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Life Insurance

A Life Insurance Policy is a contract between an insured person and a life insurance company that specifies that the insurance company will provide either a stated sum or a periodic income to your designated beneficiaries upon your death. It can allow a person to create an estate for their family for very little money.

A life insurance policy can be used to provide:

You may use life insurance for business purposes too, such as providing funds to buy out the interest of a deceased partner or shareholder. Many Partnership Agreements require that such policies be in place.

Key Man Insurance involves coverage on an employee or owner of a business which will provide sufficient funds related to the replacement of a key individual in the event of an untimely death.

Needs Analysis

The amount of life insurance coverage that you need depends on your particular circumstances. You must consider the needs of the family you will be leaving behind, both immediately following your death and into the future. You should compare those needs with any provisions that you already have (such as investments, savings, and life insurance at your place of employment) as well as supplementary sources of income that they can expect (e.g., Canada Pension Plan survivor's benefits). The shortfall predicted by this comparison should be covered through insurance.

In short, compare your present liquid assets to your present and future liabilities and calculate the difference. I have a simple form which can assist you to put these figures on paper. I will provide it to anyone upon request.

Tax Implications

The general rule for determining whether the proceeds of life insurance policies constitute taxable income is:

  • if the premium was paid out of pre-tax income, then the proceeds are taxable
  • if the premium was paid out of after-tax income, the proceeds are NOT taxable

Life Insurance Rates

The cost of life insurance depends upon the mortality table that was used to determine the probability of death in any given year. The table used for a specific policy may be based on the past experience of the insurance company with purchasers of that policy, industry experience such as that provided in the Commissioner's Standard Ordinary Mortality Table, or some other basis of expected mortality. As a matter of interest Smokers pay approximately 30% more than Non-smokers for identical coverage.

Personal Opinion

If it is affordable I recommend people buy a whole life or universal life policy (otherwise known as permanent insurance) with $50,000 to $100,000 of coverage, with a payment period of 20 years or less. If and when additonal coverage is required to meet your goal, review and take into consideration the amount of coverage you have at your place of work with your group benefit plan. If you still have a shortfall in coverage, purchase the extra amount required with a 10 or 20 Year Term Rider to your permanent policy or with a separate term policy.

During the average person's lifetime there is a 20 to 30 year period where there can be significant debts and obligations, such as mortgage payments and the costs of raising a family. Owning a permanent policy will ensure that you always have coverage for your final expenses in place throughout your entire lifetime. Even if we die at age 99 we are going to create a debt for our final expenses. A life insurance policy will take care of that debt as well as take care of the tax implications of your estate when you die. You may not be thinking about how you will pass along the bulk of your estate to your children at the present time, but you will when you are in your sixties and seventies as most people do. By taking care of this concern when you are younger, in good health and when premiums are at their lowest cost, you will eliminate the chance of not being able to at a later age.

After 20 to 30 years when your home is paid for and your children are finished school, you can terminate your term policies and your permanent policy will be completely paid for. This is a formula which I believe to be the most economic way to purchase life insurance during our lifetimes.

If you own an incorporated business it may be possible to have your business pay some of your life insurance premiums rather than with just after tax dollars from your pocket.

so that I can assist you to aquire your own affordable insurance policy. Free quotations can be provided by phone, fax or email.