Thursday, October 8, 2015

Do Your Family a Favor

<a href=""><img src="" alt="Family of four at home" border="0"></a><br><strong>© Photographer: <a href="">Jackf</a> | Agency: <a href=""></a></strong>
When family members depend on you for financial support, you never want to intentionally disappoint them.  Yet accidents and illnesses are the sharp turns in our lives we never expect. When you hear the news about a tragic vehicle accident resulting in a fatality or you read an obituary for a father of two young children who passes away because of cancer, you may contemplate your own demise. Death brings heartache, grief, and loss.  The financial stress is an additional burden which can be avoided with life insurance yet insurance can be “a sensitive topic” simply because of its link to death. 

Put yourself in the situation of these family members coping with the news of their loved one’s death. Do you consider whether the family will survive financially without that second income?   An insurance benefit cannot replace the life lost but it can help cope with the financial loss. I believe the benefit of having insurance is to ease the financial burden that results from death, allowing the family to grieve only for the person rather than both the person and the change in their standard of living.

Five Important Reasons for Life Insurance 

My list of five important reasons is compiled to show how life insurance fills the gap in a financial plan. Generally, people are concerned about having sufficient assets to retire but we know retirement only occurs if we live.  Our focus has to also include other aspects:  survivor and estate needs.  

1.    Income replacement.  You are an income producing machine. When you earn an income, you have the means to enjoy life, pay bills, make loan payments and save for retirement. No surprise here. When you leave this life, your income immediately stops. Your potential earnings were intended to support loved ones, your family who depends on you. Having insurance is the replacement for your potential earnings. Your surviving children’s plans for post-secondary education will not be jeopardized.  

2.    Pay off debt.  A lump sum insurance benefit will pay outstanding debt. Your surviving partner will not have the responsibility of both living expenses and debt payments on a single household income.   

3.    Pay taxes, funeral and administration expenses.  The event of a death may trigger a tax liability on any assets held solely in your name. Provisions are made for certain assets held in joint names to automatically be transferred to the spouse without any immediate tax consequences.   When business assets are owned solely in one’s name or when both husband and wife died together accidentally are situations where an estate may face a huge tax liability. Death brings with it an entourage of expenses.  In addition to taxes, money is required to fund funeral expenses, lawyer and probate fees.  Having insurance is one way to pay these expenses rather than sell assets needed for your survivor(s).    

4.    Create an estate for family or charity.  Your intention may be to leave money to family members or charity when you die. However, you are concerned you need the money to support your lifestyle and can’t possibly do both.  You could consider paying the insurance premiums towards a permanent insurance policy the same way you would deposit money to a savings account.  Upon your death, the cash benefit would be paid directly to your beneficiaries as you intended.  Funding the premiums would not be a financial burden.  

5.    Buy-Sell Agreement.  When you are a partner in a company or shareholder in a corporation, you may consider insurance as a means to purchase your vested interest in the event of an untimely death.  Your beneficiaries may not have any interest in taking part in the business operation.  The sale proceeds would then be passed to your beneficiaries through your estate.  

Why Insurance is Important?

I believe the real tragedy is when people do not take the time to calculate the financial loss that would be imposed upon their families if they were to die.  Their income dies with them.  Just as tragic is when people disregard life insurance because it is an additional cost with which to contend. The premiums should be viewed as reassurance:

q  That their loved ones will continue to maintain the standard of living they are accustomed to enjoying.

q  That their loved ones will not struggle with unnecessary debt;

q  That their loved ones will be cared for financially.

Unfortunately, many view insurance as something they would only purchase if they knew they were going to die.  That’s not the way it works.  Insurance is something to be considered sooner rather than later.  The reason is “insurability”. Pre-existing conditions could prevent people from being insured. In certain cases, premiums may be risk-rated depending on the present health condition(s) which may result in increased premiums. As expected, insurance premiums increase with age.    

With so many insurance products you would want to discuss your greatest risks with an insurance representative to match the right insurance products for your needs.  Scheduling a date with an insurance representative is a commitment you want to keep not only for yourself but for your family. Do your family a favor and set up the appointment soon.  

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