Well-chosen insurance coverage can both protect the wealth you work so hard to build but also help you enrich it.
When Simon Tanner talks to his clients about insurance, he begins by asking them a simple question: “What is your greatest source of assets?” Clients often talk about their home or investment portfolio, but Tanner expects a different answer.
“In reality, your primary source of assets is your ability to earn income,” says Simon Tanner, senior advisor for Vancouver-based firm Dynamic Planning Partners. “When you look for insurance, you are looking to protect that asset. »
Insurance is an essential tool to help people protect and grow what they have worked for. For many, the challenge is deciding which type of insurance to buy from among the various products available.
Some people, including high net worth individuals, don’t believe they need additional insurance until they understand the benefits, such as effective tax planning and effortless transfer of assets to their estate.
“Insurance is not designed as an investment, but it is often recognized as such,” says Mark Arruda, associate vice-president, strategic business development and marketing actuary at Sun Life Financial in Waterloo.
Insurance includes 3 main components to consider to protect and build your wealth: life insurance benefits payable during the insured’s lifetime and segregated fund contracts.
Life insurance
There are 2 main types of life insurance: term life insurance and permanent life insurance.
Term life insurance, as the name suggests, is temporary. Its maturity often varies from 10 to 30 years, with an option to renew or convert at the end of the covered period. Mr Arruda explains that a business owner could choose 20-year term insurance if he plans to retire in 20 years, just as a homeowner could choose 10-year term insurance if he remains 10 years of repayment on his mortgage and that he seeks to protect the roof which shelters his family if he were to die first.
On the other hand, permanent life insurance lasts for life and, in addition to providing benefits in the event of death, is often used for tax planning purposes or to settle outstanding debts at the time of death. “As long as you pay your premium, this insurance is in effect until your death,” says Arruda.
Benefits payable during the lifetime of the insured
Several benefits payable during your lifetime are available to you:
Disability insurance covers you if an illness or injury renders you unable to work. It replaces part of your income lost during your recovery.
Critical illness insurance covers a range of illnesses, depending on the policy, such as cancer, heart attack or stroke. After the prescribed elimination period, you can receive a lump sum payment that gives you more financial flexibility so you can focus on your recovery.
Long-term care insurance is beneficial later in life if you become physically or mentally dependent on other people for care. You can use the regular benefit amounts to pay for care received at home or in the establishment of your choice.
Arruda recommends that you don’t wait until retirement to think about how you’ll fund ever-increasing health care costs. It is essential to incorporate health care needs into an overall plan to make all options available if you develop a chronic health condition.
“If you don’t have long-term care insurance to cover these additional costs, they will eat away at the financial capital you have accumulated,” he says.
Arruda also recommends buying life insurance and life insurance in addition to what you get from an employer to reduce the risk of running out of money or losing coverage.
“The biggest risk inherent in relying solely on benefits paid by your employer is that if you no longer work for them, the insurance protections will disappear,” he says.
This is all the more important because nowadays we tend to change jobs more frequently than before. So we may find ourselves working for an employer with reduced coverage or decide to be self-employed.
At that point, “ you might find yourself at an age where it’s harder to get the cover.
