# Do we need life insurance???



## piano mom (Jan 18, 2012)

So, it's time for benefit renewal through my husband's employer. My husband is automatically insured for 1 time his annual salary and $200k accidental death without cost to him. It will cost him additional $312 to provide another $280k term life insurance, renewed annually. Currently, I don't have any life insurance but according to his employer's website, it'll cost us $83 to provide $100k for me. Is it worth it? Do we need it? Do you guys buy term life insurance when you are "financially independent"? We have to make a decision in the next 3 days!

Suze Orman often recommends her viewers to insure themselves up to $1 mil. especially if they have young children :O

Foot note: We are now 45 and 44. My husband will be retiring within 5 years and we have 2 kids under 13. We have about $900k saved for retirement, house paid for and no debt.


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## brad (May 22, 2009)

There are lots of ways to think about this, but I like the idea that life insurance should insure your human capital. To use a hypothetical example not related to your specific one, if you die at age 35 and you're making $100,000/year, your family would be deprived of the (at least) $3 million you would have earned between ages 35 and 65. If you die at age 64, your family is only deprived of one year of your earnings. That's why it makes less sense to buy life insurance the older you get (or the closer you get to retirement)

But it's a balancing act, because insuring yourself for $3 million is expensive. The other way to approach it is to ask whether your family could maintain its current lifestyle, or at least get by without too much hardship, if you were to die. If your spouse is working and you're living well within your means now, this could mean you'd need much less insurance, and you're not trying to insure human capital but simply minimize the financial disruption.


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## fraser (May 15, 2010)

We had 7 times my salary and 50K (could not get more on her for medical reasons) when our children were small. We have zero now, other than 10K though my DB plan.


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## janus10 (Nov 7, 2013)

piano mom said:


> We have to make a decision in the next 3 days!


Were you the one that bought that Lovers Leap Groupon package of bungee jumping and blindfolded skydiving taking place this weekend?

The best way to figure out if you NEED insurance is to imagine your family's lives without either or both of the breadwinners.

I still laugh remembering the Wealthy Barber passage about Accidental Death. Funny stuff!


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## alingva (Aug 17, 2013)

piano mom said:


> Suze Orman often recommends her viewers to insure themselves up to $1 mil. especially if they have young children :O


Unfortunately Suze Orman is a saleswoman.

Majority of people are under-insured but there are many that are over-insured. Why do you need 1mil? I do not say you do not need it, I just ask why? You should sit with a good insurance advisor and calculate how much you REALLY need. Everybody's situation is different, to say to everybody that they need 1mil is like to say that everybody has to drink milk.


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## maggie179550 (Sep 8, 2013)

My husband passed away unexpectedly last Sept. I was fortunate that we had done some planning and did have insurance and a will. I cannot imagine the stress of losing your significant other and the having to worry about finances on top of that. Not one other couple that I have spoke with has both in place. They know they need it , but death is not something that people feel comfortable planning for even though they know it will happen one day.


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## My Own Advisor (Sep 24, 2012)

I would talk to an expert. Glenn Cooke can likely offer some excellent guidance:
http://www.lifeinsurancecanada.com/

Please avoid listening too much to Suze Orman. *sigh*


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## marina628 (Dec 14, 2010)

My husband and I each bought 100k whole life policy from state farm when we were 18.When I was 27 I had my accident so was permanently disabled so they waived my policy premium for life. My husband still pays his at $126 a month ,they pay us 8% on cash value and dividend because at that time rates were very high. Probably would not have bought them if we knew more at that time but it is not bad considering my premiums are waived. We do not have insurance on any of our mortgages but we do have life insurance on our credit line on our personal home because we do not have a mortgage anymore ,it is only $80,000.Last year our accountant advised us to buy universal life policies through the business on both of us so we did that but my premium was nearly double my husband's on $750,000 because of my health history so we elected to only cover me for $350,000.I think you should have enough assets or insurance to pay all the debts plus provide for your family until the youngest is our of school.If you are a dual income couple paying a mortgage then having no debts the surviving spouse should have a cushion as well.
My parents are 73 and 74 with a small one from Dad's work but also no debts and enough cash in bank they will never spend it,in fact they are saving 20% of their pension now so their capital will never get touched. They never seen the need for extra life insurance as my Dad had it in Military and then with his Government Job .It amounts to about $80,000 when he dies. I just spent $17000 on my brother's funeral and Headstone so just a bit over a couple nice funeral services when you think about it.


