Insuring homes and vehicles are considered top priorities for many Canadians. Yet, they often forget to insure another important asset – themselves! Purchasing a life insurance policy can be an integral part of smart financial planning. It provides the opportunity to invest in your loved one’s well-being and give them the financial protection they may need. Make life insurance part of your financial plan to have peace of mind that the people closest to you are taken care of now and in the future.
Financial planning across generations
Across generations there are differences in how people approach financial planning and investing.
Millennials (1980-1994) face financial challenges including saving up for a home, paying off student loans, and building up an emergency fund. Yet, they also have the highest loan debt out of all the generations and feel overwhelmed by their financial situations.1
In contrast, Baby Boomers (1946-1964) and Gen Xers (1965-1980) are more conservative when it comes to spending. They value financial stability and maintain a strong focus on saving for retirement.1 This generation may have less debt and therefore concentrate on long term financial planning.1
As older generations transfer wealth to young people, it’s vital that every generation be included in conversations about estate planning and debt. Getting life insurance can be an investment that benefits people in a variety of life stages (students, first-time homebuyers, etc.). If you have loved ones that may need to be financially protected should you pass away, then life insurance might be right for you.
How does life insurance support financial planning?
Life insurance is a key part of financial planning in order help cover any debts, taxes, expenses you leave behind in the event of your death.
You may have savings in your RRSP, TFSA, and other types of investment accounts which may provide your loved ones with some financial security if you pass away. However, are the funds in these accounts enough for all expenses you want covered?
Consider who in your life relies on you for financial stability. Do you have a spouse? Children? Do you cover expenses for your elderly parents? Your income may be supporting several people, and their lifestyles could dramatically change if there is no replacement for that income.
Below we share some important considerations for protecting your loved ones and including life insurance as part of your financial planning strategy:
Depending on the amount of coverage in your life insurance plan, big-ticket items such as your home can be covered by your death benefit. This eliminates the possibility of your loved ones being burdened by these outstanding debts. If they do not have the funds or sufficient income to cover the mortgage debt, then they will need to sell the home or risk foreclosure.
Children’s post-secondary education
Many parents tend to underestimate the true cost of a post-secondary education and may be saving inadequately as a result.2 If you want to help pay for your child’s education, ensure you account for these expenses in your financial planning. Life insurance can help you give the gift of education to your children should you pass away unexpectedly.
Final expenses can add up quickly – in Canada the cost of a funeral is $15,000. Don’t leave this cost for your loved ones to cover. For single people, the importance of planning ahead and knowing how final expenses will be covered is important. Will this burden be left for your aging parents or family members? A life insurance policy can help you plan how these expenses will be taken care of.
Leave a Legacy
Perhaps you have a deep desire to Leave a Legacy to a cherished organization. Make this part of your financial plan by assigning a charity of your choice as a beneficiary to your life insurance policy to help the organization continue their mission.
Life insurance and reducing financial stress
Canadian household debt is increasing as a result of rising cost of living. Further, the potential for higher interest and mortgage rates are a significant financial concern for people across the country.3
The effects of this financial stress are evident. Those with financial stress are more likely to experience strain in their personal relationships.3 In fact, a leading cause of divorce is related to inadequate financial planning. Lingering negative thoughts about finances are present even in the workplace, with 43% of Canadians saying concerns about their finances is hurting their work productivity.4 The burden of financial stress can also have detrimental effects to your health. People with financial stress are:3
- Twice as likely to report poor overall health
- Four times as likely to suffer from sleep problems, headaches and other illnesses
- Face more serious health problems, such as: heart disease, high blood pressure, and mental health conditions such as depression and anxiety
Life insurance can help you get peace of mind that your loved ones will be safeguarded from debt or financially taken care of should you pass away unexpectedly. Planning ahead and having this financial protection can help reduce overall financial stress and improve quality of life.
Another important consideration is critical illness insurance, which can provide you with a living benefit to help you through a challenging time should you be diagnosed with a critical illness in your lifetime. This coverage allows you the freedom to focus on your health, rather than financial stress!
Life insurance options
No matter what stage of life you are in, having life insurance can be beneficial for you and your loved ones. Here are options to consider if you decide to make an investment in life insurance as part of your financial plan:
Permanent or term life insurance
When choosing the type of life insurance, you want to invest in, you have the option of permanent life insurance or term life insurance plans. Permanent life insurance provides permanent protection and coverage until you pass away. On the other hand, term life insurance offers coverage for a fixed term such as 10, 20, or 25 years (or any other period defined in the policy). When the term ends, the insurance expires. However, depending on your plan, you may have the option of renewing your term or converting to a permanent plan.
No medical versus traditional life insurance
No medical life insurance can be a great option since, depending on the life insurance provider, the application process is hassle-free and straightforward compared to traditional life insurance. If you want to secure coverage quickly, then consider applying for no medical plans. There are no medical tests or exams involved; simply answer some health-related questions and get your policy issued in just a few days whereas traditional plans will issue your policy in weeks or even months.
Is life insurance right for you?
Protecting your loved ones through life insurance is a worthwhile investment that can help to reduce financial stress and provide you with peace of mind.
- 1 https://www.thinkadvisor.com/2018/10/03/how-5-generations-see-their-finances/
- 2 https://www.investmentexecutive.com/news/industry-news/cost-of-post-secondary-education-surprises-canadian-parents/
- 3 https://www.canada.ca/en/financial-consumer-agency/services/financial-wellness-work/stress-impacts.html
- 4 https://www.bnnbloomberg.ca/43-of-canadians-say-financial-stress-is-hurting-their-work-productivity-study-1.1310556