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Life insurance has been called the foundational strategy of building and protecting your net worth. The initial stages of your financial strategy should include adequate life insurance coverage.
The following 7 tips will give you a template for your life insurance planning for a lifetime.
Term life insurance is affordable protection when you are young When young, term insurance coverage offers the lowest cost per thousand dollars of coverage. It comes in various renewable periods of time, for example, 5-,10-, 20-year term and term to age 100.
Upon each renewal of term insurance, the cost can increase and may have a final term period ending at a certain age such as age 65, 75 or age 100.
Many term plans can be converted to lifetime insurance coverage without medical evidence, that will continue to cover you for the duration of your life.
Life insurance can pay off large accumulations of debt Many owe thousands of dollars on their credit cards or a large amount of business debt.
Replace the debt monkey with cash money Term life insurance often solves debt concerns. It can offer you the peace of mind that you will not be saddling your family with ongoing debt.
If you own a business You and your partners can enter agreements to redeem debt or buy business interests providing cash to your heirs.
Debt-free succession plans work better Infusions of cash into a business can help a succession plan to work well.
Your life insurance plan can change to adapt to your needs Review your life insurance during each of life’s stages. Our circumstances change dramatically and so do our needs for life insurance. It may be time to review your life insurance and verify beneficiaries, policy amounts and any riders associated with the plans. As you evolve financially, so do your life insurance needs.
You can protect your family when you have young children When you are newly married and starting a family, life insurance is purchased to provide tax-free capital in case one of the parents should die.
When your children are going to college protect your liabilities Many of us tap into our savings to help meet their children’s tuition and housing expenses. We may purchase a child’s first car, or pay him/her an income for one or more years. If you die without providing continuing support, your young adult child may need to quit seeking a higher education due to a shortage of funds to pay for tuition and expenses.
Special Estate Planning solutions When your estate will face a large tax bill, or you desire to leave a large sum of money to an heir or a charity, there are life insurance solutions.The proceeds of a death benefit can solve estate-related problems such as paying an estate’s tax liability on capital gains.
As you approach retirement, you may have accumulated assets that will be taxed as capital gains: such as a cottage, business, equity fund holdings, or a stock portfolio. Life insurance that continues for a lifetime, such as Term to age 100 or Whole Life (or Permanent Life)—can help pay the income tax due in your estate.
This can also replace an estate’s money used for paying taxes on remaining Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) holdings, as these funds are fully taxable to the estate where there is no surviving spouse or dependent child.
It can also pay off large business debts that may be left as an ongoing liability, weighing on a surviving spouse’s financial security.
You may have an heir who will need a large sum of capital invested to provide a lifetime income from a trust fund. This is often the case with disabled children who may have special needs which can be expensive over a lifetime.
You may want to leave a significant sum of money to a charity of your choice.
You may want to transfer large sums of wealth in a controlled manner using life insurance beneficiary directives which may in some cases circumvent probate and notification to others when you desire privacy in your estate outside of your will.
Your exact life insurance needs can be calculated Life insurance specialists use a calculating system referred to as “capital needs analysis”. Consider insuring the adults in your family. The breadwinner’s income can be replaced to protect your family’s financial security. You may have debts that you’d like redeemed. Final expenses can be paid. A mortgage can be paid off. Retirement money can be generated. There are many good reasons to strengthen your financial security with life insurance.
It is necessary to calculate the capital needed over any short or long period to meet any financial situation. Call for an appointment to have us review your life insurance.
Note: Talk to your advisor about potential tax exemption changes to investment components of life insurance.
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