A home. A family. A business. Chances are, there’s something – or several things – in your life that you want to protect financially. But how can you make it happen? To start, it helps to recognize the financial value you contribute to all the important parts of your life. Asking yourself these money questions can help you understand your worth. And what you can do to protect yourself from setbacks.
1. What are your greatest financial assets?
You may have heard of the term financial asset. Basically, assets are anything worth a certain amount of money. So what are your assets? Owning a house can be a big one. Same goes with having your own business. Do you have investments like stocks and bonds – either through your workplace plan or individually? These assets may be consistently growing in your portfolio. Or, maybe you have investments growing in a registered education savings plan (RESP) to support your child’s tuition years.
All of these assets play an important part in your financial success. But remember to include one essential thing on this list: You. This is where knowing your own value comes in handy. Your ability to earn money and build your financial plan throughout your life makes you a huge financial asset.
2. What financial risks might you face?
All financial assets come with some level of risk. For example, a house’s property value might decline due to increasing mortgage rates or a natural disaster. A particular investment could take a temporary dive due to changes in the stock market. And you’re a living financial asset that’s valuable to people like your family.
So, what kind of risks or setbacks might you face personally and financially? Here a few to keep in mind:
Most of your assets come with taxes, even after you die. You’re already familiar with the taxes you’re currently paying on your assets. Or, perhaps you have tax-deferred assets like investments within an RRSP. In which case, you won’t have to pay taxes until you withdraw money. But what happens to them after you die? Basically, everything you own will be considered sold. So if your assets have grown in value, then there’s a capital gain – which is taxable. This means your estate will have to pay taxes on those capital gains. Your estate will also have to pay probate and other legal fees before your family can inherit anything. Luckily, you can help reduce these taxes by designating beneficiaries for registered assets and life insurance policies. This way, your assets can bypass your estate and go directly to your family or heirs (more on this later).
An illness or a health problem can put a pause on your income-earning years. Your ability to earn an income remains one of your biggest financial assets. But a serious illness can make it difficult to do your job or earn money. Especially if you’re unsure how long your recovery might take. You could lose one or several years of income, depending on the circumstances. And what if you died? In any of these scenarios, it’s important to think about the people you’re leaving behind. How will they provide for themselves without your help? How can you protect them when you’re no longer around?
These challenges may sound daunting. But you can empower yourself and your loved ones by taking action now. Knowing your risks can help you understand what you need to protect yourself and your family.
3. How can you protect yourself from financial risks or setbacks?
This is where life insurance can offer a helping hand. Here’s how it works. You purchase a policy and pay monthly or annual premiums (or fees) for a certain amount of coverage. If you die while your policy is active, your family or beneficiaries will get the proceeds of your policy, tax-free. Unlike your property, savings or other non-registered assets, this money doesn’t have to go through your estate. So it’s not subject to all the taxes that come with it. This means your family or heirs will have easier access to this money. They can then use it to help cover expenses like:
- home maintenance
- mortgage or rent
- childcare and tuition
- estate and legal fees
- credit card debt
- bill payments
- outstanding loans
- or any other living expenses
Having life insurance can help give you peace of mind. It’s a way of knowing your loved ones will be cared for financially after you’ve passed away. And it’s important to consider which type of life insurance is right for you. Especially if you’re on a budget.
- How much life insurance do you need? Try this Life insurance calculator to find out.
4. How can you get the most value for your money?
Term life insurance offers affordable protection to help cover your financial obligations. With low monthly payments you can choose how much time you need the coverage for. This could be five, 10, 20 or more years. For instance, let’s say you have a temporary but large financial responsibility, like a mortgage, a business or your child’s education. You could get term coverage that helps protect you throughout the length of your mortgage or your business loan. It can even help cover you for the amount of time you expect to need to support your kids. Once your term expires, you can choose to renew your policy. Or, you can convert to a permanent policy that offers lifelong protection.
Want to break it down by the numbers? Here's the estimated cost of 10-year term insurance policies covering $250,000, $500,000 and $1,000,000 for non-smokers. Check out the cost per year compared to the cost per $1,000 of coverage. There's the value for your money.
The cost of 10-year term insurance policies*
|$250K coverage||$500K coverage||$1M coverage|
|Yearly cost||Cost/$1K||Yearly cost||Cost/$1K||Yearly cost||Cost/$1K|
|Age 25 (male)||$207.50||$0.83||$300.00||$0.60||$445.00||$0.45|
|Age 25 (female)||$150.00||$0.60||$210.00||$0.42||$315.00||$0.32|
|Age 35 (male)||$210.00||$0.84||$300.00||$0.60||$455.00||$0.46|
|Age 35 (female)||$162.50||$0.65||$250.00||$0.50||$385.00||$0.39|
|Age 45 (male)||$337.50||$1.35||$560.00||$1.12||$935.00||$0.94|
|Age 45 (female)||$252.50||$10.1||$360.00||$0.72||$675.00||$0.68|
- Is term life insurance the right fit for you? Here’s what you need to know before you buy.
If you want to get a better understanding of your finances, but not sure where to start, then you may want to consider getting some advice. An advisor can help you build a financial plan and answer questions you may have.
This article is intended to provide general information only. Sun Life Assurance Company of Canada (Sun Life) does not provide legal, accounting or taxation advice to advisors or clients. Before acting on any of the information contained in this article, make sure you seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation. Unless specifically stated, the values and rates are not guaranteed.
*Rates effective as of July 22, 2019