July 19, 2007, 2:40 am

My Choice of a Life Insurance Policy Part 2

by: The Financial Blogger    Category: Insurance
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Following to my post on my choice of a life insurance policy, I am writing today about our final choice and the reasons behind it.



Having a new mortgage, a car loan and one child to take care of (it will jump to 2 kids pretty soon!), time had come to revise our life insurance policy. Ouch! If I die tomorrow morning, my wife with be left with a ton of debt and nothing for our children’s education. This is definitely not the scenario I would like to see happening from my place in the sky. At that time, it will be to late to help my family.



What were our needs?

As we are a young family, we need a substantial amount to cover for several expenses. First, we need to be able to cover for our mortgage and other debts. I want my wife to be able to stay in our house if she wants to. Second, we need enough money to cover for future expenses such as our children’s education. I want to be able to give as many tools as possible to my kids and a good education is one of them. It is a must that they could go at any school they want. Third, as I am making a bigger salary than my wife, I want to make sure she is able to keep up with our life style and that she could take a break before going back to work.



What was our choice?

We decided to go for a term life insurance policy. This means that in 20 years, if we do not pass away, we would have paid this premium for nothing. Hopefully, we will still be alive in 20 years! And if so, I do not think that our financial position will request further insurance at this point. It gives me 20 years worth of RRSP, investment and Smith Manoeuvre to be in a good financial situation.



We selected 500K joint-first-to-die. This means that the first to die between my wife and I will trigger the payment of 500K to the surviving spouse. If we happen both to die within 45 days, our beneficiary(ies) would get 1M$.



The 500K would be used to first, pay off all debts, second produce income to meet financial requirements. We calculate that the surviving spouse would end up debt free left with 300K in cash. Combining this amount with the widow rent from the Government, the surviving spouse would get more than enough to continue living the way we used to.



We even got a bonus when we receive our confirmation. As we are non-smoker and we both have a good health condition, the insurance company bumped the policy to 568K for the same amount. It will definitely not compensate for the fact that your one and only passed away, but being insured sure relief from financial pain.

 

 

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Comments

These are good choices that cover your needs very well. A lot of brokers would probably try and encourage you to get a universal life insurance policy, but you have your precise reason which is great. I’m very happy to see people who are so pro-active in securing their family’s future. Wish you all the best!

Hi FB,

The other insurance you should consider is Critical illness insurance. This insurance is not cheap but if your disability coverage is poor (usually only 60% through your work) this policy is much more likely to to be paid out. My experience is generally the gross income is about $80,000 a year before looking at this or if you are going to be self employed get your own disability insurance before you leave your work.

Reagrds,

Brian Poncelet, CFP

by: The Financial Blogger | July 31st, 2007 (6:22 am)

Hi Brian,

I am aware that I have a big lack on this part. I am not quite sure how much I am covered by my employer’s insurance, but it is surely not enough. I will definitely dig further to know what are my options.

Cheers,
FB.

Hello FB,

You are on the right track regarding disability insurance/critical illness insurance. Sorry for the ad… http://www.rightinsurance.ca is a good place to go. The disability through your work covers only your salary…not any bonuses etc. If you do go on long term disability it is because of a critical illness, 90% of the time!

If you google disablity insurance and critcial illness you will find lots of info.

Regards,

Brian Poncelet, CFP

by: The Financial Blogger | August 2nd, 2007 (6:30 am)

Hey Brian,
no problem for the ad, just send me a commission 😉

Seriously, I will consider disability insurance in the near future.

thx!
FB.

hey FB,

i have been in many situations where people just want life insurance without proper assessment of their needs, so i am glad to see that you actually did a needs analysis to determine your needs. although i dnt know your exact situation, but you might be better off with a combination of couple types of policy. something along the lines of T20 + T10+ Family income. The two terms can be combined to cover your mortgage. Let`s say you have 300K in mortgage……in 10 years you have probably paid of about 100K (most of your payments goes towards the interest) so you only have another 200 left to pay off. so you get T10 for 100K and T20 for 200K that will cover your mortgage. Since you mentioned education fund you could do something similar for that as well and ad it to this. The family income will give your family a monthly payment of your choice and for the length of your choice.

What a plan like this does is that it covers all your needs in different ways and usually ends up costing you less. Although the T20 plan you have right now seems to do the job, but see if this method will save money on premiums.

For a Male 35 non smoker and Female 35 non smoker.
T10 $150K
T20 250K
Both joint first to die
Family income:
Male $4000/mth (to age 55)
Female $2500/mth (to age 50)

comes out to $149

Although the coverage with this example is higher than your current coverages, but something to compare with.

by: The Financial Blogger | February 18th, 2008 (8:02 am)

Late ; you are bringing a good point when you are talking about salary insurance, I should definitely look into it if I ever change job (I am currently insured by my company).

How much cost a T10 150K + T20 250K for male and female 26-27 yrs non smoker?

that combination would cost $59.31 in individual coverage and a about $1 cheaper on first to die bases.

actually $52.93

Good to see you did your research and got the policy that is right for you. For the vast majority of Canadians, term insurance is the way to go as most simply cannot afford the hefty premiums associated with permanent plans. It is important to shop around for life insurance quotes as there can be a huge diference in premiums from company to company. There are many Canadian Life Insurance sites that offer free quotes. Try to find one that does not exclude companies.

[…] rarely spoken about my insurance structure on this blog. In fact, the last time I discussed my own life insurance structure was back in 2007! Since then, I’ve upgraded my life insurance structure according to our needs. […]