For many, the primary purpose of life insurance is a means to pay off debt, such as a mortgage, in case of premature death. Once these debts are paid off, there is a belief that life insurance is no longer needed. However, life insurance is a valuable asset that acts as a risk reduction in any financial plan. Life insurance allows you to transfer the risk to the company that issues the policy, which reduces your risk of a large financial loss. There are other risks that will need to be protected other than debt in the event of premature death.

Income Replacement

If you have a partner who is dependent on a portion of your salary, there is a need to have life insurance to protect that income. In the case of premature death, your combined income could be cut in half or even more. Your spouse or partner may not have the ability to pay bills or maintain their lifestyle. Having life insurance that focuses on protecting a portion of your income, up to your age of retirement or beyond, will ensure your partner can maintain their lifestyle, the family home, and the car without having to take on additional jobs or take out additional loans. The benefit of the life insurance policy is that it will provide the annual income needed for financial support.

Retirement Protection

Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) which are currently used for retirement need to be protected. Without life insurance to provide income replacement, your partner may need to withdraw money from your retirement savings. These withdrawals can have a huge impact on any retirement plan. Your partner may have to work longer than expected or live a retirement lifestyle that is below their expectations. With life insurance in place, you can achieve your retirement income and goals as planned.

Taxation and other expenses

There can be many expenses upon death that need to be taken care of, such as lawyer fees, accountant fees, funeral costs, and even probate. There are also possible tax issues that can arise from non-registered accounts, businesses and cottages. Utilizing life insurance to pay for these expenses and taxation issues can relieve a huge financial cost. Having to take out loans or utilize RRSPs can make drastic changes to your financial plans or lifestyle.

Life insurance is much more than just a debt coverage option; it plays a pivotal role in any financial, retirement and estate plans. The right amount and type of insurance throughout your working years, and even into retirement, can ensure your overall financial success. Review your insurance needs today to lower the risks to your financial plan.