YOU never know what kind of curveball life is going to throw at you at any age, so it is important for you to be prepared in order to protect your family in any situation.
Insurance can be your safety net in unforeseen health situations and can protect you and your family from a possibly dire outcome.
A need for insurance can change throughout your life. When earning an income it
is very important to ensure you have adequate shortterm and long-term disability
insurance, either through your employer or personal insurance. It is important to note that often insurance plans only pay up to twothirds or 67 per cent gross income (which may or may not be taxed depending on the plan). Either you need adequate savings in your portfolio or in the bank, otherwise you need to be added onto your employer's plan. If you are out of work for three to six months then you may find it very difficult to keep up with mortgage payments or other bills. This could be detrimental to your financial health and the wellbeing of your family.
If you have dependants, having insurance at any age is a good idea. Make sure you take a look at your mortgage along with any loans or credit cards and put measures in place that will ensure they will be paid in the event of the death of a spouse. This will alleviate the added stress of financial worries during already tough times. If you already have insurance, be sure to review the details regularly, making sure it is up to date and all payments have been made as it can be canceled if you do not pay your premiums.
Often when people retire they have accumulated a fairly significant amount in their RRSPs. There is a tax-free rollover between spouses should one pass away. The issue is when the RRSP or RRIF is passed to a beneficiary other than a spouse, such as your children. There can be a significant tax burden as it is considered income in the year of your death. For example, if your registered account is $500,000 then your beneficiary will pay $218,500 in taxes to the government. Usually the more cost-effective thing to do is buy insurance to pay for the tax when you are still in good health and are able to qualify. Many investors don't think about this until it is too late.
Insurance is definitely not for everyone, as many investors have enough in their savings to get through an unforeseen setback and others may not worry about the taxes their beneficiaries pay. But, it is always important to have a clear plan to ensure you and your family are protected and insurance can be invaluable when an unforeseen event strikes. Similar to wearing a life jacket or a helmet - you hope you won't need it but when you do, you're thankful it's there.
Lori Pinkowski is a portfolio manager and senior vicepresident, private client group, at Raymond James Ltd., a member of the Canadian Investor Protection Fund. This is for informational purposes only and does not necessarily reflect the opinions of Raymond James. Lori can answer any questions at 604-915-LORI or [email protected]. You can also listen to her every Friday on CKNW at 5:35 p.m.
