Insurance
Tips for the First-Time Buyer of Insurance
Looking to buy life insurance for the first time? Some important tips will help you make the right decision.
1. Why You Need it
If others depend on your income for support, you should strongly consider life insurance. Even if you don’t have any of these needs immediately, you still may want to consider purchasing a small “starter” policy to provide your family with financial security in the event of the death. It can help your dependents pay for mortgages, a college education, help to fund retirement etc.
2. How much you need.
The amount of death benefit your family or heirs will receive after your death is how much you need. It depends upon various factors and each individual has unique need. You need to discuss with your insurance agent.
The easiest way is to simply take your annual salary and multiply by 8. A more detailed method is to add up the monthly expense your family will incur after your death. Remember to include the one-time expenses at death and the ongoing expenses such as a mortgage or school bills. Take the ongoing expenses and divide by 0.07. That indicates you’ll want a lump sum of money earning approximately 7% each year to pay those ongoing expenses. Add to that amount any money you’ll need to cover one-time expenses and you’ll have a rough estimate of the amount of life insurance you need.
3. Type of Policy you need.
Once you’ve got an estimate of how much insurance you’ll need, it’s time to think about the type of policy that best fits your needs. Today life insurance comes in many varieties, but there are four basic types; term, whole life, universal life, and variable life. As a first-time buyer, one will more than likely fit your needs.
Term Life Insurance
As its name implies, term insurance provides life insurance protection for a specific period of years. Benefits can be used to help pay off mortgages and other outstanding debts in the event of a premature death. Generally the least expensive form of life insurance, term provides pure insurance protection only.
Whole Life
In contrast to term insurance, whole life, also known as permanent insurance, protects you throughout your lifetime, from the day you purchase the policy until you die, as long as you pay the premiums. Guaranteed for life, your policy will be renewed every year, regardless of your health for as long as you live, again, as long as required premiums are paid.
Universal Life
Universal life also provides permanent life insurance protection and access to cash values that grow tax-deferred. Universal Life differs from whole life in its flexibility that enables you to choose the amount of protection that best suits your family or business. With Universal Life, you can increase or decrease your coverage, as your insurance needs change and control the amount and frequency of premium payments. The policy can also be customized with various riders to fit your lifestyle.
4. Look at the Quality of the Company
An insurance policy is only as good as the company that backs it. You want to know for certain that the company that issues your policy will be around to service it and eventually pay the death claim. To help you discern the strongest companies, there are several ratings agencies that rate insurance companies on the quality of their fiscal fitness, quality of investments, and overall financial soundness.
5. Look at the Quality of the Agent
Agents provide an invaluable service. The relationship you develop with an agent can last a lifetime. Second, an agent can help you update your coverage as your needs change. They can help you guide you through a lifetime of financial decisions, giving you one less thing to worry about. It is therefore, very important to assess the knowledge and ability of an agent. There are many new agents who join the industry but leave the business due to challenge and failure to sell. Buyers from those are left without service.
6. Don’t buy insurance like vegetable.
Buying insurance means a life time commitment of funds in exchange for financial coverage in emergencies. Don’t buy what is first offered, but seek a second opinion. Convince yourself about the need and the financial commitment.
Investments
Financial security in retirement depends on understanding and managing risks that can erode even significant life savings.
Significant risks are:
1. Longevity:
You need to plan for the possibility that you will live longer than you think. Some may die younger than expected. Without planning, a longer-than-expected life could easily result in individuals or couples outliving their savings. You may need to plan for the very real possibility of needing 30-40 years of post retirement income.
2. Inflation risk:
Inflation is an economic constant and will inevitably erode the spending power of retirement savings. It is therefore essential for post-retirement portfolios to include investments that will, at the very least, keep up with inflation.
3. Asset allocation risk:
Investors with long time horizons can wait out the inevitable ups and downs of the stock market, adjusting their savings strategies to get them back on track. But the person closer to retirement age will probably have less time to recover from downturns. Portfolios must be designed with these risks in mind.
Key to long-term success is most likely in a balanced asset portfolio. Longer retirement planning horizons, reflecting greater awareness of longevity risk, make stock holdings a vital part for portfolios intended to provide income throughout retirement.
4. Excess withdrawal risks:
Changing the annual rate of withdrawals can, of course, dramatically affect how long a portfolio will last. The risk of outliving one’s investments rises at withdrawal rates over 4%.
Consider a conservative withdrawal rate in the early years of retirement. If you have planned wisely and preserved your investments, you may increase withdrawals later in retirement, with less risk of depletion.
5. Health care expenses:
Though these are difficult to predict, they should be included in retirement planning. You may think carefully about what you feel is essential for your own quality of life in the event of disability or sickness.
Putting enough money aside to cover a range of potential situations can provide you with considerable peace of mind. We help you to buy Life and living benefits insurance, and contribute to RRSP and RESP. This is not a comprehensive view of all aspects of retirement planning. To understand more according to your specific needs contact us or your financial advisor.