How Canadians are protecting their income.

Canadians can all agree that we are living more in debt and credit then ever before, The problem with that is what happens if one of the income earners lose their ability to bring home the same amount of money? What if there is a single parent and they pass away unexpectedly leaving behind dependents? Insurance is a vehicle that should be used to minimize risk and create a safety blanket in case the worst happens. But what are the different types of insurance and how do I layer this into my plan?

  • Life insurance: This is designed to give you end of life payments to help your family cope with the mourning process while taking care of their estate. In regards to life insurance there are two different ways to structure it;

  1. Temporary Insurance - More affordable rates are given for term insurance due to the fact that its only covering you for a predetermined amount of time. Ideally you would use this to cover a mortgage, business loan, child support, or income replacement for your surviving spouse.

  2. Permanent Insurance - While the cost may be more expensive, there are more benefits that come with it. Permanent insurance will last your entire life with a guaranteed premium amount that will stay the same whether you pay for your entire life or choose to pay it all up in a reduced amount of time such as 20 years. Part of your premium will also be invested into a fund to help increase the death benefit as time goes on while also giving you access to a pool of money to use in retirement or to get a loan from the bank using your cash value in this policy as leverage.

  • Critical illness: Canadians are living longer lives but with a lower quality of life due to illnesses such as Cancer, Heart attack, Stroke etc. While you may have disability insurance that will pay you a percentage of your income during your recovery process this may not be enough to cover the costs that arise from a life altering illness, this is where critical illness insurance comes in to play. With Critical illness you will get paid a tax-free lump sum amount of money as soon as you pass a survival period that goes directly to your account to help how you see fit. From paying off high interest loans to going back to school to learn a skill to work in a different field this amount of money is one bill to ensure all the rest of your bills can be paid in your time of need.

  • Disability insurance: You may have this coverage in your group benefits but its worth a review to see if its sufficient for your lifestyle. If you are self employed it is beneficial for you to look into getting these plans while you are younger and in good health to keep your rates lower.

  • Emergency Fund: Most Canadians cannot afford a $1,000 emergency without going into debt. Work to save 3-5 months of income in case an emergency happens and you need liquid cash fast. I always recommend to base your budget off percentages of your income so you can accomplish all your goals while still maintaining your living expenses. It is very rare that you will be making the same income in your 60's as you were in your 30's. If you plan in percentages then you can continue to grow your goals at the same pace as your income.

"The scariest moment is always just before you start"

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