When they both turned 55, Olga and Oscar knew it was time to review their life insurance. Their children were off on their own, and they were looking forward to early retirement. What insurance would they need for this new stage in their lives?
They sat down to talk about their finances and the things that worried them the most. They also looked at the insurance they had. They had a large joint term life insurance policy, and some disability insurance.
However, this insurance was going to expire soon. Should they renew?
As Olga and Oscar talked, a few things became clear:
- They didn’t need as much life insurance now. They had a lot saved for retirement. They had also paid off their mortgage, and their children were doing well on their own.
- They were worried about future health care costs as they got older. They were both healthy, but they knew that things could change. They knew they might be able to draw some money from their life insurance if they ever became terminally ill. But they didn’t have critical illness insurance or long-term care insurance to help them with any major health care needs.
- They were also worried about taxes. Olga just got a big raise, so they would have some extra income to boost their retirement savings. They would also have to pay higher income taxes. They were already saving the maximum in their Registered Retirement Savings Plans (RRSPs) each year. Was there any other way they could save more while deferring that tax?
Olga and Oscar decide what to do: The couple talked to their insurance company and decided to make two changes:
- Buy a smaller universal life insurance policy to replace their joint term life insurance policy. They would have to pay a higher premium, but they could use part of it to build up some cash savings. As those savings grew, they wouldn’t pay tax on the money they made, as long as it stayed in the account.
- Buy critical illness insurance and long-term care insurance. They knew if either one of them ever became ill or needed nursing care, it would be very expensive. They didn’t want the children to ever worry that they couldn’t afford to get the care they needed.
Lesson learned: Later in life, you may need different types of insurance for different needs. It pays to review your insurance as life changes to make sure you have the right coverage for you. Be sure to get expert advice if you need it.
Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca
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