# Life insurance help



## Jungle (Feb 17, 2010)

I have recently opened a joint account with my wife and discovered that she has two life insurance policies, under her name. I don't feel this is necessary. FYI I have my own life insurance for me only; it does not cover my spouse. 

For our situation, I'm not clear on what we need. I'm hoping to take some advice or suggestions from answers in this thread. 

We have no kids, but plan to in a couple years. The beneficiaries would be our children, in the future. 

We have two mortgages; one for residential property and another on a rental property. 

I plan to sell the rental property in 1-2 years. (Don't want another rental property)

I plan to pay off my residential mortgage in about 4 years, live and die in my house. (Never move). Other financials are in good order. 

For our life insurance policies she has:

Manulife financial (It doesn't state what type)
$85,000 payable upon death
Entire policy paid for by employer, as company benefit. (around $150 per year) However it's a taxable benefit. She pays the tax man income tax this money spent by employer. 

Canada Life 
Term 20 (renews every 20 years for 60 years max)
$250,000 payable upon death
$16.XX per month


What do you think?


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## Four Pillars (Apr 5, 2009)

It depends on what your financial goals for the survivor are in the event of a death.

http://www.getrichslowly.org/blog/2010/03/01/how-much-life-insurance-do-you-really-need/


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## OhGreatGuru (May 24, 2009)

I am concerned about the way you have phrased some of your questions, and that you would be seeking support for your side of a disgreement with your spouse, rather than both of you coming together for advice. 

_I have recently opened a joint account with my wife and discovered that she has two life insurance policies, under her name. _

I have difficulty with the modern practice of some spouses of keeping their finances so separate that you would only have just "discovered" by accident that she has 2 insurance policies. It seems to me you both need to agree on full disclosure of your financial positions, whether or not you have a joint account. How in the world can you have an intelligible estate plan without this?

_I don't feel this is necessary. _

Why not? And why does she feel it is?

_FYI I have my own life insurance for me only; it does not cover my spouse._

Why is it OK for you to have your own life insurance, and not her?

_We have two mortgages; .... I plan to sell the rental property in 1-2 years. I plan to pay off my residential mortgage in about 4 years, ..._

Why isn't it all "We"? Doesn't your spouse agree with this plan?

Given the cost disparity between the ManuLife policy and the Canada Life, it sounds like the Manulife may be some form of Whole Life. You should get this verified. What happens if she stops working there? Does the policy lapse or does she have to pay the premiums? The general view on this forum is that term insurance is the only kind worth buying, but there may be exceptions depending on circumstances.

Most people recommend couples have sufficient term insurance to cover their principal mortgages (i'm assuming your income property has a positive cash flow). People often make the mistake of insuring ony the main income earner. But if Mom gets run over by a bus, Dad is left with paying the mortgage plus full-time day care/home care for the kids.

PS: Who are the beneficiaries of these policies? (both hers & yours.) You don't want them paid to "estate" because they will held up in probate and subject to probate fees. Unless you want them payable to someone else (and there may be reasons for that) you should have declared each other as beneficiaries.


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## MoneyGal (Apr 24, 2009)

Nah, it won't be a whole life policy - just a group policy available to employees only (you can usually convert it to an individual policy if you leave the company, but not at the same cost). 

The thing that struck me from this post was the use of the phrase an insurance policy "that covers me" or that "does not cover me." 

I don't know whether you are talking about who the *beneficiary* of the policies is or what, but life insurance insures the life in question - except in the case of joint life policies, in which case the death benefit is paid out when one of the two policyholders dies (either the first or the second!). You would not ordinarily be able to buy a joint life policy through an employer.

As for how much insurance is required: other posters have said it earlier - it all depends on what kind of life you want to ensure for the remaining spouse. Generally speaking, though, there are two methods talked about in the insurance biz: the debt repayment method and the income replacement method. One covers your debts should you die prematurely; the other calculates the loss of human capital as a result of your premature death and covers that. Neither is the "right" method but you should be aware of the implications of both methods in making your choice.


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## Jungle (Feb 17, 2010)

OhGreatGuru said:


> I am concerned about the way you have phrased some of your questions, and that you would be seeking support for your side of a disgreement with your spouse, rather than both of you coming together for advice.
> 
> _I have recently opened a joint account with my wife and discovered that she has two life insurance policies, under her name. _


 To clear this up, she didn't know her employer gave her life insurance until I told her. I don't know why. When I saw the term life coming out of the chequing account, I started to wonder why she would have two life insurance policies.. To make matters worse, I don't think she knows the differences between whole life, term, etc. Also, I guess she thought that the term was "mortgage insurance" and is confused. I'm not insurance expert either, but I know a little bit from reading blogs and forums. 




