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Why You Should Get Life Insurance

By December 20, 2019 December 23rd, 2019 No Comments

Rob:

Financial planning; why it makes sense for you, what to make sure you have, and what are the pitfalls to avoid?

I’m Rob Tétrault from robtetrault.com, Head of the Tétrault Wealth Advisory Group here at Canaccord Genuity Wealth Management. I’m here with Adam Buss. He’s a CFP wizard with this kind of stuff. Senior Wealth and Estate Planner here at Canaccord Genuity Wealth Management. Adam, thanks for being here.

Rob:

Why should you get life insurance? Today I’m chatting with you with none other than our Senior Wealth and Estate Planner, Mr. Adam Buss. First of all, tell me about the different types of life insurance that exist. Obviously, the question today is why should you own life insurance?

 Adam:

Well, there’s two major types of insurance that we’ll kind of cover. There is term insurance and there is permanent insurance and there are a variety of different contracts under each of those.

A term insurance generally is meant for those who want to replace their income, to make sure that their surviving spouse is taken care of, their families are taken care, and their debts paid off if they pass away.

And then there is permanent insurance. Permanent insurance is designed for a long-term need, leaving money for your estate, your beneficiaries, charitable donations covering large tax bills such as a family cottage, as an example.

These are a few of the different types of things we often see.

Rob:

Okay, now why should you have life insurance?

Adam:

Why not? That’s probably the better question. But it’s probably the most selfless thing you can purchase in your lifetime is to make sure that your family’s taken care of in the event that you pass away. Let’s say, Rob, you had an ATM in your house that spit out $60,000 a year. Would you put insurance on it?

Rob:

Absolutely.

Adam:

Who wouldn’t put insurance on it? You are that ATM. You are the one that has that earning power every year. Whether it’s $40-100k dollars a year of salary, if you were to pass away prematurely, that just disappears. Who wouldn’t want to make sure that that continue to make sure that your family’s taken care of financially?

Rob:

Now what about someone who says that, you know what, I’m just going to save that money and I’m just going to of a self-insure. Why would you not want to do that?

Adam:

Some people may have a large amount of wealth and be self-insured, but you know, do they want to transfer that wealth to their family? Or do they want to have to spend it all just to afford to put food on the table and have nothing left for their family long-term to accomplish their goals.

Rob:

Okay. Let’s start with the term insurance. Term insurance as I understand, is effectively renting, right?

Adam:

Precisely. Yeah.

Rob:

Who would that typically be suited for?

Adam:

That would be suited for, again, anybody who’s looking to replace their income coverage, shorter term need – you are renting the coverage; therefore, it is cheaper than owning it long term. It is fairly affordable, and a great way to protect your family, while also covering your debt in a very affordable manner.

Rob:

Okay. And then the permanent coverage, there’s a few different types of that as well?

Adam:

There are a few different types. There’s the universal life and participating life. The idea is that it’s a whole life, meaning it’s around for your entire life.

It is guaranteed to pay out at some point in time, hopefully many years down the road. But it is there to ensure that the long-term needs are there as a protection. I like to consider it a part of your investment component. It is a piece of the puzzle. You’re investing in that long-term growth of that policy.

Rob:

We do that here. It is part of the complete holistic investment picture. And if you’re not sure about that, please don’t hesitate to go to speaktorob.com and to book a consultation. Let’s get back to this. The whole life that pays when I die. Correct?

Adam:

Correct.

Rob:

Does it also pay if my wife dies before?

Adam:

It depends on how you structure the policy. You can have one just on your life. You can have a joint one with your spouse. Often for those for estate planning purposes, we’re going to set it up as a joint last to die policy. There, both husband and wife are insured on one policy and it pays out when the second person passes away.

Full Video & Blog Article on Financial Help for Widows – Top Things to do After Spouse Passes Away 

Rob:

What about a joint first to die policy? When would you be using that?

Adam:

Those are often used for making sure that either surviving spouse is looked after financially, and there’s money to pay off debt. Those are often things that we kind of see that when the first person passes away that those needs are looked after.

Rob:

Okay. And the joint first to die versus the joint last to die, which one would be more expensive?

Adam:

First to die would be more expensive.

Rob:

Alright. Now we’re insured. We’re protected until we die. Now the permanent insurance you talked about – we talked earlier about cottages and stuff. Give me an example of how insurance could be potentially used to protect a cottage, or to make sure that a cottage can stay in the family.

Adam:

Sure, great question. Often cottages have a large capital gain at the time when the second person passes away. Let’s say you bought it for $100,000 20 years ago and 30 years from now it’s going to be worth half a million dollars.

That’s a $400,000 gain in value that the government is going to want their share of tax on. Do you want to leave your kids a financial burden by having to either get a mortgage on that property just to pay the tax bill or having to sell the property just to pay the tax bill? Often a cheaper way is to use a permanent life insurance policy to pay out to the estate to pay that tax bill.

Full Video & Blog Article on Inheritance Tax

That way the family cottage and all the memories that go with it can stay in the family

Rob:

Because otherwise, if mom and dad pass away and the cottage goes to a younger child who might not have the net worth to be able to pay the tax bill, because the tax bill’s payable. Whether or not the cottage is sold or not, the tax bill is payable.

Adam:

Yeah.

Rob:

It is a deemed disposition. I mean, whether or not they want to put a mortgage on it, maybe they can’t get a mortgage on it. All of a sudden now you’re left with a situation where, you’ve got to sell the cottage because you can’t pay for it.

Adam:

That’s right.

Rob:

Now what about individuals who built up assets and value through real estate?

Adam:

That’d be a very similar concept.

We do come across a lot of clients that have large rental portfolios, where they bought them at a great deal. They’ve grown in value over time and now there’s a very large capital gain at the time of death because the real estate has also grown in value. They’ve also depreciated along the way to help offset some of their income tax on annual basis. Those are all things that we want to look at to come up with a solution, which is often life insurance as a way to create the liquidity for the estate instead of a having to go and sell the entire rental portfolio or have to go and get the additional unnecessary debt on that.

Rob:

Okay. The one you rent, a term insurance, and the one you own permanently permanent insurance, whole life, et cetera.

A lot of times this will be used in tax planning, if I understand correctly, right?

Adam:

Yeah. Often one of the overall most overlooked, but most valuable tax tools is using a whole life insurance policy as a tax strategy. Those policies grow tax exempt behind the scenes. It’s a great place to park money, surplus non-registered money using as a strategy within the corporation, which is a much bigger topic. But those are things that we work with our clients on a daily basis, coming up with the right strategies to put in place to save them the most tax.

Rob:

It’s not just to protect the risk of you or me dying. It’s not just to pay a tax bill potentially or debt. That’s not just to make sure the cottage stays in the family. It could also be used as a tax planning tool.

Adam:

Exactly. Is absolutely a tax tool as well.

Rob:

Okay. Adam, real great to chat with you. We appreciate the time today talking about life insurance and why you should have life insurance. If you do have further questions on this aspect or anything involved in financial planning, please go to speaktorob.com and schedule a free, no obligation consultation.

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