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## piano mom (Jan 18, 2012)

janus10 said:


> Were you the one that bought that Lovers Leap Groupon package of bungee jumping and blindfolded skydiving taking place this weekend?


Unfortunately, I'm too chicken to try anything like that:tongue-new:. It's just that we have a small window to make adjustments to the benefits.

Thanks all for your comments. We just thought it may be a waste of money since he will be retiring soon and the kids and I will be fine with the amount we have already saved. However, it may also provide some cushion should we need it. We will probably buy a couple hundred thousand outside of his employer benefits.


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## piano mom (Jan 18, 2012)

fraser said:


> We had 7 times my salary and 50K (could not get more on her for medical reasons) when our children were small. We have zero now, other than 10K though my DB plan.


Does one really need life insurance in retirement, except to leave more money to beneficiaries?


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## AltaRed (Jun 8, 2009)

piano mom said:


> Does one really need life insurance in retirement, except to leave more money to beneficiaries?


Again, it depends. If a retiree still has some debt and/or very little to draw on other than poverty line pensions, $100k in term insurance would go a long way for a surviving spouse, especially for funeral expenses. If one has no surviving spouse or is single, then nothing other than coverage of taxes and funeral expenses if there are no other assets. The only insurance I have is a freebie annuitant policy from my former employer that is decreasing term to a value of 0 at age 75. My beneficiaries will get whatever is left (after taxes) of my assets that I do not spend before I die.


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## Retired Peasant (Apr 22, 2013)

We have no life insurance, and never have. Any time someone tried to sell us some, we asked 'why?' and were never presented with compelling reasons to buy it.


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## AltaRed (Jun 8, 2009)

Retired Peasant said:


> We have no life insurance, and never have. Any time someone tried to sell us some, we asked 'why?' and were never presented with compelling reasons to buy it.


Whether one needs life insurance is not is situational. It matters when there are dependents and/or mortgage on the house, etc. More important than life insurance is disability insurance but I suspect that has been discussed on CMF a number of times.


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## My Own Advisor (Sep 24, 2012)

If you have lots of equity to offset liabilities, not sure why you need insurance. Just my take. 

Not my situation now, but in the future, if I have a nice nest egg and no liabilities, I don't plan on having more insurance.


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## MoneyGal (Apr 24, 2009)

My Own Advisor said:


> *If you have lots of equity to offset liabilities, not sure why you need insurance. *Just my take.
> 
> Not my situation now, but in the future, if I have a nice nest egg and no liabilities, I don't plan on having more insurance.


I'm pretty sure that's what AR is arguing: this is the essence of asset matching / liability matching. 

I said earlier in this thread (not sure if my post survived the re-set!) that we are very close to being self-insured and likely will not renew our term insurance when it comes due in a few years. That was actually my goal when I got the insurance (I think I must have been pregnant with my first child, or right beforehand) - "I am going to be self-insured when this 20-year policy comes due."


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## My Own Advisor (Sep 24, 2012)

"I am going to be self-insured when this 20-year policy comes due." - great work building assets if you're in that position (soon) MG.


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## MoneyGal (Apr 24, 2009)

Thank you! If only that conversation were more widespread. Someone at work was asking me what I was paying on my mortgage - as it happens, our mortgages were renewing at the same time - and I can't remember what he said, but it was something like "and if rates rise in 5 years, you'll be screwed" and I responded, without thinking, "I'm not going to have a mortgage in 5 years." The look on his face - it was as though he never considered this as a possibility.


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## Plugging Along (Jan 3, 2011)

I have to ask what one would be comfortable in being self insured. Is it a multiple of income, number of years living expense? Just curious how some are considering this.


Sometimes I feel that we are okay to be self insured, but the other times not. We have two young kids, no debt, no mortgage, and a decent networth, though a lot is in real estate (both principle resident and other). 

I guess I am asking because we just found out my spouse is not insurance right now and I am not feeling great about it.


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## Four Pillars (Apr 5, 2009)

piano mom said:


> Do you guys buy term life insurance when you are "financially independent"? We have to make a decision in the next 3 days!


You can always get the insurance and then cancel later if you decide you don't need it.


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## piano mom (Jan 18, 2012)

Plugging Along said:


> Sometimes I feel that we are okay to be self insured, but the other times not.