OhGreatGuru said:


> I have difficulty with the modern practice of some spouses of keeping their finances so separate that you would only have just "discovered" by accident that she has 2 insurance policies. It seems to me you both need to agree on full disclosure of your financial positions, whether or not you have a joint account. How in the world can you have an intelligible estate plan without this?


Our finances are fully disclosed. I did lie, we are not married yet, but will be very very soon. This is why we have joined everything together, beforehand, so we are prepared. 



OhGreatGuru said:


> _I don't feel this is necessary. _
> 
> Why not? And why does she feel it is?


I feel we are paying for three life insurance policies. One for me, two for her. I feel like the term might be a waste of money? Maybe I am wrong. I'm not a expert on life insurance. 



OhGreatGuru said:


> _FYI I have my own life insurance for me only; it does not cover my spouse._
> 
> Why is it OK for you to have your own life insurance, and not her?


I never said that.. but I question is why should she have two policies?



OhGreatguru said:


> _We have two mortgages; .... I plan to sell the rental property in 1-2 years. I plan to pay off my residential mortgage in about 4 years, ..._
> 
> Why isn't it all "We"? Doesn't your spouse agree with this plan?


My spouse agrees; I guess I'm not used to putting "we." Sorry!



OhGreatGuru said:


> Given the cost disparity between the ManuLife policy and the Canada Life, it sounds like the Manulife may be some form of Whole Life. You should get this verified. What happens if she stops working there? Does the policy lapse or does she have to pay the premiums? The general view on this forum is that term insurance is the only kind worth buying, but there may be exceptions depending on circumstances.
> 
> Most people recommend couples have sufficient term insurance to cover their principal mortgages (i'm assuming your income property has a positive cash flow). People often make the mistake of insuring ony the main income earner. But if Mom gets run over by a bus, Dad is left with paying the mortgage plus full-time day care/home care for the kids.
> 
> PS: Who are the beneficiaries of these policies? (both hers & yours.) You don't want them paid to "estate" because they will held up in probate and subject to probate fees. Unless you want them payable to someone else (and there may be reasons for that) you should have declared each other as beneficiaries.


Beneficiaries are our brother/sister. (but would change to children later)


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## Jungle (Feb 17, 2010)

MoneyGal said:


> Nah, it won't be a whole life policy - just a group policy available to employees only (you can usually convert it to an individual policy if you leave the company, but not at the same cost).
> 
> The thing that struck me from this post was the use of the phrase an insurance policy "that covers me" or that "does not cover me."
> 
> ...


Our goal is to pay the mortgage off fast. I believe that we will not hold a mortgage for any longer than five years. We will pay it down agressively. Our goal is to retire early. With that said, I know there is a risk we could drop dead tomorrow. Anything could happen. I'm thinking it would make sense to hold the term insurance until both mortgages are cleared and just have the group policies that's offered by out employers. But who's to say the beneficiaries will pay the mortgage off if one of us dies tomorrow? You could let the estate go bankrupt (essentially) and keep the money for your self. The beneficiary has no legal obligation to pay the debt of the dead person.. 

I don't know if we want a policy that provides streams of income.


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## cardhu (May 26, 2009)

jungle said:


> why should she have two policies?


It is not the number of policies that matters ... it’s the amount of coverage .... does the amount of coverage make sense? ... If so, then who cares how many payments there are.



> _ Beneficiaries are our brother/sister. (but would change to children later) _


Most married couples name each other as beneficiaries ... unless there are some very oddball circumstances in your situation, it would be beyond strange to name an outsider as beneficiary ... even after you have children, you should still name each other ... what is a 6-month-old going to do with a pile of money? ... it is the surviving parent who would need the funds ... the scenario where you both die simultaneously should be dealt with through your wills, not through your insurance policies. 



> _ You could let the estate go bankrupt (essentially) and keep the money for your self. The beneficiary has no legal obligation to pay the debt of the dead person.. _


Yeah, except that the mortgage debt will be joint debt, if you are joint owners ... the surviving spouse cannot abscond with the insurance money and would have a legal obligation to pay the debt.



> _I don't know if we want a policy that provides streams of income._


Life insurance policies don't typically provide streams of income ... they provide lump sum payouts ... what MG was referring to is a method of determining an appropriate amount of coverage ... not a "correct" method, just a common method.


