Page 45 - A Canuck's Guide to Financial Literacy 2020

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One of the most critical aspect of a financial plan is incorporating risk management. Risk
management is simply insurance. Insurance is a great way to protect yourself against
potential loss and financial hardship by transferring the risk to an insurance company.
Through out the chapter, we’ve broken down Life Insurance, Critical Illness and Disability
Insurance in detail. The chapter is rounded off by high level discussion of Corporate
Insurance.

Life Insurance

Life insurance can be a sensitive topic but it is an effective risk management tool that allows
you to transfer risk to a third party. It should be an important part of your financial strategy
as it can help you cover final expenses, build a legacy, protect your family, leave an
inheritance and much more!

When you apply for life insurance, you're applying for a contract, also known as a policy.
This policy is usually with an insurance company and in exchange for coverage, you'll be
paying a fee or a premium. Upon death, the insurance company would pay a tax-free,
lump-sum amount to your stated beneficiaries. Settlement options differ. For example, if you
purchase a $200,000 life insurance policy, upon death, the insurance would pay the
beneficiary $200,000.
Common Uses of Life Insurance

• Income Replacement: Your human capital or your ability to earn an income is one
of the most important assets in life. If you have family members who rely on your
income, upon death, life insurance proceeds can help provide your family with funds
to support themselves.
• Child Care & Education: Life insurance can help alleviate the costs of daycare and
the cost of education should the unexpected happen in your life.
• Repayment of Debts: Life Insurance is a great tool to cover final debts such as
mortgage, credit cards, line of credits, etc. should you pass away.
• Estate Planning: One of the most common uses of life insurance is Estate
Planning. Upon death, life insurance can help cover final expenses, capital gains
due to deemed dispositions, or provide a guaranteed stream of income to a
beneficiary or a dependent.
• Charitable Donation: Individuals also buy life insurance to the benefit of their
favorite charity. Upon death, you can ensure that your philanthropic goals are met.
• Corporate Planning: When a business partner or shareholder passes away, life
insurance can be a used as a tool to buy out the shares from the deceased
shareholder's estate, usually set up as a Buy-Sell agreement. Using corporate
owned life insurance to fund the buyout helps ensure that business operations carry
on.