That's how I feel too  I mean we live well below our means but there's always that fear that things could get really bad.


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## kcowan (Jul 1, 2010)

We had term insurance when we had young children to compensate for loss of income for five years. We thought that would suffice to allow DW is secure a position in her old profession when the kids were both in school.

We never took the advice of insurance salesmen who had outrageous arguments for higher amounts. We bought it through the Canadian Council of Engineers. We reduced it to the costs of a funeral after that period.

We never had disability insurance. In hindsight, that was a unnecessary risk.


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## MoneyGal (Apr 24, 2009)

You may well have had it through employers/employment, however.


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## Plugging Along (Jan 3, 2011)

Sorry to hijack OPs thread (sort of still on topic) here is my thoughts and questions. 

Currently my spouse and I both have 2x salary plus disability. No other insurance due to some stupid circumstances.

Our kids are 5 & 7, and will be in school full time soon. We figure if some thing happens to both of us, our kids would get enough of an inheritance to cover themselves into young adult hood dor their first two degrees each, or something equivalent. Not enough for them to sit around and do nothing, but a good start in life. 

If one us should pass on early, then it would definately be an adjustment. We could live off the lower income, but it would be tight. The insurance from work would cover part of the transition, and we would probably sell the recreation property as neither of us could see us going there without the other person. 

Our tough one is if my spouse is on disability, that really would make things tight, but he is currently uninsurable for any addition amounts. 

Any thoughts or considerations.


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## AltaRed (Jun 8, 2009)

Plugging Along said:


> Any thoughts or considerations.


It would seem you are covered appropriately for critical needs while you have dependents at home. I can understand the feeling of vulnerability with kids at ages 5 and 7, but that vulnerability will start to lighten up year by year as they grow older.

One or two times salary is a common level for group term insurance and is usually the most cost effective way to have term insurance. If you cannot realistically up it to 3xsalary, I would not fret about it. The more likely scenario (as compared to death) is one of you being disabled and that is why disability insurance is fundamentally important AND why it costs so much. Buy as much of it as you can from your work policy. Depending on the disability, that can also be a drag on family finances and hence WHY disability insurance is so important to have. Insurance is not meant to provide a windfall. It is meant to less the burden/avoid a family financial crisis.


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## LifeInsuranceCanada.com (Aug 20, 2012)

My Own Advisor said:


> If you have lots of equity to offset liabilities, not sure why you need insurance. Just my take.
> .


To pay the tax bill, that's why .

If there's taxes on your estate, you've got two ways to pay them - out of your estate, or using life insurance. The example I always use of this is the family cottage. 

Mom and dad have a $500K cottage. When they both die, there's going to be a $100K tax bill. The children do not have the wherewithal to cough up $100K.

Option 1, sell the cottage at a discount to get the cash free. pay the gov't, split the remaining funds amongst the kids. Result: Cash, but no cottage.
Option 2. 100K insurance on the parents. Life insurance company hands over $100K, kids hand the $100K to the gov't to pay the tax bill.

The question isn't do they need life insurance, it's what do they want to have happen to the cottage. Which is why arguing that someone 'must' or 'must not' have life insurance is incorrect. Do you want the cottage to stay in the family? is the question, not 'do you need life insurance'. 

Similar question arises when you argue that an income earner with a family must have some multiple of income. Must they? What if 'I' don't give a rat's toot about what happens after I'm dead?' There are some people that don't care - I've spoken to them. They have families dependent on their income, and they don't feel it's their responsibility to look after them after they're dead. We might feel that they do have the responsibility to look after their dependents after their death - but again, in that case we're not arguing about life insurance, we're arguing about their responsibilities after their dead. And I guess 'none' is one answer to those responsibilities. (aside, I don't see it as my responsibility to change someone's mind if that's how they feel - I'm also not responsible for them or their dependents, my personal dependents are looked after in a fashion I believe is correct for my personal assumptions). 

In the end, if you've looked at your assumptions and needs based on the situation 'I just died', then you've probably come up with a reasonable answer. Just make sure you've done that. It's OK if your assumptions are the same as everyone else's. It's also OK if your assumptions are not the same as everyone else's.! 

