7 Practical Tips for Couples Taking Out Life Insurance
If there’s anything the COVID-19 pandemic has taught us, it’s that you can never be too prepared for what may happen. This is why it’s essential to invest in life insurance early on, to secure your loved ones’ futures in case something happens to you. But with so many options to choose from and so much information out there, it can be rather overwhelming for couples to figure out where to start. So below, we’ve compiled a list of tips to help you out.
- The earlier you start, the better. Before you get approved for a life insurance policy, you will need to undergo a process called underwriting, which involves answering a series of medical questions to assess your overall health. This allows your insurance provider to weigh up the benefits of insuring you versus the likelihood that they’ll have to pay out a claim. Healthier individuals have higher chances of getting insured, while those with health conditions — such as hypertension or diabetes — may either have to pay a higher premium or get denied outright. As such, it’s a good idea to apply for life insurance at the peak of your health.
- Find out how much coverage you need. It’s easy to underestimate how much life insurance you need, especially when you’re at the height of your earning potential. A good rule of thumb is to have a policy with coverage worth 10-12 times your annual salary. However, you might need more if you’re supporting extended family, or have other financial obligations like debts or loans.
- Consider using a “ladder strategy.” Typically, your insurance needs variation at different points in your life. Young couples who are starting a family, for instance, have more financial obligations to worry about compared to when the kids have flown the nest. This is what the ladder strategy takes advantage of. Laddering simply means taking out multiple insurance policies with different term dates, with the amount of coverage tapering off as you get older. This ensures that you’re only paying for as much coverage as needed, potentially saving you thousands of dollars in the long run.
- Decide if separate or joint life insurance policies are better. Just because you’re a couple doesn’t mean you have to take out joint life insurance. Depending on your needs, it might be best for couples to get separate life insurance policies. This way, you can better fine-tune the terms of coverage, the beneficiaries, and the amount you contribute for each policy. However, there might also be some instances when it’s better to use a joint policy, particularly if either one of you have health conditions for getting approved. Be sure to research well which option gets you the best coverage.
- Look for convertible term life insurance. Term life insurance expires after a set period, but it’s usually enough for most Canadian couples who can’t afford permanent life insurance. However, some term life insurance policies can be converted to permanent ones, which is an option you might want to look into eventually. For example, if you get diagnosed with an illness — one that makes you uninsurable in the Canadian market — towards the end of your term insurance coverage, you should consider converting to a permanent policy to protect your beneficiaries.
- Use permanent life insurance to boost your savings. TFSAs and RRSPs are great savings vehicles, but they have a contribution ceiling that limits how much you can allocate to them. Taking out permanent life insurance policies — which have a cash-value portion for investment — is one way to circumvent this. Unlike early RRSP withdrawals, which incur hefty taxes (since these are prematurely made), withdrawing from a life insurance policy is tax-free — as long as you don’t surpass the policy’s adjusted cost basis.
- Consult a qualified insurance broker. Leading insurance brokers, like Bauld Insurance, have professionals trained to offer the best life insurance policy options for their clients. Aside from tailoring their recommendations to your needs, they can help you understand the financial jargon that comes with the industry, thus equipping you with the knowledge to make an informed decision for your partner and family.
You never know what life may throw at you next, which is why it’s important to cover all your bases — even, and especially after you’re gone. And doing so doesn’t have to be a tedious process either, with the right people on your side.
Written by Amelia June, exclusively for Bauld Insurance
To speak with our Bauld Insurance – Managing Advisor Life Insurance, Christina Wyatt, visit our Life Insurance page and request a quote today!