Insurance: Insure your lifestyle at a cost that makes sense

Insurance is a very good thing but how do you determine when it's too much of a good thing – that is, when the cost of your insurance premiums or the types of coverage you have are out of line with your income, lifestyle, age or real needs? That's a good question because there are literally thousands of insurance plans on the market. Here are a few insurance facts to insure you have the right information to make the right – and most economical – decisions for your situation.

Life insurance

There are lots of life insurance products, but there are actually just two types of life insurance: term and permanent.

Term insurance pays a specified amount should you die while the policy is in force, but premiums increase with each policy renewal (at the end of the term) and can become substantial in later years.

Permanent insurance provides lifetime coverage, usually at a level premium, and comes in two main varieties:

Whole life insurance is the “traditional” type of policy and usually the most expensive. It provides a guaranteed amount of insurance coverage for life and a guaranteed cash value.
Universal life has become the most popular form of permanent insurance in Canada in recent years. It provides a combination of life insurance and tax-advantaged investment options in one policy.

Living benefits insurance

This category of insurance provides benefits while you are alive instead of to a beneficiary after your death and includes:

Disability insurance pays out a monthly income if you ever find yourself unable to work (as defined by the policy) due to an illness or injury.
Critical illness insurance usually pays a lump sum of money to use as you wish after the diagnosis of a specified life-altering illness such as cancer or heart attack.
Long-term care insurance pays out benefits that you may usually use at your discretion, often to cover the costs of health-care expenses.
Supplemental health insurance reimburses money paid for health care and dental expenses not covered by provincial and/or employer group health plans.

Insure for the times of your life

Your short- and long-term insurance needs and amounts of coverage will change over time, especially during each of life's three main stages:

Under 40– your insurance should be simple, providing a source of cash that can pay the mortgage or other debts and replace a portion of your income should you become unable to do so. Term life insurance can be an economical option at this stage, leaving premium dollars available to help purchase adequate disability insurance.

40 to 60– as you mature and your life becomes more complex you may consider converting some term insurance to permanent life insurance, perhaps with increasing protection for both you and your spouse. You should also ensure your disability protection is keeping pace with any wage increases you've received. Critical illness insurance becomes an important consideration at this stage, too.

Over 60– you may want life insurance to pay estate liabilities like taxes on registered savings plans, or as a source of non-registered retirement savings. In this case, permanent insurance should be your best choice. Consider long-term care insurance to protect yourself and your loved ones from the financial burden of a lengthy illness.

A professional financial advisor can tailor an insurance program to provide economical coverage during every stage of your life.

(Submitted by Damon Smith, Investors Group Financial Services Inc. For more information call 888.335.1362).

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