Even with the best-laid plans, life can deliver unplanned events that have costly effects.
So while we all do our best to create a life free from worries, it’s essential to have all of the facts and a plan for those unexpected detours.
Your wedding, buying your first car, or saving up for retirement is great, but what about unplanned expenses like home repairs, sudden illness, or even death? Each of these comes with a price tag.
44% of Canadians have or plan to increase their life insurance policies in 2021 due to the COVID-19 pandemic.
The COVID-19 pandemic has spurred more Canadians to look into Life Insurance than ever before. However, many still feel unsure or uncertain about choosing the best policy for themselves and their families.
However, suppose you already have coverage or aren’t sure why you may need it. In that case, you may be asking, why is life insurance important?
Why Life Insurance is Important
Below we’ve listed eight reasons why life insurance may be the best decision for you and your financial future:
To Pay Off Debts
Most Canadians will accumulate some amount of debt throughout their lifetime. Mortgages, loans, and credit cards are common forms of debt that are hard to avoid.
The average Canadian has $4,240 in credit card debt, with 39% not paying their monthly minimums and incurring fees and high interest rates.
When someone dies with unpaid debt, the money they owe often passes on to their estate, heirs, and family.
Although not all outstanding debt is considered the responsibility of heirs, cosigners, and joint account holders, some may be liable for paying off the remaining balances.
Life insurance provides a financial safety net for loved ones left with paying off the debts of those who have passed. Including, in some cases, preventing property sale or other valuables from paying off remaining debts.
Creating a Financial Future for Loved Ones
For people with children or dependents, a life insurance policy can help prepare for future expenses. It can fill an income gap or supplement any unforeseen expenses if a parent or caregiver passes away. In addition, somebody can use a death benefit to cover day-to-day costs, like groceries, car payments, or utilities.
A life insurance payout can also contribute to a child’s education, which varies significantly in price depending on where they go to school and how long.
Dependents, including aging relatives or children with special needs, may need care that the life insurance policy payout can cover.
Leaves an Inheritance
Life insurance is also a way to pass on an inheritance that, in general, is not taxed before reaching heirs or beneficiaries. But, of course, there are exceptions, and we recommend speaking with your insurance specialists about these scenarios.
Life insurance policyholders can include many beneficiaries and specify how the inheritance should be allocated. For example, death benefits can be split evenly or distributed in portions to a charity or non-profit.
Additional Support Options in Retirement
Although often associated with death, life insurance policies can be used for retirement planning in addition to RRSPs, TFSAs, and other savings programs.
Life insurance can offer or incorporate a “savings” component, called cash value.
The cash value can be withdrawn or used as a loan to help offset costs and used for long-term care. Over 5 million seniors 65 and older in Canada live in long-term care homes. Having this safety net in place ensures that any unexpected expenses can be covered in the event of a sudden illness or disability.
Protecting Your Business
Many business owners don’t consider what happens if they or a business partner passes away suddenly. Life insurance is one way to ensure that the business, remaining partners, and loved ones are not left scrambling to keep the company afloat in a few different ways.
For example, a life insurance policy adds particular financial security in the form of a cash injection into the business when unexpected events arise.
Alternatively, a business owner may use certain types of life insurance policies to borrow money. Remember, only whole or permanent life insurance policies can have cash value benefits.
A buy and sell agreement between business partners is another option. In this instance, a life insurance policy is taken out on each respective partner, often equal to their ownership share.
If an insured partner passes, the surviving partner(s) will have access to the funds needed to buy out their heirs’ share in the business. Adding financial security to everyone involved, including the partners’ families, helps add peace of mind.
When talking to a broker about these options, be sure to inquire about cash-out fees or interest rates that may apply.
End of Life Expenses
Adding end-of-life expenses in a life insurance policy offers your loved one peace of mind. It helps to cover costs associated with settling affairs and funeral expenses. The average funeral in Ontario, Canada, costs between $1,500 to $20,000, depending on personal preferences. However, most Canadians pay on average just over $9000 for funeral arrangements in Canada.
Telling your loved ones that they are the designated beneficiary on a policy can expedite the life insurance claim process. A copy of the death certificate will be required to submit the proper paperwork and begin the process.
Being Prepared for the Unexpected
Although it’s not something most Canadians think about when they wake up in the morning, preparing for one of life’s certainties is vital to consider sooner rather than later.
Preparing now is essential, as waiting until a severe illness arises may hamper claiming the best life insurance plan, or one at all.
An applicant’s health and age will factor into the pricing for life insurance premiums, amongst other considerations.
Planning for your death may feel strange or confronting. Having a plan for what will happen to you, your assets, and your loved ones once you’re gone often offers a boost of confidence and peace of mind for many with life insurance.
If you do not have life insurance or aren’t sure if you’re fully covered, please reach out to us at firstname.lastname@example.org to talk about your needs. Our team is here to ensure you have the right insurance coverage in place.