Which is why listening to Suze Orman can be a bit dangerous. Talking heads are helpful, but they have to generalize things and make them the same for everyone. It's easier to do that, but then you're only 95% correct. It's the last 5% that screw up the works. 

that's the long answer. Here's a short answer:



> I have to ask what one would be comfortable in being self insured. Is it a multiple of income, number of years living expense? Just curious how some are considering this.


They're both related. I generally suggest roughly 1) take the % of your income that your dependents need to live on in a fashion you want them to, 2) take a number of years, maybe till the kids are self-sufficient and 3) multiply the two and round up to the nearest $250K. Bonus points if you want to figure in inflation and interest . That's a number for life insurance. However if you read some of the responses above you'll see people show examples where they may not need life insurance - they have other assets and are prepared to change their standard of living i.e. sell rental properties. that's perfectly acceptable.


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## LifeInsuranceCanada.com (Aug 20, 2012)

AltaRed said:


> The more likely scenario (as compared to death) is one of you being disabled and that is why disability insurance is fundamentally important AND why it costs so much. *Buy as much of it as you can from your work policy. *Depending on the disability, that can also be a drag on family finances and hence WHY disability insurance is so important to have. Insurance is not meant to provide a windfall. It is meant to less the burden/avoid a family financial crisis.


Bolded for emphasis. And I'll add one more for emphasis. If you're reading this, there's a good chance you haven't paid enough attention to your disability insurance.


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## wendi1 (Oct 2, 2013)

This "pay for the taxes" argument is bogus.

Insurance is to pay for unlikely disasters. If you are using it to pay for something that will CERTAINLY happen, you are paying too much. 

Put aside some money to pay for the capital gains tax. No surprise there.


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## AltaRed (Jun 8, 2009)

wendi1 said:


> This "pay for the taxes" argument is bogus.
> 
> Insurance is to pay for unlikely disasters. If you are using it to pay for something that will CERTAINLY happen, you are paying too much.
> 
> Put aside some money to pay for the capital gains tax. No surprise there.


I agree. That is standard 'clap trap' from insurance agents. Keep the money one saves in insurance premiums and put it to work in the market. In reality, pay for the CG tax out of the estate while listing the property for sale. 

In Plugging Along's case, that is not the issue since a rollover to the surviving spouse would be the first step, or upon disability of one of the owners. Most of the time, recreation properties are, and should be, expendable as any other asset, e.g. stock or bond. It is never the same when there is a major life change, e.g. death of one of the owners. 
.


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## Plugging Along (Jan 3, 2011)

Thanks for the responses everyone! 

My financial advisor who also sells insurance was trying to convince me to get insurance to pay the taxes. That is not something, I actually want to do. If both my spouse and I die prematurely, while the kids are young and not self sufficient, then they can't afford to maintain a recreation property anyways, nor would they know how. If we die when we are much older and they are adults, the projections of their inheritance is such that they can pay the taxes themselves.

I would love more insurance for my spouse, but I feel a little better on this. Can't get the higher amounts, so my next best thing is to make sure the spouse is as healthy as possible, and lives until at our kids are self sufficient. =)


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## LifeInsuranceCanada.com (Aug 20, 2012)

wendi1 said:


> This "pay for the taxes" argument is bogus.
> 
> Insurance is to pay for unlikely disasters. If you are using it to pay for something that will CERTAINLY happen, you are paying too much.
> 
> Put aside some money to pay for the capital gains tax. No surprise there.


You're speaking from an uneducated, impractical and arbitrary perspective. You're demanding that everyone be like you, nor do you understand how life insurance is priced.

Your savings argument doesn't match reality. How many 40 year olds have a cottage with capital gains problems and a concern about leaving the cottage to their 3 year old kids? Not very many. The people who have this concern are 70 years old with 45 year old children. How smrt do you think you look if start demanding that 70 year olds start 'saving'. Saving for 70 year olds doesn't fix the problem today. It fixes it in 20 years, after they're dead. Slight problem with your timeline there.

Secondly you are incorrect that savings can generate guaranteed results like this faster than insurance. People state this so vehemently when it's easy to check it. I've done the checking throughout the years, and your presumptions are false. You can frequently have better guaranteed results with life insurance than you can with savings, particularly in the examples I gave above. Not always. But sometimes.

That's due to a couple of things. First, insurers are typically assured better rates of return than you are. Secondly there are retention rates. 10 people buy permanent life insurance, maybe 3 of them claim death benefits. The other 7 pay premiums but cancel before they die - those 7 keep the total block of premiums lower on average. The 3-7 numbers are fictional, but the impact is real. 

