plans are designed, by the time a child is ready for university, the policy will have accrued a significant enough amount of cash value to borrow against it or even withdraw, helping ease the financial pressure of post- There s never been a better time to ensure that your loved ones secondary education. will be financially stable when you pass away. When you decide to investigate your options, schedule your FREE consultation with our team. We are here to help you identify whether you d benefit most from a term or whole life plan and answer any questions you might have, such as how much is best to set aside for your loved ones. Call now / or Roy for a FREE personalized quote today! 6