Benefits of Life Insurance

I bought my first life insurance policy when I was 26 years old.   I bought it at the time because my mom was on a very expensive medication for her terminal illness ($3,000 CAD a month).  Health care did not cover the cost of the medication.    I was worried that if something happened to me, they will, at least, have the money to cover the cost of her medication.

I ended up buying:

Critical Illness: $150,000 (term) at $37.38 / month

I decided to purchase the term critical illness for $150,000 at $37.38 per month. This monthly payment will increase in 10 years to $52 a month or when I turn 36 years old.   Under this policy, if I never made a claim when I die (I didn’t die of critical illness), I am eligible for a return of premium on death.  This means that if I die at 36 years old, I won’t receive the $150,000.00 as part of my estate, instead I will receive $4,153.20 as part of my estate, which is the cost of the premiums.

Is it worth it?  Well, I pretty much lost the interest  I could have made from the money  if I were to invest the $37.38 per month for 10 years (see what Daisy at Add Vodka can do with $40 a month), I guess that would be the fee to have a Critical Illness insurance.

Back then, I could have chosen the option where I pay for the Critical Illness policy for 15 years and it will be able to sustain itself.  However, this option will cost me $166 a month for 15 years.   At 26 years old, $166 a month was A LOT of money to pump into life insurance, so I didn’t go for this option and opted for the term instead.

Life Insurance – $200,000.00 at $83.33  a month for 15 years.

I purchased $200K worth of Universal Life Insurance (InnoVision) from Manulife.  I am currently paying $83.33 per month for  15 years and I will have enough money in my policy to generate money to cover the policy fee.

I know that $200K will not be enough if I have kids, but it’s a start!

Here is a breakdown of the policy. For 15 years, I will be paying $1000 a year ($15,000 in total) for my life insurance.   $549.84 of the $1000 goes towards my policy fee.  The rest, goes towards any investment of my choice under my side account under the policy.

The great thing about this policy is flexibility.  If I decide to go back to school for a year and I am on a tight budget, I just need to pay $549.84 that year (about $45 / month) to keep my policy going.  However,if I earn more that year, I can contribute up to $5,170.11 that year if I choose to.     This can act sort of like a savings vehicle.  The money I pump in every year is growing.    By the time I die, there is a cash value on top of the $200,000.00 from the life insurance policy.   That cash will be paid out to my estate at the time of my death.   According to the schedule provided to me, if I were to die at the age of 65, assuming the the rate of return is 5 %  for the policy and 3% for the side account, the cash value of my policy will be about $79,000.00.   Therefore, my estate will receive a total of $279,000.00 from my life insurance policy.

Another great thing about this policy is that the money/ interest that is generated is TAX DEFERRED.  For example, if I have an extra $5,000.00 lying around after I max out my TFSA and my RRSPs, I can dump in that $5000.00 into my insurance policy and choose the type of investment I want.  Any investment growth will be tax deferred (until I take out any money from my policy, but I probably will not so the money will just sit there and grow and grow).

If I do not have any dependents  by the time I require long term care, I can always convert my life insurance policy into a “Living Benefit” where I would use the $279,000.00 to fund my health care (for a care home and etc.) instead of leaving that money in my estate.   I haven’t really looked into how this works, but when I purchased the life insurance, the agent did say that this is a possibility.

I wanted to purchase another $150,000.00 of life insurance at 30 years old, but it will cost me $150/ month for the next 15 years.   That is almost DOUBLE of what I to pay a month 4 years ago!   So AGE DOES MATTER!

I am still glad I was able to purchase the $200,000.00 life insurance when I was 26.  Though it is not much, but like I said, it is a start!

First Hand Experience of the Benefits of Life Insurance 

First of all, Life insurance is both probate and creditor proof.

• Probate Proof means that if I die without a Will, the money in my life insurance policy will still go directly to my beneficiary without being held by the government.  The money will NOT be subject to probate fees (this is great!)
• Creditor Proof means that if my assets are frozen, I can still access the money I put towards my life insurance policy.

Both my parents bought life insurance.  I have to say it was great that they bought it!  My mom had $200,000.00 life insurance and she also bought mortgage insurance.  When she passed away, the house was paid off due to the mortgage insurance.

My father also had$200,000.00 life insurance.  We ended up using a portion of it to pay off a small mortgage on his house and his line of credit.  We also used it to cover the cost of his funeral (which was quite expensive as you see here)

I really saw the benefit of life insurance at this time because we received the money fairly quickly and we did not need to pay ANY probate fees on top of that.  In BC, you don’t need to pay any probate fees if your estate is less than $25,000.  Anything over, you are paying about 1.3% of the estate as probate fees.

Did you purchase any life insurance?  If so, how much?  Did you buy term, life or universal?