Thursday, October 11, 2012

Why buy Life Insurance anyway?

The advantages of life insurance

An instant estate
Few individuals, particularly those with the responsibility of a young family, have sufficient savings to adequately protect their loved ones should the main income earner die.  Life insurance can help create an estate at a time when funds may be needed most. This is a low-cost way to ensure your family’s continued financial well-being.

Money in hand – quickly
Your beneficiary, the person(s) you name to receive the insurance money, will be paid within a few days of the insurance company receiving the required information. By contrast, savings and other assets may be tied up legally for some time after death.

Financial benefits you enjoy
Some people have the impression that insurance pays only if you die.  That’s not the case. Many permanent insurance policies (i.e. participating and universal life) build cash values that you can access during your lifetime. The cash value is the equity you have built up in your policy. Cash values can accumulate within your policy on a tax-advantaged basis. The growth in the cash value is generally only subject to income tax when it is withdrawn from the policy. Your policy’s cash surrender value can be used to:
  • provide funds in an emergency
  • finance a down payment on a home or cottage
  • launch or expand a business
  • act as collateral for a loan from a third-party lending institution
  • supplement your retirement income
  • provide income for long-term care or home care for you or your spouse
How you use the money is really up to you.

Other advantages
  • the death benefit is not subject to income taxes
  • probate costs can be avoided if you name a beneficiary other than your estate
  • unlike a will, information regarding your life insurance can remain private
  • in many instances, life insurance may be protected against creditors.
Who needs life insurance?

People with responsibility for others

For people who depend on you for support, a spouse, children or dependent adults, life insurance can play a fundamental role in their continued financial well-being.  In addition to making up for the loss of your income, the proceeds from a life insurance policy can be used to take care of funeral expenses and other costs such as a mortgage, loans or credit card payments. If you’re a stay-at-home parent, the role you play also needs to be covered because of the additional expenses associated with childcare if something happens to you.
People without family ties

Over the course of a lifetime, situations and responsibilities change.  Even if you are single, or you and your partner both work but don’t have a family, life insurance can still play an important role in your financial security plans.
A life insurance policy can provide an efficient and cost-effective way to take care of any expenses or unpaid bills you might leave behind, such as legal fees and taxes, medical expenses, funeral costs, mortgage debt or car loans. It can also be used to leave a gift to a loved one or a favourite charity or to provide a supplemental income while you are alive.

People with estates to protect
Many people believe as they get older and become more financially independent, their need for life insurance decreases. However, over a lifetime, estate values tend to rise. Life insurance can help pay the inevitable taxes that are due on an estate upon death. This can ensure as much of your estate as possible is passed on to your beneficiaries.

Business owners  If you’re a business owner, either on your own or with a partner, you may have personal liability for the debts of your business. In fact, the vast majority of your wealth is likely tied up in the business. You have a greater need to protect what you have built against unforeseen circumstances such as death and disability or to ensure liquidity for a variety of reasons including funds for retirement.
In case of death, it is important that you have adequate insurance.  Otherwise, the claims of business creditors could significantly reduce your personal estate and leave your beneficiaries without the financial security you had intended.  Equally important is the smooth transition of ownership of the business to a family member, partners or a key employee. A life insurance policy can make this possible.

Your business is an asset that provides income for your family, both while you are alive and after your death. It is also likely your largest asset and will provide you with a retirement income. Life insurance can ensure your family receives fair value for this asset at your death. 
People who want to leave a legacy

You may wish to leave money to family or a favourite charity. Life insurance coverage allows you to leave a lasting personal legacy and provide your favourite charity with stable funding over the long term without reducing the estate available to your family or jeopardizing your future financial independence. A carefully arranged planned gift can be tax effective, and at the same time balance your final needs and the needs of your family.
People starting a child’s or grandchild’s insurance program

Life insurance provides a powerful foundation for building your child’s or grandchild’s financial security plan.  Insurance can work as a flexible asset that grows along with your child.  Premiums are relatively low for children and this low premium can be maintained throughout their lives.

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