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## OptsyEagle (Nov 29, 2009)

The group plan may be the minimum amount required to take. It may be 1 x her income or 2 x her income. In other words, she may not have a choice to keep it or not. Find out.

The term insurance will most likely end up being a waste of money, since they are designed to expire before you do, or at least rise in price to unaffordability before you die. At $16 per month however, it really won't matter much to you whether you keep it or not. You could plan to re-look at it or cancel it upon the next renewal period...or you could get rid of it now. Again, it makes very little difference.


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## OhGreatGuru (May 24, 2009)

I'm at a loss here. I think the two of you need to sit down & talk to someone about wills & estate planning for married couples; whether or not your two houses wil be jointly owned; and what you want to happen to your estates (including property(ies) and debts) if one of you dies. Then the amount of insurance you need, and who the beneficiaries should be, will become self-evident.


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## MoneyGal (Apr 24, 2009)

FWIW: life insurance is one area of life where you really and truly want all of the premiums to be "wasted." That said, how *much* you are paying (and ideally "wasting") will depend on a bunch of factors, like how much insurance coverage you have. 

I'm not sure I agree that the amount of coverage you will need if/when you sit down with an estate planner will be self-evident. It really depends on what you want to have happen for the remaining spouse if one of you dies prematurely. There is no single "right" answer to this question. 

I've recommended this book before, and I will recommend it again: Insurance Logic, by Milevsky and Gottesman. Subtitled "Risk Management for Canadians," this book provides a very accessible overview of how insurance works and how to make insurance decisions.


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## Jungle (Feb 17, 2010)

MoneyGal said:


> FWIW: life insurance is one area of life where you really and truly want all of the premiums to be "wasted." That said, how *much* you are paying (and ideally "wasting") will depend on a bunch of factors, like how much insurance coverage you have.
> 
> I'm not sure I agree that the amount of coverage you will need if/when you sit down with an estate planner will be self-evident. It really depends on what you want to have happen for the remaining spouse if one of you dies prematurely. There is no single "right" answer to this question.
> 
> I've recommended this book before, and I will recommend it again: Insurance Logic, by Milevsky and Gottesman. Subtitled "Risk Management for Canadians," this book provides a very accessible overview of how insurance works and how to make insurance decisions.


Thank you for your recommendation. I will search that book in the library. I am meeting with a financial advisor soon. I just don't want to be sold or pay for something we don't need.


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## Ben (Apr 3, 2009)

FT has a post on his blog milliondollarjourney a few months back on how he went about determining the amount of life insurance he needed.


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## Four Pillars (Apr 5, 2009)

I would imagine you both have your siblings listed as the beneficiaries as a holdover from your "single" days. But I can't understand why you mention this will eventually be changed to your kids. Why wouldn't it be to each other?


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## MoneyGal (Apr 24, 2009)

BTW, depending on your province, minors cannot legally inherit insurance payouts. 

In Ontario, when a minor is the beneficiary of an insurance death benefit (and there is no testamentary trust established for that minor to hold those proceedings), the Office of the Public Guardian takes those funds, invests them according to the "prudent investor" rule (a trust specification) and will release them only at the child's age of majority. 

I'm not up to date on the rules in all provinces and territories HOWEVER the standard advice is to handle this in your will with the establishment of testamentary trusts (i.e., they are formed as the will is brought into force) which provide for guardians of the property of the child or children. 

Capiche?


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## Jungle (Feb 17, 2010)

Four Pillars said:


> I would imagine you both have your siblings listed as the beneficiaries as a holdover from your "single" days. But I can't understand why you mention this will eventually be changed to your kids. Why wouldn't it be to each other?


I think I am mistaken having siblings be the beneficiaries. We did have this when we were single. Now we are getting married. It makes sense now, the beneficiaries should be my spouse, vise versa for her. 

I was reading the definitions of term life insurance on wikipedia. It's getting more clear now. From my understanding, we would want life insurnance to cover the following risks: consumer debt, dependent care, college education for dependents, funeral costs, and mortgages. 

I believe I am now under-insured. 

Now as our lives change, where we don't need money to cover mortgage debt, education expenses, depandant care, etc, can you amend your policy? Also does anyone know if we should have a joint policy or seperate?


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## MoneyGal (Apr 24, 2009)

I can't really comment on the joint life vs. single life. I have both policies. It will depend on the amount you want to insure and your relative health statuses. 

The question about decreasing your coverage as you age and moving towards "self-insurance" is the classic rationale for term life insurance. Your "job" during the term of the insurance is to build up assets to replace what you'd receive as the insurance payout. 

