Hate Insurance? Here's Why You Should Buy

No one wants to spend money unnecessarily, and it is easy to think that life or disability insurance is a waste of money.

In fact, this could not be further from the truth.

Buying good insurance is far more important than paying your mortgage or contributing to your RRSP.

Here are some specific reasons why you too should consider personal insurance coverage:

  • Your most valuable asset is your income. Over the course of your life, your ability to earn an income is worth millions. If you can’t work to earn an income, nothing else matters. Strong disability insurance is expensive, but a must. Most employer group disability coverage is woefully inadequate. Buy your own policy or add a top up policy to your employers’ group coverage.
  • Relying on your employer’s group coverage is a false comfort that you should re-think. Group coverage is not personalized for your needs, nor do you control it. Your employer can change the coverage or eliminate it all together at any time. Worse, if you change careers or you are fired, you may be left without insurance coverage at a point in life when you can no longer pass a medical to buy it on your own. Buy some personal coverage regardless of your group coverage.
  • In a family, often the spouse who is the primary family income earner will be the same spouse to decide how much insurance the family buys. This can be a mistake as I have often found that this spouse will choose to buy less coverage than perhaps would be appropriate. After a spouse’s death, the surviving spouse often needs more money than you thought. Keep in mind he or she may never be able to fully resume a career if they end up emotionally distraught with your death.
  • If you no longer need insurance to protect against risk of loss, you may want to consider insurance as an investment tax shelter. Insurance proceeds on death are tax free and disability insurance proceeds can also be structured to pay out tax free. In a country where we almost pay 50% taxation, insurance is one of the last few tax shelters. In fact, it is possible to generate more money after tax with an insurance policy than it is to buy a GIC or a bond.
  • Many people face the loss of a valuable family asset on the death of a parent. Large income tax liabilities can result on death related to cottages, small businesses, RRSPs and RRIFs. If the estate doesn’t have the cash to pay the taxman, Revenue Canada may force the sale of the asset to pay the taxes. An insurance policy can be used to provide the cash to pay taxes on death and prevent the loss of a valued family asset.
  • Today, the cost of a good nursing home is $40,000/year/person. Historically inflation doubles our cost of living approximately every 20 years. If you want $80,000 - $100,000 per year per person to take care of your costs in old age, consider long-term care insurance to help cover these costs.
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