In short, your assertations are demonstratably false. Don't get so caught up in being scared of being 'sold' something that you won't even check the actual numbers. And don't demand that everyone have the same assumptions as you.


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## LifeInsuranceCanada.com (Aug 20, 2012)

AltaRed said:


> *pay for the CG tax out of the estate while listing the property for sale.
> *
> .


Also bolded for emphasis. Which is why people are advised to get a second opinion before proceeding with information they read from some non-expert posting on the internet. They require that your only option is to sell the cottage. Your complaints of 'but I don't want to sell the cottage' are falling on their deaf ears.


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## piano mom (Jan 18, 2012)

Wow, there is a lot of good advice here! Love this forum!

My husband and I have decided to go with $200k life through his employer with $200k accidental. Thanks to PA for bringing up the issue on disability, I've confirmed with my husband that he will get $3800 a month until 65 should he get disabled. Since he is the main bread winner and I think we'll be fine with the savings we already have, we are going to go with the plan. 

PA, it is true that the vulnerability wears off as the kids get older. We plan to reduce/stop coverage as soon as they leave highschool. We believe that there will be enough RESP money saved for their college and they can stay with us as long as they need to, since the house is paid for.


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## My Own Advisor (Sep 24, 2012)

@Glenn,

You hit on exactly what I was thinking....

"In the end, if you've looked at your assumptions and needs based on the situation 'I just died', then you've probably come up with a reasonable answer. Just make sure you've done that. It's OK if your assumptions are the same as everyone else's. It's also OK if your assumptions are not the same as everyone else's."

Everyone's situation is different, for sure.


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## AltaRed (Jun 8, 2009)

LifeInsuranceCanada.com said:


> Also bolded for emphasis. Which is why people are advised to get a second opinion before proceeding with information they read from some non-expert posting on the internet. They require that your only option is to sell the cottage. Your complaints of 'but I don't want to sell the cottage' are falling on their deaf ears.


It is a relatively rare situation for someone to keep a second property for long after the death of a loved one, and rarer still for multiple beneficiaries to keep a cottage that stands the test of time. Such properties just do not have the same appeal after a life changing event. Hence, the marketing ploy to buy insurance to cover CG taxes on a second property really only applies to a miniscule portion of the population, and is only one option to cover the CG taxes. Yet it is marketed as if coverage of CG taxes is a critical part of estate planning. It simply is not the case. If an estate is so fortunate as to have a significant CG tax burden, it is a wealthy estate already and quite capable of covering CG taxes. 

The primary reasons to have term insurance have already been discussed. Cover funeral expenses, cover the mortgage if no separate mortgage insurance on the primary residence, provide a buffer/boost to living expenses of the surviving spouse, support dependents until they can support themselves, etc.


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## LifeInsuranceCanada.com (Aug 20, 2012)

AltaRed said:


> It is a relatively rare situation for someone to keep a second property for long after the death of a loved one, and rarer still for multiple beneficiaries to keep a cottage that stands the test of time. Such properties just do not have the same appeal after a life changing event. Hence, the marketing ploy to buy insurance to cover CG taxes on a second property really only applies to a miniscule portion of the population, and is only one option to cover the CG taxes. Yet it is marketed as if coverage of CG taxes is a critical part of estate planning. It simply is not the case. If an estate is so fortunate as to have a significant CG tax burden, it is a wealthy estate already and quite capable of covering CG taxes.
> 
> The primary reasons to have term insurance have already been discussed. Cover funeral expenses, cover the mortgage if no separate mortgage insurance on the primary residence, provide a buffer/boost to living expenses of the surviving spouse, support dependents until they can support themselves, etc.


Putting aside that most of what you've just said is speculation and opinion, nobody in this thread inferred that 'marketing of cg taxes is a critical part of estate planning'. You inserted that sentiment into the thread.

Actually, not putting aside what you've just said, I'll note that my experience with wealthy individuals is exactly the opposite of what you just said. And my experience with 'internet experts' is that they frequently opine incorrectly on the habits of the wealthy. I might as well argue religion with you as argue life insurance because it's entirely obvious at this point that you're not about to let facts or other people's preferences deter you from your convictions.


