Life Insurance: Protecting Your Home & the People in It
A lot of people buy life insurance for all the right reasons, tuck the policy in a file, and never think about it again. But if you’re buying or selling a home, it’s essential that you review the details with your Serenia Life advisor to see whether your policy is keeping up with your changing needs.
”It’s important to make sure you’ve got the right amount of coverage,” says Kacie Linn, an insurance advisor at Serenia Life. ”We can calculate a member’s needs quite quickly and make adjustments whenever there is a life-changing event such as getting married, having kids, or purchasing real estate.”
Meet the Lee family
Each member of the Lee family is on a different homeownership journey. They all have real estate plans that will call for reassessment of their life insurance strategies. In each case, choices about owning a home will have an impact on the amount of life insurance each family member needs.
The first-timer
Ashley Lee (27) is about to become a first-time homeowner. Her grandparents, James and Margaret, helped her with a down payment on the perfect studio condo. The mortgage specialist at the bank suggested she sign up for mortgage insurance. Her premiums (i.e., the amount you pay for an insurance policy) stay the same throughout her mortgage term. But the amount of coverage declines as the outstanding balance gets paid off because there is less debt to insure.
The experts say: ”Not so fast.”
Ashley is young and in relatively good health so she will likely qualify for low-cost term life insurance, a better choice in the long run when it comes to protecting her wealth for three reasons:
- Life insurance will pay out a guaranteed amount, regardless of how much money is owing on her mortgage. Years from now, she could be married with kids and want them to spend the insurance money as they see fit. If she were to die when the mortgage was almost paid off, her family would still get the full amount of the life insurance policy.
- Owning an insurance policy while you’re young and healthy can guarantee coverage later in life. If she waits to buy life insurance and her health takes a negative turn, she may not qualify or may face steeper premiums.
- Term life insurance can be converted to a permanent life insurance policy (i.e., insurance that never expires) at any time. This flexibility will become important if she decides to start a family.
The escapees
Ashley’s parents, David and Amy, are in their mid 50s and are enjoying their peak earning years. They plan to purchase a vacation property where they can spend more time with their extended family. Apart from home insurance on the cottage, they hadn’t thought about the need for more life insurance coverage.
The experts say: ”It’s time to run the numbers.”
Owning two properties and saving for retirement is a lot to juggle. In the short term, they need to protect their income because if something happened to one of them, a single salary might not be enough to maintain their current lifestyle. To keep longer-term goals on track, they should re-evaluate their assets and their debts (net worth) to make sure their legacy is not underinsured. Switching their term life insurance (or a portion of it) to a permanent policy can help fill a temporary salary gap, and also help the couple leave an inheritance to their kids and cover the burden of final expenses.
The upsizers
Ryan Lee, (32) the oldest sibling in the family, has one child with his partner and another one on the way. A new addition means they’re soon to outgrow the starter home they bought five years ago. They’ll make a good profit on the sale of their home – but they’ll be buying a larger property in a seller’s market and carrying a mortgage at least as big as the one they have now. With two kids, a substantial mortgage to pay off over the next 20 years, and the need to save for their children’s education and their own retirement, Ryan and his spouse need to ensure that they are well-protected should there be any loss of income.
The experts say: ”Think long-term.”
The experts suggest taking stock of their debts, and rebalancing how their income gets divided between today’s expenses (including mortgage payments and education savings) and investing in the lifetime financial protection of their growing family. In addition to term life insurance, now is a good time to weigh the pros and cons of purchasing some form of permanent life insurance. Premiums will be higher than a typical term life insurance policy, but permanent coverage could provide the best combination of short- and long-term value for their money. Times like these call for an independent and customized needs analysis to help determine the best solution for their family at this stage of their life.
The downsizers
The senior members of the Lee family, James and Margaret, have enough money to live a comfortable retirement. They sold their four-bedroom family home in a very ”hot” market to take advantage of record-high prices, and bought a more manageable bungalow in a smaller community. That’s how they were able to help their granddaughter, Ashley, with the down payment on her condo. They plan to take the rest of the profit from the sale of their home and add it to their nest egg. But they wonder whether they need to keep paying for life insurance.
The experts say: ”It’s okay to reduce life insurance coverage.”
With reliable retirement income, no debt, savings in the bank, and a mortgage-free home, James and Margaret feel they have enough assets to pass on to their kids, as well as to a favourite charity, organization, or group. A Serenia Life advisor suggests reducing the coverage amount of their life insurance policies, and making sure to simply carry enough for final expenses. They can also put the savings toward other goals, like giving their grandkids a leg up.
The right coverage at the right time
At every stage of life, a balancing act takes place between saving money, building wealth, and protecting what you have. It’s not a complicated act to perform when you get help from the experts.
Let us help you make the right choice, at the right time. Whether you’re moving in, moving out, or moving out of town, be sure to request a FREE Needs Analysis if your homeownership journey (and financial situation) is about to change.
