Yes, Insurance is a piece of the puzzle, but this piece tends to be a puzzle of its own. And when I pick up this piece it seems to have its own pieces and a box to go with! Use this as a step one to gain some context for life and other types of insurance.
In the beginning, there was life insurance. A simple way to protect your net worth. Over the years other products have been added to address different needs and situations; disability insurance, critical illness insurance, whole life insurance and others, but these are fairly common and the first few you should look at.
Term Life Insurance: This should be the first policy you purchase as an adult. It is the least expensive insurance policy for the most amount of coverage. Term insurance can be purchased in different lengths of time. 10 years, 20 years 30 years or longer. The length of the term determines how long the price of policy will remain constant. The longer the term the higher the initial cost, but as we age the cost of insurance increases so buying a longer term when you are younger could save you money over the long term. Also matching the term length to certain responsibilities like a mortgage or dependency period of children can help you choose a term length.
Disability Insurance: This is a common policy to purchase if you have an income that could end if you were to get an injury or illness that stopped you from working. Disability policies are especially important if you work in a labour intensive industry or do side jobs where you may not be covered by other types of insurance. Disability policies have many options and consulting a Licensed Advisor can help determine the right ones for you.
Critical Illness Insurance: This type of policy covers someone if they receive a critical illness listed in the policy. Typical illnesses are heart attack, cancer and stroke. There many costs that are incurred when someone is unable to work or in the hospital due to a critical illness. Parking costs, meals, additional medications not covered by traditional medical coverage.
Whole life insurance: This type of life insurance is used for permanent needs or wants that can’t be covered by other types of insurance of products. If you want to have insurance that pays out no matter your age this can be used to accomplish that goal. Also if you own a corporation a whole life policy can be used to help withdraw money tax efficiently if the owner was to pass away. This is often recommended as a savings policy, but there are far more tax efficient and potentially higher returning investments before a whole life policy should be considered as an option.
If you are a young family with children and a mortgage, the priorities are to protect your financial security in the short term and grow your assets over the long term. Buying a term policy to cover at least 10 times your annual income and beginning to save at least 10% of your income into registered investments should be a top priority.
Now you can quickly buy some life insurance!
Find out more about Graham here, or contact him directly at Graham@yourmoola.ca.