Does this sound familiar? Your children have grown up and are in post-secondary school, your mortgage is paid off, you have no debts and your term life insurance policy has or is just about to expire. What’s the next step? Does it make sense to renew the term life insurance policy or should you cancel the policy? Should you change your insurance coverage to a permanent life insurance policy?
A client couple of mine were in this exact scenario. In order to determine the right course of action, the first step was to sit down with Jim and Deb and re-visit their financial plan to ensure their current and future needs are addressed. After completing a Financial Overview questionnaire and a Personal Financial Review, several things were revealed. Jim had a life insurance policy and disability policy at work through his Group plan, however Deb had none. The couple had very little debt that could easily be covered with their savings.
It was obvious that a renewal of the Term 20 policy made no sense since the kids, now adults, were now in post-secondary school and living away from home. Secondly, the mortgage was paid off and they did not have a huge debt other than a small amount on their line of credit making their monthly expenses much lower than when the children were young. Besides, the premiums on the term life insurance had also gone up by almost 600%!
After calculating their net worth, it was decided that purchasing a small permanent “Whole Life Insurance Policy” would help pay for final expenses and estate taxes. The decision, not only provided their daughters with tax free money to pay any estate taxes, debts and funeral costs, but also incorporated a benefit that provided the clients access to a Cash Value that could be used while still alive.
If cash flow becomes an issue sometime in the future during their lifetime, Jim and Deb could always borrow against the cash value of the policy for luxury items they did not budget for such as a new car or even a trip of a lifetime.
Whole life insurance policies are very flexible in that they can be devised taking into account the client’s budget and needs. For example, by choosing a joint last to die policy, this reduced their annual premiums. However, instead of choosing to pay a smaller premium each year, they also chose an early offset for paying the premiums, ensuring that by the time they retired, the policy would be all paid up. This is a great option as quite often cash flow is one of the major financial issues facing retirees.
Whole Life Insurance policies are a great option when looking for permanent insurance and are very flexible and can include a savings planning built in for additional needs like in the event of a critical illness or long-term care.
[Jeff Greenfeld, Insurance Advisor, Hollis Insurance] *Insurance products provided through Hollis Insurance