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| Plan for Living: Insurance for Retirement By Kim Stanley, B.A., CFP, CLU, CH.F.C. |
Four years to go. Perhaps five. Or three, if the budget is strictly adhered to and the market performs well. Ah, the heady dreams of retirement. Most of us look forward to our retirement years most of our working lives. And a lot of us will spend as many years in ‘retirement’ as we did working. The challenge, of course, is to ensure that we have properly prepared for our leisure years. During our working years, Canadians protect themselves and their families and businesses against premature death, serious illness and injury. We carry life insurance and disability insurance. Some of us have this coverage through our group benefits at work, while a vast number of us carry our own individual life insurance and disability insurance. Now that a lifestyle change is pending, how appropriate are these policies? Certainly your life insurance must continue. The proceeds from you policy will pay final expenses, outstanding taxes owed and capital gains taxes, charitable bequests and preserve your estate for your heirs. At this stage of your life, your insurance should be a permanent plan, which will ensure you have coverage for your lifetime. There are different types of permanent life insurance that you can choose from. You can purchase guaranteed term to 100, whole life or universal life. Determining which plan is right for you will depend on your circumstances, goals and needs. Your disability insurance (DI), on the other hand, is another story. Almost all individual disability policies will expire at age 65. In fact, benefits will only be paid to age 65. Very few policies will extend the benefit payments to age 70, and you must be working in order to extend the benefits period and to make a claim. So if you’re in your late 50’s or early 60’s, does it make sense to keep your DI policy if you will only receive a monthly income for a few years? In some cases, it doesn’t. But what are your options and alternatives? First of all, if you have had any medical problems or conditions that have made you uninsurable, don’t cancel your policies. Keep the coverage inforce for as long as you can because you won’t be able to purchase any other policies. However, if you qualify for new insurance, you have options that may make more sense for retirement. Many pre-retirees and young retirees are re-allocating their DI premium dollars to a new long-term care policy and in some cases, a critical illness policy. Many people purchase a combination of both. The long- term care policy is purchased to provide a monthly income (based on a daily benefit of between $10 a day to $300 a day, depending on the amount purchased) when you require either home health care or facility care. To qualify for the benefit you must be unable to perform 2 of 6 activities of daily living, which are: bathing, eating, dressing, toileting, continence and transferring. Or you must be cognitively impaired. You can purchase different benefit periods, much like your DI policy. You can receive benefits for 2 or 5 years or for you lifetime. The policy remains in force for your lifetime, unlike your DI coverage. Your proceeds are tax-free. A critical illness policy will pay you a tax-free lump sum upon the diagnosis and survival (usually 30 days) of a serious or life-threatening illness, such as heart attack, stroke, Parkinson’s disease and life threatening cancer. Most policies cover up to 22 illnesses and conditions. By purchasing a combination of these policies, you are protecting yourself should you suffer a serious illness or become cognitively impaired. You will have prepared yourself financially for the heavy burden of illness. You and your family will be able to protect your savings and assets since, once you qualify for a claim for critical illness insurance you will receive a lump sum from the insurance company to use for medical expenses, home renovations, bills, medical equipment or whatever your choose. And with your long-term care insurance, you will receive a tax-free monthly income to cover your ongoing expenses. The money you are currently spending on your disability coverage can be used to pay the premiums for your new policies. You may have to pay some additional premiums depending on what you purchase and how much. Talk to your financial advisor to determine what is right for you. And remember don’t cancel any coverage until you have received some professional advice. Lifestyle changes require financial planning changes. And this is true with your insurance planning. Be sure that you have the right coverage for your circumstances. The choices you make today will impact the choices you have tomorrow. |
| Kim Stanley, B.A., CFP, CLU, CH.F.C., The Canadian Living Benefits Centre Ltd., kstanley@canadianlivingbenefits.com
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