Reviewing your financial portfolio in a period of market volatility or meltdown is a bit of a no-brainer.
But during the recent economic recession, many Canadians may have forgotten to review their insurance as well.
“The economic downturn has caused many Canadians to review their financial portfolios, but the worst recession in decades is also a good time for people to take a look at their insurance needs,” said Heather Clarke, vice-president of Investors Group Insurance. “Life is what happens when you’re busy making other plans, and unfortunately this includes accidents and illness.
There hasn’t been a better time for Canadians to ask themselves how prepared they are for the unexpected.”
Clarke said many Canadians assume their financial assets are their insurance. However, what they don’t account for is what happens when their funds are depleted by a major recession or market downturn.
“Any major change in circumstances is a call to action to review and revise your financial plan,” said Clarke.
Choosing life insurance is an ongoing process that can change over time. The two most common types of insurance offered by most insurance companies are term and permanent.
Term insurance is low-cost life insurance that provides coverage for losses during a stated period of time but becomes void when it expires.
This type of insurance is often good when people are young because they can buy larger amounts to provide contingency funds in the event of premature death. Premiums typically increase every five, 10 or 20 years and usually expire around age 75.
Permanent insurance, however, typically has much higher premiums and comes in two forms: whole life and universal life.
A whole life policy usually extends until you are 100 and the premiums don’t change. Any financial increases in the value of the policy are not taxed, which is one of the biggest advantages of this kind of coverage.
Universal life is renewable term insurance that extends to 100 years of age that also has an investment component. It may have a couple of options.
Under one, your beneficiary will only receive the face value of the policy when you die.
Under the second option, which has higher premiums, your beneficiary gets both the face value and the accumulated cash value. At the time of death both the face and cash values are tax free.
Permanent insurance generally is more suited to older people who want protection and to build their wealth for the future.
Another form of insurance people should consider in turbulent economic times is critical illness insurance, Clark said.
Critical illness insurance is designed to provide a lump sum payment of cash upon medical diagnosis of a specific condition. The number of conditions covered varies depending on the insuring company, but most claims are made for cancer, stroke and heart attack — the three most common illnesses in North America.
Policies can range in value anywhere from $10,000 to $2 million and there are no restrictions on how the cash payment is used.
“The money could be used for medical treatments, to pay off the mortgage or to top up your retirement reserves,” said Clarke. “This should be a baseline product of any financial plan.”
Complementing critical illness insurance are disability and long-term care insurance, which also provide benefits while you are still alive.
Disability income insurance is designed to replace a portion of your income if you are unable to work for an extended period of time due either to an accident or sickness.
Long-term care insurance is geared to retirees and provides an income based on a person’s cognitive impairment and inability to perform activities of daily living, such as eating, bathing, and toileting.
“The important thing is to look at your plan and make sure that you have the right kind of insurance and the right amount of coverage for your needs,” Clarke said.
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors. He can be contacted at boggsyourmoney@rogers.com.