Last week while I was meeting with a new client over coffee, I ask a simple question.
“When was the last time you and your wife reviewed your life insurance coverage”?
Unfortunately, I wasn’t surprised by his answer of “I’m not sure……. maybe 5-6 years”. The fact is Life Insurance is often forgotten until it’s too late or when those premium renewal dates come up.
We all have hectic lives with other priorities, but it’s important to pay attention to the not-so fun items that can protect our families. Here’s a list of some life events where I strongly encourage you to review your life insurance.
You’ve had the wedding of your dreams and a beautiful honeymoon on a tropical island; you now look forward to the rest of your lives together. Even though this is one of the happiest times in your life, you never know what’s around the corner and preparing for the ‘what if?’ scenario is important in protecting your loved ones. Things such as final expenses, outstanding debt and income replacement needs to be considered, especially if your partner depends on you financially.
Purchasing that Dream Home
Purchasing a new home is an exciting time and a stressful time. Trust me, as I sit here writing this article, the plumbing and duct work is being installed in our new home that is months behind schedule.
This purchase not only adds an asset to your balance sheet but also a liability until you payout your mortgage.
Mortgage payments can result in one of your largest monthly payments, that either you or your spouse might not be able to make alone. Increasing your insurance coverage would allow your spouse to pay off the remaining mortgage balance. Alternatively, they could invest the proceeds and create a stream of income to meet the monthly mortgage payments so that your family is not forced to move from the home.
First comes Marriage then comes……Baby
To me, this is the most important life event where you absolutely need to assess your insurance needs, as well as start mapping out your estate planning. We all know that having children isn’t cheap. The cost of clothing, childcare, education expenses and extracurricular activities keeps rising. In the event of a tragedy, you or your spouse could be left both emotionally and financially devastated. When determining the amount of coverage, these factors as well as loss of income should be included in your calculations. Ensuring that your family is taken care of financially in your absence is not something you want to overlook.
How would leaving a job, receiving a substantial pay raise or entering into retirement affect you?
If you are leaving a job, review your coverage to see if it is portable. When starting a new job, there is normally a waiting period that must be completed before you are eligible for company benefits. If you have large outstanding debts or other responsibilities, you might consider increasing your personal insurance to cover this period.
Since the trend is not to stay at the same job for ever, it is recommended that you have personally owned coverage that you maintain no matter where you are working, and use your group plan to top up your life insurance coverage.
Receiving a substantial pay increase will likely lead to a higher standard of living. With this milestone, you should review your loss of income calculation and make changes to your coverage as needed.
Hopefully by retirement you have the mortgage paid off, and minimal debt. When preparing for retirement, it’s important to make sure your income streams are protected. We also want to protect our estates from the tax man, so while the need for life insurance may not seem necessary it may be relevant to the planning that was done years before.
You should review your life insurance every two years at a minimum. While we can predict and plan for some life events, some we cannot. And while we can predict some, you can’t guarantee that you’ll be insurable. I was recently at an education session and one of the speakers made this statement:
“Nobody is going to sell you life insurance when you are in an ambulance or lying in a hospital bed. Sure you can buy life insurance without having a physical, but there are limits. That’s why it’s important to have the right coverage in place against foreseeable risks today”.
If you feel that your Life Insurance Planning has made its way to the back of a file and would like a complimentary review of your insurance needs, and how they fit into your long-term financial plan, please contact us.
Kevin J. Zakus, is the Managing Partner at Zakus Kowalchuk LLP in Kelowna, British Columbia. You can email him at [email protected].
Kevin’s opinions and comments expressed on this site are his own and may not accurately reflect those of the firm. The information contained in this post is not intended as investment, tax or legal advice and is provided as information only.