How protection needs change over time
Just as you go to your dentist regularly, take your car in for maintenance, and rebalance your investment portfolio from time to time, it’s important to revisit your insurance coverage on a regular basis to make sure you have the amount and type of coverage that’s right for you. Your needs will change over time, as your personal circumstances and priorities evolve.
You may find it helpful to take a life-stage approach to insurance planning.
Suppose you and your spouse have been together for a year or so. You have one child and are hoping to expand your family soon.
At this stage, you’re likely to have a lot of expenses: mortgage, car payments, regular bills, and so on. But protecting your family is crucial. What would happen to them if you were no longer there to provide financial support?
Term life insurance offers affordable coverage for a predetermined term of five, 10, or 20 years. The younger and healthier you are, the lower the premiums, and they stay the same over the term of your coverage.
As you get older and your children grow up, your needs for protection change. Your mortgage is probably paid down (or almost) and your kids are (hopefully!) financially independent and living on their own.
Does that mean you no longer need insurance? Not at all. At this stage, insurance plays a key role in protecting the legacy you want to leave for your children. For example, you might own a vacation property or a sizeable investment portfolio. Chances are you’ve saved up a fair bit in your Registered Retirement Savings Plan (RRSP). If you were to pass away, these items could be subject to tax, leaving less for your heirs. But with sufficient life insurance, the death benefit could be used to cover the taxes and keep your legacy intact. At this stage, you may want to consider the benefits of permanent insurance over term. Permanent insurance combines protection with a tax-deferred investment component, enabling you to build up a cash value in the policy. This can increase the death benefit or you can tap into it to increase your income in retirement.
When you’re retired, there’s another kind of insurance product that you may find especially useful — an annuity. It can provide you (or you and your spouse, if you choose) with a guaranteed income stream for as long as you live. If philanthropy is important to you, you may want to explore the many uses of life insurance as part of a charitable giving strategy.