Life Insurance 101: Tips from RBC Insurance
MISSISSAUGA, June 22, 2004 – Whether you’re planning to buy a new policy or just trying to understand the coverage you have, making sense of life insurance and knowing what coverage to get can be challenging. Here are a few tips to help find out what’s right for you.
“It’s important to remember that life insurance coverage is more than just security for your family in the event of your death – it’s an important component of any financial plan,” said Neil Skelding, executive vice-president, Life & Health Businesses, RBC Insurance. “It can be used for a variety of purposes such as paying outstanding debts or everyday living expenses, as an estate planning option or as a tax-deferred vehicle for non-registered savings.”
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Think about how much coverage you need and why you need it. Determine what financial obligations you have and consider how you would handle expenses if you or someone in your family passed away or became sick or disabled. Typical expenses include mortgages, loans, taxes and a child’s education. This will help determine the general amount of insurance needed. Also consider other coverage you may already have such as insurance through your employer-sponsored plan.
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Life insurance coverage can serve a number of useful functions in a financial plan. For example, coverage benefits can be used to cover estate taxes, which are often quite substantial. Certain life insurance policies – such as universal life insurance – also allow policyholders to accumulate tax-deferred funds by investing the maximum allowable amount into the cash value portion of their insurance policy. Universal life insurance policies usually increase in value over time, and like many other assets, can also be used as collateral for a loan from a third-party financial institution – such as a bank, credit union or trust company.
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There are different types of life insurance, usually divided into two categories:
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Term life insurance provides insurance for a specific period of time and is often a logical choice for young people or families just starting out. Permanent Life Insurance, such as whole life, universal life or variable life, is designed to provide insurance protection for the entire life of the insured person. It can also provide a cash equity account that allows funds to grow tax-deferred and be used as a retirement supplement.
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Evaluate your life insurance coverage after major life changes, such as a marriage, the birth or adoption of a child, the purchase of a house or retirement. It’s a good idea to review your policy annually to make sure you have adequate coverage.
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Never buy a policy you don’t understand. Ask for clarification from the insurance company or your insurance agent or broker. The policy is a legal document so make sure you understand exactly what you’re signing.
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Research the insurance company you’re buying from to ensure it’s stable and reputable. Refer to a ratings company, such as A.M. Best at http://www.ambest.com for this information.
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Expect questions about your medical and family history, as well as about personal habits such as smoking or alcohol consumption. Always answer truthfully to minimize the risk of a claim being delayed or denied. Review your application carefully before submitting it to make sure there are no errors or omissions.
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Consider what other types of additional coverage you may need. Life insurance policies often have riders, which refer to any supplement to the policy, such as additional coverage, expanded conditions or a waived coverage or condition. Life insurance riders can include disability coverage or accidental death coverage, and some even have critical illness or long term care riders. Additional coverage of this kind, either as a policy rider or as separate coverage, may be a good idea, depending on your age, income, family situation or other considerations.
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Insurance should be viewed as part of your overall financial plan. Review other components of your financial plan to ensure the insurance you purchase makes sense and complements your overall strategy.
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Don’t put your decision off for too long. While it’s important to take your time to do your research and consider your needs, this type of coverage exists to protect your family and your assets should the unexpected happen. So, do some research and don’t be afraid to shop around and ask questions of insurance agents or brokers to find out which coverage would work best for you.
“Life insurance is right up there with wills in terms of topics most people would prefer to avoid,” added Neil Skelding. “But both are absolutely necessary if you intend to ensure the financial security of your family and plan for the future.”
About RBC Insurance
RBC Insurance, through its operating entities, including RBC Life Insurance Company, provides a wide range of creditor, life, health, travel, home, auto and reinsurance products to more than five million North American clients. As one of the top 10 life insurance producers and the leading provider of individual living benefits in Canada, RBC Life Insurance Company offers a comprehensive portfolio of individual and group life and health insurance solutions. These products are distributed through more than 17,000 independent brokers affiliated with producer groups, financial planning firms and stock brokerage firms, as well as through direct sales and a network of career sales representatives. For more information, please visit www.rbcinsurance.com
