Cornerstone Four: Financial Security at Death

I know we are all ten feet tall and bulletproof; however unfortunately, the fact of the matter is that someday our time will end here on earth. When that happens, what I like to do is make sure your family is now financially impacted by your loss. What I will show you first are the four changing needs for life insurance.

First, I want you to think, have you ever heard the approximate price of a funeral today in Ontario. I have heard of some as low as $4000 and have heard other stories where funerals have cost upwards of $40,000! However, the average funeral and burial cost in Ontario today is approximately $10,000. This is what we would call a final expense; something that is there no matter your age when you pass away. We see this in the light blue area above. There is a slight increase because as you age, there are additional debts to be covered, as well as taxes and fees that are incurred with your death. So think about yourself today; think about the cost of a funeral and your current debts; believe it or not, that is your immediate need for life insurance.

Next thing I want to talk about is another changing need for life insurance called income replacement and debt elimination. Over time you are expected to earn more money, not only due to inflation, but we can also assume that you are going to move up in your company and earn more and more money. If you were to pass away prematurely, think about what burden your family would be left with if they no longer had your income coming in to pay the bills every month. If you are the sole provider for your family, that impact could be huge! In addition to this, as you earn more, you spend more. You buy a bigger home, a nicer car, a nice getaway on the lake, if you have debts from those large purchases, unfortunately they do not disappear. This income replacement and debt reduction is the second changing need for life insurance as you can see in the yellow shaded area above.

I will now address the third changing need for life insurance which we refer to as your estate. As I addressed earlier, as you earn more money, you may buy more toys. They may have been in the family for a while and losing those would be a huge detriment. Through life insurance, there is actually a way you can protect your estate from all of the nasty taxes that are imposed upon the second death of a couple. Through the use of life insurance, you can protect your estate from all probate fees, taxes and any other fees that may be incurred. Believe it or not, when your kids inherit your cottage, the gains on the property are actually taxed! Let me illustrate the fees that may be associated with the transfer of a secondary property. 

Here we see a cottage that was purchased for $60,000 30 years ago; today, that property is now worth $259,317. Assuming 50% capital gains inclusion rate and a 46% tax rate, the total taxes payable on the cottage to be rolled over to your children would be $45,843! That is the total fee payable for taxes only! On top of that, you may have lawyer fees and other fees that the government may impose. Would you want to leave your dependents with that tax liability?

The final use for life insurance is using the policy to actually enhance your retirement! I am not going to go into too much detail with this one however you can always contact me to learn more about this! In a nutshell, you can use your life insurance policy to actually provide you money during your retirement and there are ways to structure this so that every single dollar would be tax free!! That is a lesson for a later date and one we should discuss in person. 

I want to close this post by talking about your insurable interest. Today, if we were to go to the insurance company with an application, they may (based on underwriting) insure you for up to 20 times your current salary. However, if you were to delay taking out life insurance for say 20 years, the insurance company may only be willing to insure you for about five times your current salary! This is due to changes in medical history, as well as your age.

The two biggest factors in taking out a life insurance policy and the cost involved come down to two things: age, and whether you are a smoker or non-smoker. So put time on your side and call me today. Unfortunately you are never younger than what you are right now!

I can be reached in the contact box to the right, or by phone at (905) 475-0122 ext. 411.