Should You Fit Life Insurance Into Your Budget?

There is a certain amount of peace of mind that is realized when you have purchased enough life insurance to give your family a strong future should anything un-towards happen to you unexpectedly. The most obvious goal of life insurance is to provide for your family in that event but when should you realistically start to think about those morbid eventualities?   The practice of seeking out the right insurance policy is not an easy choice either.

There are many variables when beginning to consider just what to buy.   Length of term, amount of coverage and cost of same to name just a few of the most important, but there are other things to consider as well.   The professionals all agree that when starting the conversation you need to take stock of your personal situation before signing on any dotted lines.   What are the expected outcomes of the policy you are seeking?   Do you want the family to be able to have the same standard of living after you pass, or simply have enough to get the kids through college and pay off any remaining mortgage?   You need to decide what the plan is so that you will know and understand the type of coverage you truly need and what the subsequent cost of that coverage will be.   Once that part is clear you then need to educate yourself on the many different types of coverage available.   Do you want a permanent or temporary plan? There are different types of life insurance; one is called term insurance that typically covers a person for set period of time.

The cost will increase over time and usually with the renewal of the policy.   You may set a term of 10 or 15 years and pay for coverage for that period and then choose to renew or not to renew.   The payments you make are non-refundable and unless you make a claim you receive nothing at the end of that term. You are simply covered for that period for the amount you have agreed on with the insurance company. Whole life insurance is a little bit different in that you pay a usually fixed amount for the duration of your life and the insurer will eventually be forced to pay the claim upon your death. There are several other choices as well, one being universal whereby you pay premiums that are a combination of insurance and investment dollars.

The premiums are generally a little higher but a portion of the premiums go into a tax free investment account and if the fund generates enough money you are not forced to pay premiums every year. Contacting a respected insurance broker and discussing all of your options is the absolute best bet, knowing all your options is the key to getting the right policy for you and your family.

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Sam Seidman, CPA, CA, LPA
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Toronto, Ontario
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