Seven Essentials for Buying Life Insurance

We (and probably you) know Paul Etherington as the man behind the ever-popular motionball, but he also serves as the Senior Vice President of Etherington Generations, a boutique insurance firm specializing in employee benefits, insurance and estate planning. While always keen to share a word on the philanthropic side of life, we caught up with Paul to get some sound insurance insight…

While life insurance never seems to be on the top of your to do list, it is an important component of your financial plan and a source of liquidity that success itself will necessitate. 

If you are planning to purchase life insurance in the near future – and if you are purchasing a home, having a baby, or starting a business, the time should be now – here are a few questions to think about: 

Why would I need life insurance? Here are just a few reasons: to provide for your family; to fund future schooling for your children; as collateral to the bank for your house mortgage; or as collateral for a business line of credit; to fund a business shareholder’s agreement; to protect your business against the death of a key employee; to provide a tax-efficient deferred gift to your charity of choice; to pay capital gains taxes at death so that your estate can go to your decided beneficiaries; to effectively transfer wealth inter-generationally. 

Who can I speak with for advice? I would suggest that instead of speaking with an insurance company directly, you should find yourself an insurance advisor. There are thousands of us in Canada, so you won’t have any problems finding one. The key, however, is finding an advisor who you are compatible with; who understands both your short-term and long-term objectives, and who is willing to go to bat for you if and when necessary. In short: you need an advocate that you can trust.

How much life insurance do I need? It really depends on your particular situation. Some people simply have a number that makes sense to them. For most individuals, it makes sense to have your insurance advisor run a capital needs analysis in order to help determine the right amount to meet your objectives. 

What type of life insurance should I purchase? There are basically two types of insurance: temporary coverage and permanent coverage. What best suits you is entirely dependent on what you want to accomplish from your insurance portfolio combined with your appetite for cost. Temporary protection is perfect if you have a specific timeframe for which you need the coverage, or if you want as much insurance for as little premium as possible. Permanent insurance, on the other hand, provides protection for your lifetime with a long-term better price ratio. It also provides an opportunity for the accrual of tax deferred cash values within the policy. Ultimately, both forms of coverage have their purposes and your advisor can help you decide what meets your needs best. 

Why can’t I simply rely on my employer paid Group Life Insurance benefit? The coverage provided by your employer is a great piece of your financial portfolio, but group coverage has limitations in terms of portability, total coverage amount (usually only 1 or 2 times salary) and flexibility. Plus, most young professionals rarely remain in one job for their entire careers. Don’t discount this coverage when you think of your assets, but don’t rely on your company paid life insurance to provide all the protection you will need for your lifetime. 

What affects my premium rates? Once you have decided the right amount of coverage and the correct type of protection (both of which impact price), the cost of insurance is then impacted by the following: your gender (life insurance is more expensive for men); your smoking status (smoking can double insurance rates); family history (this can impact pricing); your overall general health and your age (insurance gets more expensive as we age).  

When is the right time in your life to buy insurance? For some people it is as soon as they start working, but for most it is when you get married (or equivalent), or definitely when you have children. If you own a business or buy a home, insurance might be required by the banks (but it doesn’t mean you have to buy it through them). And always remember: insurance only gets more expensive tomorrow and nobody knows if tomorrow you will be able to medically qualify for the coverage you need. 

We are always interested in meeting young professionals. If you have any specific life insurance questions please do not hesitate to give us a shout or drop us a line.