A Complete Guide on Life Insurance and Financial Risk Management

Most people take out life insurance, as it serves to reduce the fiduciary impact that their death will have on their loved ones when they pass. Life insurance ensures that one’s family members or beneficiaries receive a lump sum of money upon their death to cover the funeral costs and help cover home-related expenses.

It should also be noted that buying life insurance young is recommended, as the premium that you will pay will be lower, regardless of how much money is included in your coverage plan. Your beneficiaries will be entitled to the full amount of your life insurance policy after you have made your very first monthly payment on your policy.

Furthermore, children are also eligible for life insurance and related financial services. While most parents do not want to think about their children getting sick and possibly dying, buying life insurance for your child may help make your life easier, should the unthinkable occur.

Many parents take significant time off of work to take care of their ill children. They will also need to pay for medications, surgeries, and possible experimental procedures and treatments.

There are different insurance coverage options for children, such as stand-alone term renewable coverage, child term riders, and insurance for life. Here, we will delve deeper into life insurance.


Types of Life Insurance

Four main types of life insurance are available in Canada. The first is term life insurance, which is utilized in 90% of scenarios to cover the entirety of the insurance need or at least a portion of it. It will remain in force for a pre-determined and fixed duration. It does not accumulate any monetary value but is still considered the most affordable of the four main types of life insurance in Canada.

Whole life is next and is a type of insurance that will cover you for the entirety of your life. Also, while it does tend to cost more than term insurance, it has the benefit of being able to accrue monetary value over time. Considered a form of “good base coverage” by many financial experts, it can be used to augment the size of the inheritance that you leave behind when you pass, or to cover funeral expenditures.

Participating in whole life insurance is another popular type of insurance in Canada, and it is very similar to whole life insurance. The only real difference is that policyholders are provided with access to dividends when their insurance provider is more profitable than previously anticipated. The dividends can be put to good use quickly, such as being used to increase your coverage.

Finally, we have universal life insurance, which is the most expensive of the four types of insurance in Canada. However, it is also the most flexible of the four and is recommended if you have maximized your TFSAs and RRSPs and require life insurance coverage.

Factors that Affect Life Insurance Premiums

Generally speaking, the younger you are, the lower your rate will be. But there is no real age limit to obtain coverage, and there are many affordable options for older people who live in Canada.

A history of health problems, such as diabetes and heart disease, will also increase your rates, as you will be seen as a bigger risk when compared to a healthy and fit individual. Even your current health will have an impact, as poor health may be a sign of more serious problems as you age.

You will also likely need to undergo a full physical examination to gauge your present health status. If you are found to be in good health at the present period, then your rates will likely be lowered.

In addition, what you do for a living will also determine the premium that you pay. For instance, if you are a race car driver or work in some other field with many occupational hazards, you may need to pay higher premiums. You may even be denied coverage if the job that you currently occupy has such a high risk of accidental death.

Other factors that will likely increase the premiums that you pay include smoking, drinking, being overweight, your hobbies (i.e., scuba diving, skydiving), and being male, as women tend to live four years longer than men on average.

Role of Life Insurance in Financial Risk Management

A risk management strategy that is comprehensive is essentially a requirement to meet, or at least prepare for, the uncertainties of life. As for a risk management strategy, it can greatly benefit your family and your business — if applicable — during challenging times.

You need to consider how your family or employees would cope if you were to pass away suddenly. For example, would they have the required liquid capital needed to pay off their taxes and debts?

Living benefits are also something that is part and parcel of financial risk management. For instance, illness or a long term disability is not just a remote possibility. You need to consider how you would maintain your present quality of life if you suddenly become ill or become disabled as a result of an accident.

You would also need to consider how you would go about your retirement planning, were you to get injured or become ill. You will also need to consider how long your life savings would last in the event of a tragedy. Fortunately, living benefits insurance and life insurance work in tandem to address succession, business and personal estate planning.

If you would like to learn more about life insurance and financial risk management, call WB White at 1-877-727-0757 or contact us here.

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