My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, June 20, 2016

Life Insurance - Review Your Coverage

Many of us purchase life insurance between the ages of 30 and 40 and subsequently pay no further attention to our life insurance needs. Today, I have a simple objective: to encourage you to review your current coverage.

Ask yourself this question. Has there been a change in your personal circumstances since you last purchased life insurance? If the answer is yes, now is the time to ensure you have sufficient coverage.

We hate paying life insurance for two reasons:

1. It forces us to accept our mortality.

2. As we age, the cost of life insurance becomes prohibitive, so most people who are lucky enough to live a full life, let it lapse (especially in the case of term insurance) and thus, have paid substantial sums of money for no monetary return (although, I think living is probably a fairly good non-monetary return).

Luckily, most of us get over these two hurdles and purchase life insurance to cover, amongst various things, the following:

1. Income replacement – life insurance acts as a replacement of income for the deceased person. This is very important where one spouse/partner is the breadwinner. The objective here is to allow your family to live in the manner they are accustomed to.

2. Financial security for dependents – somewhat related to #1, insurance ensures your spouse/partner is taken care of the rest of their life, and your dependants are financially covered until they are ready to join the workforce.

3. Mortgage protection - insurance pays off the family’s largest debt, typically the mortgage on their home.

4. Funding of University - many parents want to ensure their children are educated and use insurance to backstop that goal, in case they were to pass away.

Your Life Insurance Coverage Check-up

You may wish to review the following items or issues, to ensure your current life insurance coverage is up-to-date:

1. Your current salary or self-employment income – review your income. Has it changed significantly since you put your initial life insurance in place? If the answer is yes, and you are like most people in that your monthly family spending has expanded in proportion to your higher income, you will need more insurance to replace that income and increased family spending.

2. Life Expectancy – life expectancy continues to increase. In Canada, the average female is expected to live to about 84 and the average male to about 80. There is approximately a 25% chance one spouse/partner will live to the age of 95. The question for you is: what assumptions did you make about life expectancy when determining your life insurance needs for you and your spouse/partner/family? You may want to revisit those assumptions.

3. Debts – review your current debt load. Has your mortgage increased or decreased? Have you tapped into your Line of Credit for home renovations or investment purposes? Have you incurred any new personal debt?

4. University – many children attend university outside of Canada because the enrollment at many Canadian professional schools is very limited. Do you think your child(ren) may need to do such? If so, those costs could be 3-5 times higher than those of a child who studies in Canada.

5. Cottage – do you plan to leave the cottage to your children? You may want to ensure you and your spouse/partner have enough insurance to cover the taxes on the last of your deaths.

6. Estate Planning – some parents wish to use their insurance to leave a legacy to their children. If that is you plan, is your current insurance sufficient? If you are one of those parents, consider converting part of your term insurance to permanent insurance, if your policy allows such, or consider purchasing some new permanent insurance. If you have a private corporation, consider a corporate funded insurance policy as discussed in this blog post.

The above discussion is fairly simplistic. As noted, the main objective of this post is to have you review your current life insurance, to ensure it is sufficient for your current needs. If you determine your insurance is insufficient, make an appointment with your insurance advisor.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

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