Inflation and rising mortgage rates have destabilized the budgets of many families. From a strictly financial point of view, we have collectively realized that the future is full of surprises, which demonstrates the importance of protecting loved ones with adequate life insurance. Here are the recommendations of Étienne Belzile-Paquet, head of the protection pillar and financial planner at Desjardins.
Set your intentions
Life insurance can fulfill very different roles and certain types of products are better suited to this than others.
For a family with children whose objective is to make up for the loss of income in the event of the death of a parent in order to maintain the same standard of living, term insurance can be an interesting option. A term life insurance of 10, 20 or 30 years will pay a lump sum following death, in return for the payment of a fixed premium during the determined period. At the end of the contract, your personal life insurance coverage will end.
Here’s another scenario: An entrepreneur is worried that when he dies, his estate will end up with a large tax bill because of the sale of his business. Permanent life insurance can then offer an advantageous means of guaranteeing a benefit to settle taxes following death, with protection for life.
Other products like participating insurance and universal insurance may even include a savings component, which allows your funds to be used in a number of ways, such as providing a financial foundation for loved ones, financing the growth of your business or increasing your retirement income.
Determine how much you need
Life insurance can make it possible to cover certain expenses related to the death, such as funeral expenses , and to give an amount of money to loved ones, according to each person’s wishes. Life insurance also makes it possible to repay the personal debts of the deceased, for example, the balance of a credit card.
“Performing a financial report, by a financial professional for example, is the basis of the needs analysis to know the difference between our liabilities and our assets in the event of death; then, the evaluation of our cost of living is added to the previous calculation”, explains Étienne Belzile-Paquet. “This calculation gives the amount of insurance we need to fill the gap and ensure that the family maintains the same standard of living. »
Assess the length of protection you want
For how long do we want to protect our loved ones? In theory, if a family where 2 parents earn a net salary of $50,000 per year wants to ensure an equivalent income for 10 years, coverage of $500,000 is provided for each, according to a very simple multiplication. “In practice, we add certain parameters such as the inflation rate and the interest rate that the money invested could generate, to have a more realistic calculation,” continues the financial planner. Financial security advisors use analysis software to make such projections and accurately determine needs.
The cost of an insurance policy is calculated, among other things, according to the age of the applicant. In most cases, the older you get, the higher the price. Conversely, when you’re young, health problems that can lead to a premium or refusal are generally rarer. Additionally, the application is less likely to require additional testing, which greatly simplifies the process.
Adopt healthy lifestyle habits
Health status also influences pricing, as does tobacco use. In addition to completing a medical questionnaire, you may need to take certain clinical tests – usually a blood test and urinalysis, but an insurer may require additional examinations – depending on age and amount of coverage asked.
Seek help from an advisor
Between the different product categories, protection levels and policy durations, it’s easy to get lost. “Online tools can do part of the job, but a financial security advisor takes the thinking further, making sure to properly analyze the amount of protection required and the most appropriate type of product,” recommends Étienne Belzile-Paquet. “That’s what financial security advisors are there for! “.