Living Benefits: How to Use Life Insurance While Alive (Canada)
Discover practical ways to use life insurance – yes – while alive here in Canada. Plus, how living insurance benefits can protect you when you need it most...
Life insurance is for the living too
Can you spot the person at the mall or the ballpark who has a plan to replace their income if something bad happens? Probably not.
People who have a plan to deal with income loss due to critical illness or injury don’t look different than the rest of us. And people who have protection in place for their families in the event of their death don’t stand out in a crowd. They’re ordinary people who got good advice about getting life insurance while alive, and followed it.
You can’t spot them because they’re probably worrying about something else, like who will win the game and when will the kids move out. They’re just not stressed about how to make ends meet during a health crisis.
Understanding living benefits
Living benefits is a term you’ll come across when you start exploring disability, critical illness, and life insurance coverage. Living benefits are the ones you enjoy while alive because they can provide replacement income, the chance to build wealth, and the freedom to spend your money on things you enjoy.
If you’ve always thought of life insurance as something you never get to use, it’s time to take a fresh look at living benefits and the value they bring to life.
Using life insurance for investment and savings
Life insurance is typically purchased as a way for working-age Canadians to replace the income they would have earned between now and the time of their retirement.
That’s what a term life insurance policy does. If you die during an insured period, (typically 10, 20, or 30 years), your beneficiaries (i.e., the persons you choose to receive your life insurance payment in the event of your death) receive a guaranteed, tax-free payout that fills the household income gap. They can use the payout however they choose. They could:
- Pay off some or all of the mortgage
- Top up retirement savings tools such as RRSPs and TFSAs
- Invest some of the payout to create monthly income
- Add to kids’ education savings
- Just take a little time off to reflect and regroup
Knowing that your loved ones are covered in the event of your death may mean that you spend without worry today… or contribute more confidently to long-term savings goals, such as retirement.
If you choose a more comprehensive form of permanent life insurance, such as the whole life coverage provided by Serenia Life, you’ll have even more reason to feel at ease. A whole life insurance policy provides a guaranteed payout and will never expire. So your beneficiaries are assured of a tax-free, lump-sum amount. There is also a cash portion¹ of your policy that gets invested and increases over time. That money can be left to your children, or you can dip into it from time to time to make your own life easier.
Not sure what type of insurance you need? Let us help you.
Using life insurance for income replacement and disability coverage
When you purchase life insurance for the first time or sit down with your advisor to review your needs, you may be allowed to add disability and critical illness coverage, or additional optional benefits (a.k.a., riders), to your policy. These are great examples of living benefits because they can save the day financially if you get sidelined by any of the following:
1. Disability
You’re healthy. You just can’t imagine yourself with a disability, needing months or years to recover from a serious car accident, for instance. So you put it out of your mind. But did you know that a disability doesn’t have to be the result of something catastrophic?
Broadly speaking, the insurance industry considers a disability to be a physical or mental condition that limits an individual’s ability to carry out important life functions or activities, like being able to work. This can include coverage for non-visible disabilities, including mental health conditions, chronic pain, chronic fatigue, or neurological disorders.
Life insurance can also provide financial support in this situation. At the time of purchase, you can tack on some additional “waiver” riders to your policy. They will ensure your life insurance payments (for yourself and your dependents) will continue to be made should you be unable to work due to a disability that lasts for a period of at least six months. (See ‘Policy Riders and Customization’ below for more information.)
2. Critical illness
Surviving a critical illness, such as a stroke or heart attack, is a blessing that doesn’t need to turn into a financial curse. Taking time off work to recover can decrease your income substantially. And a host of costs not covered by provincial or territorial health insurance plans might send your expenses soaring.
Critical illness insurance provides a one-time, tax-free payment that you and your family can use however you see fit. Imagine the relief of knowing that you can afford to pay for:
- Physiotherapy, massage therapy, counselling, etc.
- Treatment at a private clinic
- A family vacation to ease recovery
- Wigs and prosthetics
- In-home caregiving services
- Cleaning and lawn-care services
- Modifications to your home to improve accessibility
3. Terminal illness
In the event you are diagnosed with a terminal illness, many life insurers have a program that allows you to access a certain percentage of your death benefit while you are alive. This can be used to fund many of the examples from above – or to simply cross items off your bucket list before you pass. It’s important to understand that the money you withdraw while living will be subtracted from the inheritance your loved ones receive after your death. It’s always a good idea to speak with your advisor to learn more about your options, and how they may impact your coverage.