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## AltaRed (Jun 8, 2009)

I will beg to differ with your assertion about the sentiment you claim I inserted into the thread. It was you that brought up life insurance coverage of CG taxes. No matter... this discussion is not even relevant to the specifics of the thread.


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## brad (May 22, 2009)

LifeInsuranceCanada.com said:


> If there's taxes on your estate, you've got two ways to pay them - out of your estate, or using life insurance.


This is interesting to me, because we normally think of insurance as a hedge against risk. If a future event is certain (e.g., taxes on an estate), then there is no risk: the probability is 100%. So logically it wouldn't make sense to buy insurance in a case like that because there's no risk to hedge against. But it sounds like what you're saying is that it can be cheaper to cover the tax cost through insurance than by saving up the money yourself. The way to test that would be to sum the annual premiums you pay over the term of your insurance and compare that total against the capital gains tax, correct? In a case like this, it seems like the longer you live, the more you'll end up paying in total premium and at some point you might conceivably cross the threshhold at which covering this cost through insurance ends up costing you more.


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## wendi1 (Oct 2, 2013)

You are correct, Brad. So, if you pay, say, a year's worth of premiums, then die (!), you win. A more likely outcome, and why insurance companies love this, is that you pay for decades, then win a small fraction of your payments.

Since this is pitched as protection for your loved ones and keeping the family cottage in the family, it seems churlish to object to the price. In some scenarios, the payments are foisted off on the kids (since they will receive the benefit).

I will only insure against catastrophes, myself. And am very suspicious of any "insurance experts" who advise otherwise.


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## Four Pillars (Apr 5, 2009)

brad said:


> This is interesting to me, because we normally think of insurance as a hedge against risk. If a future event is certain (e.g., taxes on an estate), then there is no risk: the probability is 100%. So logically it wouldn't make sense to buy insurance in a case like that because there's no risk to hedge against. But it sounds like what you're saying is that it can be cheaper to cover the tax cost through insurance than by saving up the money yourself. The way to test that would be to sum the annual premiums you pay over the term of your insurance and compare that total against the capital gains tax, correct? In a case like this, it seems like the longer you live, the more you'll end up paying in total premium and at some point you might conceivably cross the threshhold at which covering this cost through insurance ends up costing you more.


That's pretty much how I think about it.

Insurance can be also used as a financial tool. Two scenarios I've come across are where there is a family cottage (with a ton of capital gains) and the owner want to keep the cottage in the family. Insurance can be a way to make that happen. 

Another situation could be a family business where it might also make sense to have insurance to make a better transition.

Scenarios like that only affect a small percentage of people.


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## brad (May 22, 2009)

wendi1 said:


> You are correct, Brad. So, if you pay, say, a year's worth of premiums, then die (!), you win. A more likely outcome, and why insurance companies love this, is that you pay for decades, then win a small fraction of your payments.


I don't think it's quite that dire, though, because you have a large pool of people paying premiums, some of whom die early and others of whom live to 105. I would think in most cases a payout would exceed the total cost of your premiums, but I imagine it could turn out the other way round under some scenarios. That's actually a risk -- maybe we should be buying insurance for that situation! ;-)


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## LifeInsuranceCanada.com (Aug 20, 2012)

brad said:


> This is interesting to me, because we normally think of insurance as a hedge against risk. If a future event is certain (e.g., taxes on an estate), then there is no risk: the probability is 100%. So logically it wouldn't make sense to buy insurance in a case like that because there's no risk to hedge against. But it sounds like what you're saying is that it can be cheaper to cover the tax cost through insurance than by saving up the money yourself. The way to test that would be to sum the annual premiums you pay over the term of your insurance and compare that total against the capital gains tax, correct? In a case like this, it seems like the longer you live, the more you'll end up paying in total premium and at some point you might conceivably cross the threshhold at which covering this cost through insurance ends up costing you more.


100% bang on. This isn't catastrophic coverage necessarily, it's estate and tax planning, which is at its core a different beast. People who have a need for that level of advice are often quite willing look at things the rest of us won't.



> You are correct, Brad. So, if you pay, say, a year's worth of premiums, then die (!), you win. A more likely outcome, and why insurance companies love this, is that you pay for decades, then win a small fraction of your payments.


That's demonstratably false as I've already pointed out. Life insurance isn't priced in the way that you fervently want to believe. I've already pointed out the underlying reason that your argument is false for those that care to read my previous posts. 

