Controlling life, critical illness or disability insurance costs without sacrificing coverage
Often when I work through a Needs Analysis for clients, they agree with the amount of insurance coverage they need, but balk at the premium cost. At the same time they may be paying more to insure their auto than to protect their family.
What’s your family’s financial future financial security worth, as compared to replacing a truck or van that will be worth next to nothing on its 10th birthday?
All recent surveys indicate that Canadians in general don’t have enough life insurance, and many have none. Tie this in with fact that the average family has high debt and insufficient savings, and they face a serious crisis if someone gets sick, disabled or dies.
Unfortunately many people rely on creditor coverage, which in many cases doesn’t offer good value. First of all, the creditor owns and controls the policy. Claim time can come with pitfalls as any missed or forgotten medical issues could void the coverage. As well, they only pay off the outstanding loan balance. And on policies with two lives they pay out on the first death, so the loans paid off but the surviving spouse is left without coverage.
Do you like bargains?
For $115 a month a 30-year-old non-smoking couple with average health and build can have $2 million of 20-year term life coverage between them. If one spouse passes away the surviving spouse can pay of the debts, have funds in the bank, and still have $1 million of coverage. Yes, an argument can be made that they should have some level of permanent coverage, but I would rather they put any extra money they have every month into Tax-Free Savings Accounts for emergency needs.
How about another bargain?
If a full blown critical illness plan seems too expensive, $7.50 per month can buy $25,000 of basic coverage for a 30-year-old non-smoking male for the five most common illnesses. These basic plans require no medical required and no family history questions.
If we could only pick our misfortune!
Ideally of course, we want to live a healthy life until we die of old age of natural causes. However, life, critical illness and disability coverage can now be combined into one policy. All claims are paid from a pool of funds, if no disability or critical illness claims, the full pool amount is paid out on death. So in effect you have all three different coverage’ at a discounted price as compared to paying for 3 separate policies.
For example, if you had a $500,000 policy and become disabled, it would pay $2,500 a month tax free for a maximum of 16.5 years, or if stricken with any one of the 22 covered critical illness conditions it would pay out a lump sum of $125,000 tax free. Any withdrawals would reduce the money left in the pool to pay out on death. This type of plan can be a good fit for business owners or self employed contract workers. It is especially good for housewives as there is no income testing for disability coverage.
Insurance options and pricing are constantly changing. Term insurance rates have dropped considerably over the last decade. You owe it to yourself to review your coverage to make sure it meets your needs and is affordable. If you have older term policies, especially 5 and 10 year plans that have gone through one or more renewals, sit down with a qualified independent life insurance professional and check out if a new policy would be better value for your hard earned buck.
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