Using life insurance for estate planning and wealth transfer
Some benefits can reach across generations and create wealth-building opportunities for families that benefit from extremely long investment horizons. For example, many families take advantage of intergenerational wealth transfer plans that include life insurance payouts because they minimize the effect of capital gains and income taxes on future generations.
Policy riders and customization
Whether you buy life insurance online or with the help of an advisor, similar policies will likely have similar costs. If the price you are quoted seems too good to be true, it’s probably because the policy offers little in the way of customization or added benefits. Working with a broker or an advisor is often the best way to ensure you’re getting all the coverage you need at a price that works for your budget and meshes well with your overall financial plan.
Customization
Riders (or optional benefits) are additional bits of coverage that you can add to your life insurance policy to make it more personalized to your needs. After assessing your situation, an advisor may propose adding riders such as:
Total Disability Waiver
The Total Disability Waiver ensures that your life insurance payments continue to be made on your behalf should you become totally disabled for a period of at least six months and therefore cannot earn any income.
Owner Waiver and Disability Benefit
The Owner Waiver Premium Death and Disability Benefit² will continue to pay the premiums on whole life insurance coverage that you purchased for your child. Your child’s coverage remains intact in the event of your death, or if you become totally disabled, for a period of at least six months, and cannot earn any income.
Guaranteed Insurability Option
The Guaranteed Insurability Option provides you with the opportunity to purchase additional life insurance, on pre-determined future dates, without undergoing a medical evaluation. This benefit provides peace of mind knowing you can buy more insurance regardless of your future health status.
Child Term Benefit
The Child Term Benefit allows you to purchase a small amount of life insurance coverage for your children and future children. You can convert the policy to any product available when your kids are between the ages of 18 and 25. They can request five times the benefit amount without having to provide any medical evidence of insurability.
Unique benefits
Insurance providers sometimes offer free or low-cost perks that provide you with ways to deal with difficult situations or make a difference in your community. For example, Serenia Life provides benefits³ such as monthly payments for bereaved children, reimbursements for first aid training, free access to an online will and power of attorney service⁴, and seed money for fundraising events. We’ll even provide up to $150 to help you and your partner pay for a lawyer to update your will every five years.
You can learn more about the benefits of membership⁵ on our website.
Understanding your policy
When we asked seasoned insurance experts for three pieces of time-tested advice that they would pass on to their friends and relatives, they said:
- Get guidance from an expert
- Follow the advice you get
- Understand how your policy works
Most people don’t set time aside to read their insurance policies. Ask your advisor to walk you through the coverage, explain what it covers, and how it works. You might not remember all the details but you’ll know what to do in the event you need to draw on your coverage. Good advisors are more than happy to explain everything.
Are living benefits worth it?
Housing, groceries, transportation, education, childcare, utilities, entertainment. It’s all taking a bite out of your income, and inflation is making it harder to buy all the things you want and need. Imagine trying to achieve any of your goals without the luxury of a paycheque. Insurance is the most sure-fire way to turn on an income stream for yourself or your loved ones if something happens to you. Plus, with Serenia Life, you can enjoy up to 25% off* your life insurance in the first year.
Let us help
If you want to be that person at the ballpark who isn’t worrying about the financial stress of income loss, talk to a Serenia Life advisor about all the ways we can help you shore up your financial success.
Disclaimers
¹Cash values are accessible via a withdrawal, policy loan, or surrender. These may be subject to taxation and a tax slip may be issued. Accessing the policy’s cash value will reduce the available cash surrender value and death benefit.
²Only available with a Whole Life policy
³Serenia Life Financial’s member benefits and programs are not contractual. They are subject to change and maximum funding limits.
⁴Serenia Life Financial has partnered with Willful® to give members the opportunity to create their will and appoint power of attorneys (POAs) simply, quickly – and at no cost.
⁵If you: (1) own a Serenia Life Financial annuity product, (2) are insured under one of Serenia Life Financial’s products, and/or (3) became a policyowner after February 23, 2021, you are indeed a member.
⁶Terms & Conditions: All life insurance policies purchased will receive 25% off their first-year premium, up to $500. Clients paying monthly will have premiums waived for the first 3 months or up to $500, whichever comes first. Clients paying quarterly will have their first premium payment waived or reduced by $500, whichever comes first. Clients paying annually will have their first payment reduced by 25% or $500, whichever comes first. Once a written case is issued and qualifies for a first-year premium reduction, it will not be eligible to qualify again. ADO premium is not covered by the campaign. Clients will be billed for this portion right from date of issue. If a Temporary Insurance Agreement is chosen, it will not be impacted by this campaign and will remain intact.
