Why do people buy insurance?
1) Life insurance provides liquidity at a time when it is most needed.
2) Income Replacement Insurance replaces your income when an injury or illness prevents you from working.
3) Critical Illness insurance pays a lumpsum amount of tax-free funds when you have been diagnosed with a life changing health issue, thus providing the liquidity that gives you options at a time when your world seems to be crashing down around you.
What other investment does so much for you?
People are always telling me that these products “cost” too much. Well, let’s look at that.
1) Life Insurance: when you are starting out in your career you already have debts, such as student loans. Then you buy a condo/house, a car, maybe a vacation property, thereby adding more debt as well as creating a permanent tax liability. Life insurance is the security blanket that protects your family from being at the mercy of the creditors, including CRA. As we age, debts are paid off but others arise, showing that financial obligations do not go away, they simply change and thus the need for permanent life insurance rather than Term Life. Permanent Life insurance therefore becomes an investment, just like your other portfolios and is no longer a “cost”.
2) Income Replacement Insurance: What is your most valuable asset? Your house? Your car? Your investment portfolio? Your art collection? Aren’t these really a transference of funds from your greatest asset; your ability to earn an income? If you are 40 you have a 50% chance of suffering a disability due to an injury or sickness, that lasts 90 days or more. This can quickly wreak havoc on your financial well-being! You insure your house, your car, and other valuables, so doesn’t it make sense to have the best Income Replacement Insurance that money can buy that protects your most valuable asset?
2) Critical Illness Insurance: Life is going well; you have a good family life, good job, you enjoy trips (when you can), have nice clothes, go out for meals and entertainment (when you can), etc. Then, you get the news that you have cancer! Your life is suddenly turned upside down. You need support but now your spouse must work even more to replace your lost income; bills for treatments and medications start to arrive, etc. Critical Illness insurance pays out a tax-free lump sum that you can use in any way you want, to make your life easier financially. It allows your spouse to take time off to support you. You can pay off your mortgage and other debts. Etc. And, best of all, if you never need the coverage, you can get all your money back!!
So, why do people buy insurance? For many reasons but simply out, acquiring these coverages is not just for your own peace of mind, but more importantly, it is protection and ease of mind for those you love.
Time to review and update your program!