That is, you get (for example) a 20-year term and during that 20-year period, you gradually handle the expenses you would otherwise have the death benefit to pay for (i.e., you establish college funds for your kids, you pay off your mortgage) - then when the policy term is up, you don't renew. Or you renew for another shorter term for less coverage.


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## Serviss (Jul 15, 2009)

*How much life insurance and what kind...*

Hello readers I have recently updated my website with a host of information on what life insurance is and how much is appropriate for your family... If you have any questions feel free to drop us a line.

http://www.serviss.ca


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## Jungle (Feb 17, 2010)

MoneyGal said:


> I can't really comment on the joint life vs. single life. I have both policies. It will depend on the amount you want to insure and your relative health statuses.
> 
> The question about decreasing your coverage as you age and moving towards "self-insurance" is the classic rationale for term life insurance. Your "job" during the term of the insurance is to build up assets to replace what you'd receive as the insurance payout.
> 
> That is, you get (for example) a 20-year term and during that 20-year period, you gradually handle the expenses you would otherwise have the death benefit to pay for (i.e., you establish college funds for your kids, you pay off your mortgage) - then when the policy term is up, you don't renew. Or you renew for another shorter term for less coverage.


Yes this is making sense, I am seeing why everyone recommends term life insurance for people that are on route to be financially sound. 

Also, I think I was getting confused with the estate, If I am correct, the estate would be listed in my will to go to my spouse or depandants?
A few more questions: 



Once we a married, we are legally responsible for each other's debts, if one of us dies? (would this be the case if my spouse's name is not on the mortgage title, would she be responsible if I die?) 

However, my spouse's 20 year term automatically renews; I assume you can stop it from renewing or cancel anytime?

Also, once the term 20 is expired and you don't use it, the moneys gone for good, right?


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## OhGreatGuru (May 24, 2009)

_Also, I think I was getting confused with the estate, If I am correct, the estate would be listed in my will to go to my spouse or depandants?_

Your "estate" is all the assets that belong to you when you die. Generally married couples would write will leaving the bulk of their estates to each other and/or your children.

Unless a specific beneficiary is named, insurance is paid to the estate, and is therefore subject to probate fees and other costs (delay in actualy settling the estate becomes an issue too.) Whereas, if a beneficiary is named, the insurance money is considered to be "outside" of the estate, and will be promptly paid to beneficiary on presentation of a death certificate.

Financial accounts or property that are owned "Joint with Right of Survivor" also pass to the survivor outside of the estate, and are not tied up in probate.

_1. Once we a married, we are legally responsible for each other's debts, if one of us dies? (would this be the case if my spouse's name is not on the mortgage title, would she be responsible if I die?) _

You should talk to a lawyer about this, in relation to wills & estates and related matters. Since you seem to have significant assets already you shouldn't put this off too long. I don't believe there is an automatic entitlement to assets brought into the marriage, except perhaps the matrimonial home. I don't think a spouse would be responsible for debts the other acquired before marriage, but talk to lawyer. On the other hand, the mortgage company may not agree to you putting a house into joint ownership unless you do the same with the mortgage.

PS: in an earlier post you said: _The beneficiary has no legal obligation to pay the debt of the dead person.. _

Yeah, but the mortgage company gets to keep the house, because there was no money to pay it off. Do you want your spouse to wind up with no insurance money and no property?


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## Jungle (Feb 17, 2010)

OhGreatGuru said:


> PS: in an earlier post you said: _The beneficiary has no legal obligation to pay the debt of the dead person.. _
> 
> Yeah, but the mortgage company gets to keep the house, because there was no money to pay it off. Do you want your spouse to wind up with no insurance money and no property?


Absolutely not. I was thinking more along the lines of the beneficiary being someone other than the spouse. But now that I understand a little more, that wouldn't make sense and no, I would not want my spouse to wind up with nothing when I die (or vise versa). 

Thank you for your help


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## Kristine (Apr 7, 2010)

I think it'd be good to sit down with your partner and decide how you want to plan your future lives together. We insure our homes, our cars, our jewelry, but than debate if we should insure our lives. I personally would encourage you to be completely insured up to your entire human life value. If you were to pass away, you would still be able to provide for your spouse and family with the death benefit you leave behind. It's something to consider.


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## Jungle (Feb 17, 2010)

Absolutely. Now that I understand a little better, I am signing up for a Term 20 policy, in addition to having my group policy at work. We will now have equal coverage and put each other as beneficiaries.


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