When you think of life and health insurance, you likely think of protection against risks to your health. Your investments might not be on your mind, but insurance and investments are related. If you lack adequate insurance coverage, you could be forced to tap into your savings to deal with the financial consequences of an illness or injury. Here are a few scenarios to illustrate the value of proper coverage.
Josef, a veterinarian, is owner/manager of an animal hospital. Soon after starting the business, he purchased long-term disability insurance with benefits payable to age 65. Four years ago, Josef was in a serious car accident and suffered a debilitating back injury; he’s been unable to work ever since. Thankfully, disability insurance benefits replace Josef’s income. Otherwise, he’d be depleting his savings to cover his cost of living.
Anna is married with three children. She has critical illness insurance that covers cancer, heart attack and stroke. Anna developed a type of cancerous tumour that some specialists deem inoperable. She chose surgery at a leading clinic in the U.S., and the surgery was successful. Her critical illness insurance benefit was enough to cover the $150,000 expense. Without coverage, Anna and her husband would have emptied their Tax-Free Savings Accounts (TFSAs).
Five years ago, Francine suffered a stroke that left her unable to care for herself. She’s in a residence that costs $3,500 per month, which is $42,000 annually. Fortunately, she purchased long-term care insurance when she retired. Already, her plan has paid out over $200,000. That money, without her insurance, would have come from her non-registered account and Registered Retirement Income Fund (RRIF), depleting the inheritance designated for her grandchildren.
Devon is planning his estate and projecting the amounts that will go to his three children. He realizes that Canada Revenue agency (CRA) will receive a larger share of his assets than any of his children will inherit. That’s largely because the tax bill on his Registered Retirement Savings Plan (RRSP) or RRIF will equal about half the amount of the RRSP or RRIF assets. So Devon purchases permanent life insurance with an insurance amount planned to offset the tax payable by his estate. Now his children should receive an inheritance equal to his assets.
When it comes to choosing your coverage, if one of your objectives is to protect your savings and investments, it makes sense to choose longer coverage and benefit periods when possible. Depending on the product and provider, disability insurance will provide coverage and benefits to age 65, critical illness insurance to age 100, and long-term care coverage for your lifetime.