Since you choose to completely ignore facts, I'll insert some. $100,000 of permanent life insurance for a Male NS 65 is available for under $3000 per year. That *guarantees* them when they die they receive $100,000. At 3% (and you can't get 3% *after tax* guaranteed right now to my knowledge) cost crossover is like 23 years - age 88. And that's beyond average life expectancy. Which means, despite your assertation, that the 'more likely outcome' is in fact that the consumer dies before they would've saved the money. 

Of course people who are doing this don't give a rats toot about whether the insurance company 'wins'. They're looking for a guaranteed solution to their problem at the lowest possible cost. Trying to manoever 'savings over decades' as a practical solution to their problem is ridiculous because it doesn't solve their problem. It just advances the agenda that 'permanent insurance is bad and anyone who says differently is selling you something'.

Frankly, the term-only advocates who's only recourse is that 'anyone who offers permanent is doing a sales job' are as just the reverse side of the coin of the industry insiders who will tell you that term insurance is renting not buying. Both are overly emotional reactions. Worry about what's right for you, not whether someone is 'selling' you something all the time. Of COURSE insurance salespeople are selling. That doesn't automatically make them the bogeyman. And of course, argueing with these groups is about as successul as arguing with industry folks who only sell permanent. Can't change their minds, but hopefully some readers will stop and consider before reacting.


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## kcowan (Jul 1, 2010)

Insurance plays a number of roles. Protecting against risk is the main one. Forced saving is another one. But make no mistake. Actuarially speaking, we all pay for the principal, the interest and the profit for the lifeco. So unless we have an unusual risk profile, it is a trade-off of how to allocate our money.

Most financial sites are anti-insurance except for special purposes. The focus here should be on what those are. Family cottages and family businesses "might" be examples but I am sure we can all quote examples where families would have been better off without such albatrosses. I know I can.


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## lightcycle (Mar 24, 2012)

LifeInsuranceCanada.com said:


> That *guarantees* them when they die they receive $100,000. At 3% (and you can't get 3% *after tax* guaranteed right now to my knowledge) cost crossover is like 23 years - age 88. And that's beyond average life expectancy. Which means, despite your assertation, that the 'more likely outcome' is in fact that the consumer dies before they would've saved the money.


What financial benefit is there for an insurance company to offer a product that guarantees that they'll lose money for every person insured in such a way?


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## LifeInsuranceCanada.com (Aug 20, 2012)

lightcycle said:


> What financial benefit is there for an insurance company to offer a product that guarantees that they'll lose money for every person insured in such a way?


Lol .


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## bmoney (Jun 22, 2013)

There's a lot of misconceptions in this thread and it's easy to understand why. There's a lot of terrible insurance salesman, and a general uneasiness about dealing with insurance companies.

One part of the insurance reality is that all of us require it, yes that includes the taxes you pay for provincial health insurance. Most risks are known, the timing is for the most part uncertain - this is the part you are covering. Insurance doesn't cover black swan events, we don't know what those are.

A second part of the insurance reality, is that yes, insurance companies can offer life coverage at sometimes better ROI then comparable AA rated investments - it would only be fair to consider the risk profile and return on similar "investments". Otherwise, any argument about setting aside the equivalent amount of premiums into savings and investment at a higher return is meaningless - few ever acknowledge this, point. The risk in the equation is longevity, and you can add interest rates to this as-well - though to be fair many people with permanent coverage from many years ago have benefited from decreasing interest rates as their COI was based on higher interest rate assumptions at the time, or they had guaranteed minimum interest.

Third reality, on the mortality curve or longevity if you prefer, there is likely a point in time where the insurance company wins the bet, and you end up paying more for the coverage, than your beneficiaries stand to benefit had you simply saved the money - but do you know for sure? See longevity risk. 

Finally, and I think this point has already been made, most people pay into policies and never collect. The reasons are either intentional or non-intentional. Your policy may have been term in nature and no longer required, or permanent in nature and some event caused you to cancel your coverage - this is where the money is made. Anyone with a present value calculator can figure out were on the curve, their insurance deal may end up being a raw deal, but the reality is the insurance company knowns many policies will never pay out. 

So yes, there is a need for insurance. Yes, it is possible to get a fair deal on your coverage as compared to the risk, but you better know exactly what you're looking for and why, otherwise you'll likely find ourself either under or over insured, depending on how good or bad your insurance guy is.


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