Have You Improved Your Financial Health?

by Michael Moreau

In the previous issue, we discussed three of the seven essentials to consider when examining the state of your financial health: Do your have clear financial goals? Are you managing your cash flow wisely? Is your investment portfolio well suited to your temperament and comfort zone?

We will now discuss purchasing the right kind of insurance for you and your family. Is your income protected to provide dignity to you and your family? “I’m worth more dead than alive.” Perhaps you have had the same thought that went through my head just a few weeks ago. Why was I thinking this? At that moment, I was unable to visualize the tangible value of the insurance premiums I was paying. Most people resent paying insurance at some time or another. However, when I stop and think about how my family would manage if my income were to stop, I am grateful we have insurance companies to share the financial risk. I am comforted knowing my family’s finances would not be jeopardized in the event of my untimely death, disability or serious illness. Peace of mind is the intangible benefit of paying insurance premiums.

So how much life insurance is enough? We can estimate accurately a required amount by using software and taking into account the rate of investment return, the length of time that income could be needed, and an inflation factor. However, most people with dependents need approximately ten times their earned income. Unfortunately, Canadians average about four times their earned income. Part of the reason for this inadequacy is that we continue to buy – or are sold – the wrong kind of life insurance, and then cannot afford the right amount of coverage.

Most employees enjoy very affordable disability protection. Unfortunately, most of the group policies restrict benefit periods to two years and may define disability as the ability to perform any work. If this concerns you, then private coverage may be obtained to fill the gap. Of course, all self-employed individuals or consultants need to provide for his or her own benefit package and a privately owned disability policy is necessary.

Critical illness insurance is a relatively new type of coverage in Canada. It is a unique coverage focused on life and recovery from a critical illness. It provides a lump sum payment if you are diagnosed with and survive one of the covered conditions, such as heart attack, cancer or stroke. Full recovery can be better achieved with less financial stress.

For example, consider cancer. In Canada, 125,000 individuals are diagnosed with cancer annually. One in three will develop a life-threatening cancer. Sixty-seven percent of all cancer related costs are indirect, non-medical expenses such as home health care needs, loss of income for spouses and caregivers, housekeeping or childcare expenses and home or vehicle modifications.

The money – benefit payout – is yours to use any way you want, such as to find the best medical or alternative health care available, to hire a nurse or caregiver to help you at home, and to pay off debts or replace lost income. Some companies offer a return of the premium rider, which refunds you most or all of your premiums if you are fortunate to live a long and healthy life and do not use the coverage.

If this rider is chosen, your cost of premiums is restricted to ‘opportunity cost’. In other words, the amount you would have earned on the amount of premiums you would have paid if you had invested the same amount.

Using the services of an independent life insurance broker who represents you, can access several companies, and is highly ethical, will help you navigate through a maze of insurance products.
Of the seven essentials to optimizing your financial health, this article covered one essential that is often overlooked until it is too late.



Michael Moreau, CFP, RFP is a registered financial planner with Personal Financial Solutions/FundEX Investments Inc. For comments or article suggestions, contact (613) 725-3447 or service@michaelmoreau.ca. The foregoing is for general information purposes only and is the opinion of the writer. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.