Sigrid Forberg
Dec. 13, 2021
No one likes to imagine their family carrying on without them.
But even more painful to picture would be your loved ones unable to make ends meet while still in the early days of grieving your absence.
Life insurance provides policyholders with the peace of mind that their beneficiaries won’t have to worry about money when they die. And while that’s reason enough for many to get insured, these policies offer a handful of other ways to protect the people and causes you care about when you’re gone.
And while experts say affordability is often the factor Canadians cite when explaining why they don’t have insurance coverage, considering the varied ways it can be used, the value of a policy far outweighs the price for most consumers.
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How much you’ll pay for insurance coverage depends on a variety of factors. But a healthy man in his mid-30s can get $250,000 in coverage for about $160 a month. A woman the same age would pay about $130 for her monthly premium, according to PolicyAdvisor , an online insurance marketplace.
“There is, I think, still an ongoing [belief] around insurance that it’s not necessarily a good deal,” says Kevin Wark, tax consultant for the Conference for Advanced Life Underwriting and managing partner at Integrated Estate Solutions in Toronto.
“I wouldn’t say it’s uninformed, because it may be true for some people. But if you look at the potential benefits of it, the premium cost is quite reasonable.”
However, the sooner you get coverage, the less it will cost you, as increased age or health concerns make getting insured more difficult and expensive.
How insurance helps your family in the immediate days
When someone dies, their estate moves into a legal process known as probate. Even when a person’s wishes are clearly laid out in their will, this process of having the court formally approve the distribution of their assets can take well over a year.
Which means it’s up to the person’s family to figure out how to keep paying their mortgage, utility bills and school tuition until the estate is settled.
Insurance death benefits, on the other hand, are distributed fairly quickly. In most cases, the insurance company only requires a death certificate and the beneficiary should receive their money within a few weeks. On top of that, it won’t be subject to the same taxes as the rest of the estate.
Wark says that quick cash can be helpful for more than just paying off a mortgage.
“For spouses, it may allow them to stop working for a period of time to deal with the emotions and financial issues arising from the death of a partner,” he says.
Paul Howard, a certified health insurance specialist with Athena Wealth and Legacy Solutions in Kingston, Ont., adds other types of debts can pile up before an estate is settled, especially in situations where an older parent’s home or property has increased a great deal in value.
His own family is dealing with just that situation following the death of his father-in-law, who left behind a farm that will face considerable capital gains taxes.
“Insurance can help pay off those capital gains … some people end up losing their houses because they can’t afford to pay the capital gains,” says Howard.
Fortunately, in Howard’s case, his father-in-law was organized and had arranged his funeral and burial expenses — which he typically warns his clients could cost up to $20,000. But not everyone has the luxury of time or money to sort those details out in advance.
Some need insurance more than others
Certain professionals, like lawyers, doctors or dentists, who have potentially big liabilities or expensive equipment, have even more on the line that needs protecting.
Insurance benefits are sheltered from major financial events like a recession or depression and from legal claims, like professional negligence, that will affect other assets. The death benefit stays the same whatever ups and downs happen in the market. You’re never at risk of losing that principal, like you might be with investments.
For anyone whose profession could leave them vulnerable to those types of claims, Wark says a life insurance policy is one of the best tools to protect their family from massive debt.
“An insurance policy allows you to tuck some assets aside and protect it from those creditors,” says Wark. “If you designate a spouse or child as beneficiary, then that policy is creditor-protected while the policy owner is alive. And then the death benefit flows directly to the designated beneficiaries.”
The money can act like a gift, in more ways than one
Another life insurance option parents and grandparents can explore is using the benefit to create a trust for minors or dependents with disabilities. That way, if you die before they come of age, the money will be held in trust for them. And if they’re never able to provide for themselves, the trust will take care of that.
Howard also suggests setting up an insurance policy to pay out the death benefit through annual payments. He’s looking into it himself for his grandchildren to ensure that even after he and his wife have died, the kids will get a little something every year on their birthday from Nana and Papa.
“It kind of keeps some of you alive,” says Howard.
Looking at insurance from the other side, parents and grandparents may also want to explore taking out a policy for the teens or young adults in their lives. These policies, which can be very affordable — Howard says they’re usually between $20 to $30 a month — can lock in a young person’s insurability for life.
“As a grandparent, we spend, I would say, hundreds, if not thousands of dollars on presents for kids every year,” says Howard. “Whereas this, they’re never going to grow out of it, and it’s always gonna be something that they’re going to have.”
Both Wark and Howard agree that life insurance is one of the best ways for people to continue to care for their families after they’ve died. Yes, it can be an added expense if money is already tight, but this Swiss Army knife of financial tools is worth more than its weight in the peace of mind it can offer.
“Life insurance is just underutilized,” says Howard. “To me, it’s like pennies on the dollar for what you get.”
