6 tips for choosing your life insurance
Inflation and rising mortgage rates have destabilized many families’ budgets. From a strictly monetary perspective, we have collectively realized that the future is full of surprises, demonstrating the importance of protecting loved ones with adequate life insurance. Here are the recommendations from Étienne Belzile-Paquet, leader of the insurance component and financial planner at Desjardins.
1. Define your intentions
Life insurance can play very different roles, and some products are better adapted to them than others.
For a family with children whose goal is to make up for lost income in the event of the death of a parent in order to maintain the same standard of living, term insurance may be an attractive option. A 10-, 20- or 30-year term life insurance policy will pay a lump sum upon death, provided you pay a fixed premium during the specified period. After the contract term, your personal life insurance coverage will end.
Another scenario: a business owner is concerned that upon his death, his estate will end up with a large tax bill after selling his company. Permanent life insurance can then offer an advantageous way to guarantee a benefit to pay the tax payable at death, with coverage for the rest of your life.
Other products, such as participating and universal life insurance, may even include a savings component, which can be used in a number of ways, such as offering your loved ones a financial base, financing your business growth or increasing your retirement income.
2. Determine how much you need
Life insurance can cover certain expenses related to a loss, such as funeral expenses, and leave some money to loved ones, according to one’s wishes. Life insurance also allows you to pay the deceased’s personal debts, such as credit card balances.
“Establishing a financial profile, with the help of a financial professional, for example, is the basis of the needs analysis which determines the gap between our liabilities and assets at death. We then add to it a cost-of-living assessment,” explains Étienne Belzile-Paquet. “This calculation provides us with the coverage amount we need to address the shortfall and ensure that the family will maintain the same living standard.”
3. Assess the duration of the desired coverage
How long do we want to protect our loved ones? In theory, if 2 parents have a net income of $50,000 and the family wants to have the same income for 10 years, a coverage of $500,000 for each parent would be required based on a very simple multiplication. “In practice, we add certain factors, such as the inflation rate and the interest rate that could be generated by the money invested, to make the calculation more realistic,” the financial planner adds. Financial security advisors use analysis software to make such estimates and determine exact needs.
4. Take out insurance early!
The cost of an insurance policy is calculated based on the applicant’s age, among other things. In most cases, the older you get, the more it costs. Conversely, when you’re young, health problems that can lead to an additional premium or denial are generally rare. The application is also less likely to require further testing, making the process much simpler.
5. Adopt a healthy lifestyle
Health status and smoking also affect pricing. In addition to completing a medical questionnaire, medical tests may be required—usually blood and urinalysis tests. However, an insurer may require additional tests depending on an applicant’s age and the coverage amount requested.
6. Contact an advisor for assistance
It’s easy to get lost between various product categories, coverage levels and policy periods. “Online tools can do some of the work, but a financial security advisor takes it one step further. They make sure to carefully analyze the required coverage amount and the most appropriate type of product,” states Étienne Belzile-Paquet. “That’s what financial security advisors are here for!”