LIFE LETTER MATURE
How long will I need life insurance ?
Jack and Diane were wondering how long they would need life insurance. One person said that they only need coverage for twenty years, after which they should self-insure. Another said that they should only buy permanent life insurance because of the cash values. They decided to meet with a life insurance professional to get the whole story.
They learned that everyone has unique needs and that these needs change as they pass through their different life stages. When Jack and Diane first bought life insurance, it was to provide for the following:
1. Final expenses
2. Debt elimination.
3. Child or home care funding.
4. Education funding.
5. Special bequests or charitable giving.
6. Income needs for the survivor.
As their children got older, the need for child-care funding was eliminated. After the kids finished with post-secondary education, the need for education funding ended. Jack and Diane have paid off most of their mortgage and other debts over the years, so the debt elimination need has also reduced. They plan on using their RRSPs and other retirement plans to provide for their income needs.
Jack and Diane soon realized, though, that they have lifetime needs that must be provided for. And these needs will change in amount over time.
When they were younger, not much was needed to cover off their final expenses. However, inflation has increased this need and will continue to do so. The average annual compound inflation rate in Canada over the past 30 years is 4.5% (Source: Statistics Canada). This means that in about sixteen years, twice as much money will be needed to pay off these expenses than today.
Let's say that Diane would need $50,000 today to pay Jack's potential funeral and burial, and legal, probate and other estate costs at his age 50. At his age 66, she will need $100,000 and at age 82, his life expectancy, the need will be $200,000. And the same holds true for when Diane dies.
We can't forget Jack and Diane's most insidious heir, either. The Canada Revenue Agency (CRA) will be waiting for the second death to occur. CRA will want the taxes due on their RSP and other tax deferred assets. The RSPs will likely be taxed at the highest personal tax rate, between 39 and 49, depending on province of residence. If they have $500,000 in their RSPs at that time, up to $245,000 will be needed to pay off the taxman. Permanent life insurance is an excellent source for this cash.
Time to renew your life insurance needs ?
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