Richard Dri – Insurance Advisor and Certified Financial Planner in Toronto, clients often come to me with questions about life insurance. Do they need life insurance? If so, how much? What kind of life insurance? What about life insurance for their spouse?
In some situations, clients arrive to the conversation muddled, frustrated or flat out angry. Some have met with an insurance agent who made their options clear as mud. Others have searched online and ended up overwhelmed and confused. When that happens, clients call me.
But why would a client call their Certified Financial Planner about life insurance?
I believe that I am exactly the right person to call, since I am also an Insurance Agent, which is what allows me to provide Insurance Advice and incorporate that advice into the overall financial plan.
My number one responsibility is to give advice that is in my client’s best interest. I help clients navigate through any confusion, because all that matters to me is what matters to them.
I believe that living without life insurance is not in anyone’s best interest, and should be considered during the development and implementation of any total wealth plan.
Life Insurance is designed to address financial concerns that arise upon death. It’s not a matter of if you will die; it’s a matter of when. Many of my clients have significant assets and liabilities which may create the need for additional liquidity upon death, making insurance a conversation worth having. Engaging someone with my background and experience will provide you with different options to consider, and will help you make an informed decision regarding what option works best for you and your families.
How do you know if you need life insurance?
When a client comes to see me about life insurance, my first step is to help them think through some basic facts about life. (I’ve learned from experience that unless you work in financial services or a related field, you may not think about this stuff on a full-time basis!)
Usually, I start by reminding them that we all die. Sounds obvious, but often most people haven’t really thought much about it.
From there, I remind them that people can die before reaching old age. (This is a topic I can speak to with some authority. I recently lost my wife to cancer. She was in her late 50s. I know firsthand that early death isn’t something that only happens to “other people.”)
After that, I bring things into perspective by asking, “What would happen if you got hit by a bus today?” That question tends to make the implications of not having life insurance pretty clear in a hurry.
The risks of not having enough insurance
I often help clients think about the risks of being underinsured by telling them a story about my parents.
When I was 15 and my younger brother was 9, we sat at the kitchen table in our home with our parents and a charming, detail-oriented Insurance Agent.
My parents knew nothing about life insurance, other than whatever had prompted them to engage the agent in the first place.
At the time, my dad worked for the retail store Eaton’s in its shipping department and my mom worked in the deli at a local Steinberg’s grocery store.
My parents had no clue how much risk they were living with by not having life insurance.
If my father had died prematurely, my mother would not have earned enough on a monthly basis to cover the mortgage, let alone other expenses. Dad’s situation was marginally, though not significantly, better. If mom died, he would not have been able to cover our monthly expenses.
His death would have left her destitute and forced to sell our home. Her death would have left him needing to take on a part-time job to cover her share of the monthly income.
They were a perfect couple for life insurance.
Sitting at the kitchen table, we listened to the nice insurance man lay out the risks my parents faced, similar to how I help clients think why insurance matters.
I can still feel the chill that went through my parents as the insurance agent explained the financial implications of a premature death.
My parents were already living in ongoing dread of a major expense that would throw them into financial difficulty. They did not have savings. They did not have family or friends who could help them out. They had no safety net.
So when the insurance agent described what life would be like if one of them died, it hit home for them. In that sense, he did his job. My parents were now clear that they needed life insurance.
But how much and what kind? That’s where things went sideways.
The insurance agent recommended that my parents purchase a permanent life insurance policy with a $20,000 death benefit on the life of my father. They also recommended that my parents not bother with life insurance for my mother.
Not knowing any better, my parents took the recommendation, filled out the application, and were eventually approved.
It was a horrible mistake.
The $20,000 permanent life policy on my dad’s life would have been entirely insufficient to cover the cash flow shortfall mom would have experienced if dad died. And if mom had died without an insurance policy, dad would have had no safety net to help him bridge his cash flow shortfall.
Fortunately, my parents have lived long enough to be reading this blog right now. They were very lucky. The policy was too expensive and insufficient for their needs.
I don’t want anyone to face a similar risk.
Considerations when buying life insurance
Let me share what I have learned about life insurance during the course of my career.
Here is the guiding principle I offer all clients when they ask, “How should I approach buying life insurance?”
