Tel: 416 767-CASS (2277)
Fax: 416-491-0273

Garry Cass, ext.207
Assistant: Josie Dobosz, ext. 277

I Hate Life Insurance

If you hate life insurance because the premiums are high, I want you to keep two questions in mind as you read this section.

  • Have you ever inherited from an estate other than that of your spouse?
  • Did you wonder what could have been done to reduce the estate expenses and thereby increase the size of that inheritance?

If you answered “yes” to question one, the answer to question two was probably “yes” as well.

The Costs in Winding Up an Estate

Over a lifetime, people acquire many assets and when they die, these must be dispersed. Depending on what your estate entails, your Estate Trustee may need to cover a number of costs such as:

  1. Probate Fees (Estate Administration Tax). Fortunately your professional advisers are able to help you make decisions about how to reduce these.
  2. Income tax is another matter. Before assets are passed to your children or other non-charity beneficiaries, the government wants its share and it can be significant if you have
    • a large RRSP/RRIF
    • significant unrealized capital gains, or
    • recapture of depreciation
  3. If you have real estate to sell, real estate commissions may be significant.
  4. Brokerage fees to sell stocks and bonds may be significant.

As a result estates often shrink up to 35-40% before the beneficiaries see a penny!

Insurance is Often Cheaper than Shrinkage

A part of the estate planning process is to estimate estate shrinkage and make you aware of it. After the shock,  your adviser may raise the issue of  “life insurance” as an option. Your reaction may be that you already have insurance , that it’s too expensive and you don’t expect to ever see any benefit.

Consider this example. Let’s say your estate’s shrinkage is  estimated at $200,000. Coverage for $200,000 worth of insurance might cost $4,000 per year. You would have to pay premiums for 50 years before the cost exceeds the benefit! The estate shrinkage of  $200,000 is a certainty. One way to offset it insurance, which in many cases is a fraction of the cost.

So if you think life insurance is expensive, then I ask you, “Compared to what?” Look at it this way, the premiums may reduce your estate during your lifetime, but your beneficiaries almost certainly will gain much or all of it back.

There are many options in regards to life insurance. I don’t sell it myself, but an informed professional can advise you of the costs and benefits of joint last-to-die insurance, universal life insurance, and segregated funds. Many insurance products on the market are designed to protect the value of your estate and may even provide you with advantages during your lifetime!

Here’s another suggestion, if the premiums are too high for you, ask your children to help cover the cost. If they refuse, they have only themselves to blame for the shrinkage they will suffer.

Other Benefits of Life Insurance

For those of you with younger families, there are other issues to consider. If one salary is taken away from your family unit, what will the impact be on your security? How much term insurance do you need to make sure the benefit will replace the missing salary, and how should that benefit be invested?

Life insurance is often maligned and its use misunderstood, but it can be the mortar that binds together a well thought-out plan. Investigating whether you qualify for insurance, what the premiums would be, and whether the costs are offset by the benefits, should be part of your homework.

A very wise friend of mine once said, “Money doesn’t buy life insurance; health does. Money just pays for it.”

If you are still unconvinced, let me ask you: Do you know anyone who suffered a sudden tragic loss and was left in financial peril as a result? If so, you know the wisdom of being insured firsthand.

© Garry Cass - 2010 - 2015
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