Kelowna Financial Advisor : Business Succession Planning : Kelowna Life Insurance

Your Kelowna Life Insurance Resource

A large part of choosing a life insurance policy is determining how much money your dependents will need to cover various obligations. If what you read below gets your attention, call now for an appointment with Kelowna Life Insurance specialist - Dustin T. Serviss.

Quick Navigation - Life Insurance Solutions:

How Kelowna Life Insurance may apply to you?

1. Understand Why You Need It

While most people may need life insurance at some point in their life, don't buy a policy just because you heard it was a good idea. Life insurance is designed to provide families with financial security in the event of the death of a spouse or parent. Life insurance protection can help pay for mortgages, a college education, help to fund retirement, provide charitable bequests and of course is a key element in estate planning. In short, if others depend on your income for support, you should strongly consider life insurance. Even if you don't have any of these needs immediately, you still may want to consider purchasing a small "starter" policy, if you anticipate you will have them in the future. The reason: the younger you are, the less expensive life insurance will be.

2. Determine the Amount of Life Insurance You Need

The amount of money your family or heirs will receive after your death is called a death benefit. To determine the proper amount of life insurance an online calculator, like the one available at this site, can be helpful. You can also get a ballpark figure using any number of formulas. The easiest way is to simply take your annual salary and multiply by 8. A more detailed method is to add up the monthly expense your family will incur after your death. Remember to include the one-time expenses at death and the ongoing expenses such as a mortgage or school bills. Take the ongoing expenses and divide by .07. That indicates you'll want a lump sum of money earning approximately 7% each year to pay those ongoing expenses. Add to that amount any money you'll need to cover one-time expenses and you'll have a rough estimate of the amount of life insurance you need.

As useful as calculators and rough estimates are, there are some things they don't do.
They cannot provide you with any final answers. Calculators only allow you to perform "hypotheticals," recalculating and generating new results as you make and input new assumptions.

3. Find the Right Type of Policy

Once you've got an estimate of how much insurance you'll need, it's time to think about the type of policy that best fits your needs. Today life insurance comes in many varieties, but there are three basic types; term, whole life and universal life. As a first-time buyer, one will more than likely fit your needs.

- Term Life Insurance

As its name implies, term insurance provides life insurance protection for a specific period of years. Benefits can be used to help pay off mortgages and other outstanding debts in the event of a premature death. Generally the least expensive form of life insurance, term provides pure insurance protection only. It does not accumulate cash value, and generally does not receive dividends.
Term may be an ideal choice when you need life insurance coverage for a well-defined period of time. It can be used to protect needs that last for a predictable period, such as a student loan or mortgage. People in their 20s and 30s often purchase a term policy and later convert it to a permanent plan (see Whole Life, below). The conversion privilege in their term policies guarantees their insurability at a later date-even if they become uninsurable.

- Whole Life

In contrast to term insurance, whole life, also known as permanent insurance, protects you throughout your lifetime, from the day you purchase the policy until you die, as long as you pay the premiums. Another difference between the two is that permanent insurance builds cash value. Through policy loans, you can access the cash values and use them for a host of purposes such as education funding and supplemental retirement income. However, policy loans against the cash value accrue interest and reduce the death benefit and the cash value by the amount of the outstanding loan plus interest. Guaranteed for life, your policy will be renewed every year, regardless of your health for as long as you live, again, as long as required premiums are paid.

Permanent policies are also eligible to receive dividends, a portion of the company's surplus that is distributed to the owners of participating policies. (Dividends can be taken in cash, used to reduce the premium, left to accumulate at interest, or used to purchase paid-up additional insurance. Dividends are not guaranteed.) Whole life can provide a permanent solution to several financial concerns including:

Mortgage protection: Benefits can be used to help pay off mortgages and other outstanding debts in the event of a premature death.

Estate preservation: Whole life insurance can provide funds to cover estate expenses and help avoid the need to sell assets and or borrow money to cover these expenses.

Retirement funding: Cash values can be accessed through policy loans or surrenders to supplement a retirement income. Loans will reduce the death benefit.

Charitable giving: A whole life insurance policy can enable you to make a significant donation to your favorite charity upon your death.

Business needs: Whole life can be an attractive executive and employee benefit and a means to assure a business's financial future.

- Universal Life

Universal life also provides permanent life insurance protection and access to cash values that grow tax-deferred. Universal Life differs from whole life in its flexibility that enables you to choose the amount of protection that best suits your family or business. With Universal Life, you can increase or decrease your coverage, as your insurance needs change and control the amount and frequency of premium payments. The policy can also be customized with various riders to fit your lifestyle.

4. Increase Your Vocabulary

Any discussion of insurance will probably include words such as cash value, premium, dividends, death benefit and more. To discuss life insurance knowledgeably, it will help to understand the terms. Below is a brief summary of some common terms. This site offers a complete glossary of insurance terms.

Cash Value: In a whole life (also called "permanent") life insurance policy, this is the money that can accumulate in the policy.

Dividends: A portion of the company's surplus that is distributed to the owners of participating policies. Dividends are not guaranteed.

Mutual company: An insurance company which has no capital stock or stockholders, but is instead owned by its policy owners

Premium: In insurance, the periodic payment required to keep a specific policy in force.

