Life Insurance Frequently Asked Questions
Q: Do I need life insurance?
If you can afford it, there are several reasons why you may need life insurance. The most important reason is to have enough money to provide for dependents such as young children, non-working spouses or elderly parents, should you die and be no longer able to provide for them.
Also, your survivors may need funds to pay for extra expenses that may arise due to your death, such as funeral expenses, or other expenses to pay off bills and debts.
If you have no dependents or have adequate financial resources, you may not have an actual need to purchase life insurance. However, some people who do not “need” life insurance still purchase it anyway. This can be a means to leave money to a beneficiary or beneficiaries while minimizing tax consequences.
Q: Why would I buy life insurance?
Some reasons to buy life insurance include income replacement, funeral expenses, and to pay off debts.
Q: As a single person — how much life insurance should I get, or do I need?
There is no right answer to determining how much life insurance any individual needs. There are many formulas you can use to help you determine the best amount for you. As a single individual, you don’t have a spouse or children to support after your death but you may still want to leave a legacy for those that you love. When determining the right amount of insurance for you, you must decide what the goal of your death benefit is and how much money you’ll need from an insurance policy to achieve that goal.
Q: I am recently widowed and I can’t find my spouse’s life insurance policy. Can I still get the benefit?
Yes, you can. Life insurance policies are not claimed exclusively by showing policy documents. Insurance companies keep the insured individual’s electronic records including their death benefit, cash values and their beneficiaries. If you are the beneficiary of a life insurance policy simply call the insurer who issued the policy and find out how to submit a claim. If your claim is in order and the company confirms you as the beneficiary, they will send you your benefit once the claim is approved. You might not know exactly who your spouse’s beneficiaries are (they may have changed it after filing the original application), but the insurance company does.
Q: Is there a certain amount of life insurance that I am required to buy?
Although there are “rules of thumb” such as your life insurance should be 10 times or 20 times or some other multiple of your annual income, the best approach is to consider your own personal needs so that your survivors have adequate life insurance proceeds to meet their financial needs in the event of your death.
To estimate how much money may be needed, you should make a list and estimate the expenses that need to be covered. This could include the cost of paying funeral expenses and the amounts that your spouse and young children need for mortgage payments, household expenses, education, etc.
If you have difficulty drawing up this list, you can seek the advice of a financial planner.The end result of this process is to estimate the amount of life insurance you should have in order to provide adequately for your dependents and survivors. Of course, this amount will usually change over time due to life changes. Therefore, it is good idea to periodically review your numbers to make sure that they are up-to-date.
Business Insurance Frequently Asked Questions
Q: My business is incorporated. Do I need business insurance?
Business structures like incorporation provide protection for the owner’s personal assets, but they do not make business insurance needs irrelevant. Incorporation could provide some benefits, but still you can be personally liable in case of a lawsuit. Thus, you risk both your business and your personal assets by not having a business insurance policy.
Q: What is disability insurance?
Disability insurance provides a monthly income in the event you are unable to work due to an injury or illness. This type of coverage is crucial for self employed individuals and people who do not have disability insurance through their employer.
Q: How does key person insurance work?
The employer would be the owner and beneficiary of the policy. The key employee would be the life insured, but would receive no benefit from the existence of the policy. Under the “Income Tax Act” no deduction can be claimed by the employer for premiums paid under a key person policy. However, any death benefit proceeds would be received tax free by the employer and would provide the liquidity needed to hire and train new skilled individuals and provide cash flow through a period of sales decline.
Q: Are key person insurance policies tax deductible for my business?
No. Under the “Income Tax Act” no deduction can be claimed by the employer for premiums paid under a key person policy. However, any death benefit proceeds would be received tax free by the employer and would provide the liquidity needed to hire and train new skilled individuals and provide cash flow through a period of sales decline.
Q: How does critical illness insurance work if I am self-employed?
Critical illness insurance provides a lump sum benefit if you fall victim to one of the illnesses covered by your policy. Most insurers cover 18 serious illnesses, including heart attack, cancer, stroke, and Parkinson’s and Alzheimer’s disease. What you do with the benefit is up to you. You can use the money to help you recover from the illness, or to improve your care if there is no chance of recovery. You can seek alternative care, pay off your mortgage, hire a health care worker, or use the income to cover expenses until you can work again.