Insurance… For some reason when people hear this word they tend to run for cover, lock all their doors, turn off all the lights, and disconnect their phone lines. Yet, the thing is, most (if not all) individuals, families, and business owners need some form of insurance coverage. There are a few different types of insurance, and this post will briefly go through each of them.
If you were asked, ‘what is your biggest asset’, most people would answer “my house” or “my car” or some other form of tangible object. But, the reality is, the most valuable asset you have is your ability to earn an income. YOU are your most valuable asset. Now ask yourself, if your income was not there anymore, what would your family’s situation look like? What would the repercussions be? Who would be affected?
If you had a machine in your basement that printed off $50,000/year, would you insure it? Of course you would. Why? Because if that machine broke down or had to be repaired you want to make sure that you’re still getting the income that it’s providing for you and your family. The reality is, YOU are that machine!
Insurance is something that is key in providing a sound financial foundation for you and your family. We protect our homes and our cars because we’re legally obligated to, but why are many too afraid or too lenient on the fact of insuring themselves?
There are many reasons why people get insurance. Replacing your income, education funding, home/property protection, funeral expenses, debt protection, taxes etc… The list goes on and on, and not everybody gets insurance for the same reason. At the end of the day, you want to make sure that when you do pass on, or become ill or injured, that your income is protected.
There are several different types of insurance, so let’s briefly go through each one.
Life – Life Insurance is very straight forward. When the insured passes away, their beneficiary would receive a tax-free lump sum amount. There are different ways to be covered for life (i.e. Term, Permanent), but they all pay out in the event of death.
Critical Illness – Critical Illness Insurance is a type of ‘Living Benefit’ that provides a lump-sum payment if you were to become seriously ill. It is also given the name “Living Benefits”, because you don’t have to die to receive the payout. It is considered to be a type of an Insurance to protect your lifestyle, and to help you recover from a serious illness.
Disability Insurance – Disability Insurance is also a type of ‘Living Benefit’ provides you with a monthly income in the event you are unable to work due to injury/disability. Disability Insurance, essentially, protects the ability of you to earn an income through your own efforts, and can protect your ability to pay bills, eat, have a home, etc…
Health & Dental Insurance – In Canadians, we are fortunate to have one of the best healthcare systems in the world. While some provincial health plans cover many major health costs, they may not cover all the things needed. You may be left to pay for additional expenses out of pocket, such as:
– Prescription drugs
– Visits to the dentist
– Eye exams
– Paramedical services
– Physiotherapy
Remember, Insurance is a privilege, not a right, so every person must qualify for it as well. That’s why it’s always recommended that you at least get some sort of base coverage when you’re young and healthy, and when rates are much more affordable. Even waiting a few years can make a big difference in premiums or even your ability to get qualified.
Proper Insurance Planning is critical in the overall foundation of a strong Financial Plan. It is crucial to make sure you understand how each one of these strategies can work or benefit you and protect your income and family. It is important to understand how you or your family’s standard of living would be affected if your income was not there anymore.
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