One question I am asked by clients on a regular basis is: “Since I have group benefits through my employer, why would I need to supplement it with life insurance?”
This question is especially popular amongst those who are younger and one can understand why. If one doesn’t own a home or have children, one might not see the value in a life insurance policy. In fact, it is often seen as an unnecessary expense. However, I disagree and these are some of the reasons that I share with my clients.
Firstly, you might need a life insurance policy in the future. You might get married. You might adopt a baby or – because of death or circumstance – you might take a friend’s child under your roof. I know this because, as a financial professional, I have seen all of those circumstances. I can honestly say that no one can see what the future has in store for them and being prepared is the best way to deal with it.
Too often, financial professionals see the consequences of someone who has not prepared for unanticipated events. It is the person who has to pay twice or three times as much as they should because instead of buying a policy in their 20’s that same person is now 40 years old and has become a parent. It is the person who has put off buying a policy for years but has now decided to buy a policy because they have been diagnosed with high blood pressure or diabetes. Or it is that person who can’t get a policy because years earlier they were diagnosed with AIDS or a particularly persistent form of cancer. One doesn’t know the future and should not rely on just good luck.
However, the second reason is simpler: “you need to own your own life insurance policy because no one will look after you”. When an employer buys a Group Plan with Life Insurance, they are usually looking to provide a plan which seems good but isn’t costly. To do this, Insurance Companies often change definitions to keep the costs low. For example, my first group client asked for my services when I pointed out that their existing programme would not protect their employees if they died “near water”. I thought that such a policy was appalling partially because I know someone who died in a snowmobiling accident on a lake. As a financial professional, I would never want to turn to a spouse and say that the group benefit provided to your husband won’t provide you a death benefit because he died “near water”. Consequently, I recommend that everyone buy their own policy with few restrictions and exclusions. For, this is the only way that a person can avoid the problem of poorly constructed group benefit policies: buy a policy on yourself, own it and control it.
The third reason for owning your own life insurance policy is because it is a tax shelter in both life and in death. A Life Insurance Policy creates tax free money for an estate when one passes away or that same Policy can be an asset used as collateral or a creditor-protected asset in life. Coupled with the tax deferred savings option it allows for Life Insurance it could be described as a “financial planning superhero”.
Bottom line is no one can predict the future; all you can do is plan for likely events. As an asset, Life Insurance can help a person deal with a number of life events beyond death. I have heard of life insurance cash value being used to buy first cars or homes. While, nobody likes to think about these things, Life Insurance can make a number of other important decisions easy. So why not talk to a financial professional about your life insurance and tax planning needs?
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