First determine how much insurance is required if you or your spouse were to pass away un-expectantly by completing an Insurance needs analysis. Part of the analysis is determining for how long that level of insurance is required. Is it just required for a set time period? Or is this insurance coverage required for life?
If an individual has limited cash flow, and the amount of insurance required in the event of death is substantial, then the best option may be to buy the cheapest term life insurance policy they can find from a reputable insurance company. With that said, there are many benefits and circumstances where purchasing a permanent insurance policy makes more sense, and is used frequently by many affluent Canadians to enhance their total wealth strategy. That being said, today we will be focusing on term insurance, which is designed to cover off temporary liabilities, like a mortgage, in the event of a premature death.
1. Buy term life insurance
Term insurance is the simplest and most affordable form of life insurance. It pays out a death benefit to the named beneficiaries if the life insured dies within a specified timeframe. Premiums are guaranteed to increase overtime at pre-determined intervals based on the term selected, and the policy generally terminates on a pre-determined date. That being said, most term policies allow the coverage to be converted to permanent insurance without having to requalify medically, however this option generally expires at a certain age and is specific to each contract.
Term insurance has become a commodity. That means it is very competitively priced. It is also simple to understand.
2. Selecting the Right Term
It is not as uncommon as you might think for people as young as 25 or 30 to develop a “pre-existing condition”, which could impact their future insurability. As a result, you should consider selecting a term that is the same duration as the liability. Example, if you have 20 year mortgage, you may want to consider a Term 20 Life Insurance Policy. This guarantees that premiums will not increase for 20 years.
It is important to note that once the prespecified term is reached the term policies will automatically increase at a much higher premium.
3. Buy A LOT of insurance
Term insurance is very affordable when compared to permanent Insurance. So, if you are deciding between $1 million to $1.25 million of term insurance, my general recommendation is to consider going with the higher amount.
I think of it this way.
When I purchased life insurance for myself many years ago, I wanted to be sure my family could maintain the same lifestyle we enjoyed during my lifetime.
To determine how much to purchase, I completed an insurance needs analysis on my family. This analysis took into account the mortgage on the house, providing an income for my spouse Mary, and ensuring funding would be available for my children’s education. This coverage amount would have been enough for my wife Mary to continue to stay home and care for the children while also having what she needed to live comfortably in retirement.
If anyone is interested in determine what their coverage needs are, I highly recommend meeting with a professional like myself to complete a needs analysis that specifically addresses your family’s needs.
4. Buy from a reputable company
Through our insurance entity, Scotia Wealth Insurance Services Inc. We are contracted to work with some of the leading and most reputable insurance companies in Canada. While going through the purchasing experience we will survey the market to get you and your family the very best policy available to meet your needs.
5. Qualifying for insurance – The underwriting process
You must qualify medically for insurance. As a result, you will need to complete an application, and in most cases complete a medical exam. Although this can seem inconvenient and intrusive, it is a necessary step. In some situations the insurer may consider you a higher risk based on their findings during underwriting, which could result in them decline to offer coverage, or may result in them offering coverage at a higher premium than expected, to account for the additional risk.
The medical exam is also relatively straightforward. It usually involves blood, urine samples, and assessing your vital signs. The insurer may also request an attending physician statement from your medical practitioner. More information and tests may be required depending on age of insured, insureds life style and coverage amount being applied for.
If you would like to explore your insurance needs give me a call. My team can help you work through your options and quantify the decisions you need to make. Also, if you own older policies, we can assess each policy to ensure they are still meeting your current insurance needs.
Did this article resonate with you? What did I miss? Send me a note and let’s start the conversation.
The process of finding an Advisor can be overwhelming. Our process is designed with you in mind. Its structured framework helps you make an informed decision about engaging an appropriate advisor.
Call me if you in want to map out how you can Never Retire. You can also subscribe to our Never Retire Newsletter, contact us to order a complimentary book, register for one of our events, and call us to meet with a Certified Financial Planner. We offer you a range of services from a financial plan to investment advice or helping you take advantage of our investment models. Call me at 416-355-6370 or email me at richard.dri@scotiawealth.com.
source https://richarddri.ca/wondering-about-buying-life-insurance-here-are-some-things-to-consider/
Dri Financial Group 