How Much Kelowna Life Insurance Do I Need

Choosing the face value (the amount your policy pays if you die) depends on: How much debt you have: All of your debts must be paid off in full, including car loans, mortgages, credit cards, loans, etc. If you have a $200,000 mortgage and a $4,000 car loan, you need at least $204,000 in your policy to cover you debts (and possibly a little more to take care of the interest as well).More...

Choosing the face value (the amount your policy pays if you die) depends on:

How much debt you have: All of your debts must be paid off in full, including car loans, mortgages, credit cards, loans, etc. If you have a $200,000 mortgage and a $4,000 car loan, you need at least $204,000 in your policy to cover you debts (and possibly a little more to take care of the interest as well).

Income Replacement: One of the biggest factors for life insurance is for income replacement, which will be a major determinant of the size of your policy. If you are the only provider for your dependents and you bring in $40,000 a year, you will need a policy payout that is large enough to replace your income plus a little extra to guard against inflation. To error on the safe side, assume that the lump sum payout of your policy is invested at 8%. Just to replace your income, you will need a $500,000 policy. This is not a set rule, but adding your yearly income back into the policy (500,000 + 40,000 = 540,000 in this case) is a fairly good guard against inflation. Remember, you have to add this $540,000 to whatever your total debts add up to.

Future Obligations: If you want to pay for your child's college tuition or have your spouse move to Hawaii when you are gone, you will have to estimate the costs of those obligations and add them to the amount of coverage you want. So, if a person has a yearly income of $40,000, a mortgage of $200,000, and wants to send his or her child to university (let's say this will cost $80,000), this person would probably want an $820,000 policy ($540,000 to replace yearly income + $200,000 for the mortgage expense + $80,000 university expense). Once you determine the required face value of your insurance company, you can start shopping around for the right policy (and a good deal).

Insuring Others: Obviously there are other people in your life who are important to you and you may wonder if you should insure them. As a rule, you should only insure people whose death would mean a financial loss to you. The death of a child, while emotionally devastating, does not constitute a financial loss because children cost money to raise. The death of an income-earning spouse, however, does create a situation with both emotional and financial losses. In that case, follow the income replacement trick we went through earlier (your spouse's income/8% + inflation = how much you'll need to insure your spouse for). This also goes for any business partners with which you have a financial relationship (for example, shared responsibility for mortgage payments on a co-owned property).

Taxes Owing: If you pass away without a spouse or common law to roll over your assets to, there will be tax owning. An example of this would be an RRSP account. If on death the deceased had $1,000,000 in RRSP's, (in BC - 43.7%) will go to taxes as the full $1 million would be considered income in the year of death. If the proper planning is sought prior to passing, you can essentially cover that tax liability using life insurance and enable your children or beneficiaries to preserve the value of your estate.

Built into our proprietary MAPP process is a confidential needs analysis to help you determine an adequate amount as well as establish the type of coverage apprpriate to your goal. A team member is ready to book your fit appointment now.

Use your Life Insurance for Retirement Income

Many people believe as they get older and become more financially independent, their need for life insurance decreases. You may not realize that life insurance can provide more than financial protection for a family to maintain its standard of living should a parent die prematurely. It can also be used to help pay taxes that may arise upon death on a growing estate, ensuring as much of the estate as possible is passed on to beneficiaries.More...

Quite possibly, the largest burden on your estate could be the taxes owing on the assets you’ve worked hard to accumulate. You may not use all of your assets during your lifetime and might hope to pass the nest egg on to your heirs upon death. You may wonder about the safety of your investments and worry about the taxes owing on death and how it could seriously reduce the value of your estate. If you are already in a high-marginal tax bracket, paying the highest tax rate on your investment income, this can drastically reduce your actual return on investment.

Imagine yourself 25 years into the future. Contact Dustin today to obtain a chart and graph comparison between the retirement income producing vehicles vs. the income out of a participating life insurance policy.

What Dustin T Serviss can offer...

Among the solutions tailored to meet your specific needs that may be presented to you, a permanent life insurance policy may substantially increase the value of the capital that is ultimately transferred to your beneficiaries (on the death of the second insured). And, unlike other investments resulting in taxable growth, life insurance provides tax-advantaged accumulation that passes tax-free to your named beneficiaries upon death.

The insured asset transfer concept also allows you to retain control of your capital in a tax advantaged insurance policy. It provides immediate estate enhancement, allows for tax-advantaged growth of your savings, and offers permanent life insurance protection. You can also change the policy beneficiary and may adjust the coverage amount. There are no probate fees (not applicable in Quebec) on the death benefit as long as you have named a beneficiary other than your estate.

While you are alive, permanent insurance can also provide you with a source of income. These policies have cash values that accumulate on a tax-advantaged basis and can be used for retirement purposes or to provide liquid savings or to fund long-term care needs for adult dependants. The cash value that may be available depends on how the policy is funded and on tax laws in effect at the time funds are withdrawn from the policy.

Set up an appointment today to explore the options for gaining access to your policy cash values. You need to take the time to determine a solution that is right for you. It is important to choose a plan that can change over time as your needs change. The cost will depend on your health and lifestyle, your age, gender and which policy you choose. Dustin T Serviss can help you to analyze your own situation (exisiting policies) – together we can determine a solution that is right for you.