Thinking about your life insurance. Here is our top 6 questions clients often ask
- Do you have enough insurance?
Many clients assume $1 million in coverage is a good starting point — but is it enough? Consider your mortgage, your children’s education costs, and the funds needed to maintain your family’s lifestyle. In reality, every $1 million of insurance typically provides about $35,000 per year over 20 years. Is that sufficient for your family’s needs? - Should I rent or own my insurance?
Term insurance is affordable and works well for short-term needs — but it’s essentially “rented” coverage. Premiums increase over time, and coverage eventually expires. Permanent insurance, on the other hand, is coverage you own. It can be paid up in a shorter period and builds cash value that you can access when needed. Most clients have a mix of term and permanent insurance. - Can my corporation pay for my insurance?
If you are incorporated, your business may be able to pay for your life insurance. Upon death, the proceeds can flow through the corporation’s Capital Dividend Account and be distributed tax-free to shareholders. This can be a powerful long-term planning strategy. - Who is the beneficiary?
Have there been changes in your life — marriage, divorce, children? If so, it may be time to review and update your beneficiary designations. If your policy is personally owned, do you also have contingent beneficiaries listed? - When is the right time to buy insurance?
There is no right time but your only getting older so the sooner the better. Buying insurance at a young age locks in your rates and insurability. - What if I have enough money to retire, why do I need life insurance?
The answer is tax. Some clients are fortunate to have saved well over their careers and no longer need insurance for income replacement. However, it also most likely means the reason for life insurance has changed to tax and estate planning. Lets look at how your assets are taxed when you and your spouse pass away.
- Registered assets (RRSP/RRIF) – The value of the RRSP/RRIF is taxed as income. The highest marginal tax rate is 53.53%
- Non-Registered Investments – Gains are subject to capital gains tax of 26.76%
- Vacation property/cottage – Gains are subject to capital gains tax of 26.76%
- TFSA – The value flows tax free.
- Primary residence – The family home flows tax free.
- Capital gain on the disposition of shares of the corporation. The corporation was setup with a share value of $1. The deemed value of the corporation at the time of death is at least the fair market value of these investments. This value will be taxed as a capital gain as the shares are deemed to have been disposed. For example, lets assume you have $5M in assets in your corporation when you and your spouse pass away, your estate pay at least $1,26M in tax. Is this really what you intended?
Life insurance may be one of the most important purchases you will ever make. If its the cost your thinking about – think about it differently, insurance is not expensive, poor planning is.
We are here to assist. If you want to review your insurance, please call or email.
CONTACT ME TO TO REVIEW MY INSURANCE.
Elliott Levine, MBA, CFP
416-222-1311 I info@levinefinancialgroup.com