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Insurance for single people - wait, come back!
No, seriously. I know it's boring but it's relevant, I promise
Hi, I’m Renée, a finance and business journalist, writer and content strategist. The Budgette is about single finances and publishes twice a month. I prefer to write when I have something to say versus writing because I have to. It gives me time to speak to financial, legal and other experts.
You don’t have to be a paid subscriber, but if you feel like this is useful info, more paid subscribers = more time and resources I can devote to doing more of it. However, as we’re all watching our money, don’t feel obligated.
I wrote an article for the Toronto Star on whether Canadians can live solely on their government pension and the other available options. (I also talked about it on Newstalk 1010. I come in around minute 25:41.)
One option was to leverage the cash portion of a whole life or permanent insurance plan. This led me to wonder: hold on, I’m single and have no dependents, do I need permanent life insurance?
I whipped out my business cards (LinkedIn and Gmail). I reached out to Gabriel Lalonde, a certified financial planner at MDL Financial Group in Ottawa, to ask him why a single person might want to consider life insurance.
But first, let’s define both term and whole life insurance. Term insurance protects you for a limited number of years and the premiums are usually cheaper. There isn’t a saving component built into the plan.
Whole life insurance has a cash value that you can borrow during your lifetime. (I wrote about this from an advisory perspective about 13 months ago for the Globe and Mail.)
Lalonde said that one reason to have insurance when you’re single is that it can cover things like funeral or housing costs while your estate goes through probate.
Another reason is, “Just because you’re single, it doesn’t mean you don’t have dependents,” he says. That includes single parents obviously, but he points out that you may have siblings or parents who may be dependent on your income.
Having a family history of genetic health problems is another reason to consider life insurance. “It might be worthwhile to lock in for insurability now if you're ever diagnosed with something that is near impossible to get insurance [in the future],” he explains. “You're also benefiting from lower prices because the price is never going to get cheaper than today.” That’s because statistically speaking, the younger you are, the lower your insurance premiums.
Now if you’re a high earner, life insurance could be more than providing security for your beneficiaries. It can be used for you.
Lalonde says, “If they've maxed out their TFSA and RRSP and they're looking for another way to grow money tax-free, that's where you get permanent life insurance as an option.”
It’s because the cash values that grow within the policy are tax-free or tax-deferred till you take it out. Lalonde says it can help you diversify your overall portfolio and you can borrow up to 90% of the cash value. in the plan.
Now this loan isn’t interest-free, but as long as you're paying off the interest when you pass, the death benefit and the cash values go pay to back that loan, and then the remaining is paid to your beneficiaries.
If you’re a business owner, (where your dependent is the business), life insurance can help your business continue after you die.
“There are a lot of single people who are business owners,” says Lalonde. “So if you die, and you've got a key role in the business, that is going to cause a big disruption in the business.”
The money can go to the business, which can be used to hire someone to replace you or to pay capital dividends. That means the money doesn’t have to come out of the company which reduces the disruption as a result of your death.
Finally, it can save the family cottage, if that’s important to you. The payout can cover the cost of the capital gains tax. There’s a more complicated financial plan involving life insurance, charity, and using the charitable tax credit but that’s for another day.
So I guess I’m going to have to talk to my insurance agent. But first, I need to sign these documents increasing my critical illness and disability insurance.
This week’s readings:
Written by me: Can you survive on Canada’s government pension alone in retirement? Experts say you might be surprised (The Toronto Star)
This used to be called classic dressing. Why do we buy into ‘stealth wealth’ and the class who wear it? (The Guardian)
I mean…you can’t win New research reveals the 30 critiques holding women back from leadership that most men will never hear (Fast Company)