Page 51 - A Canuck's Guide to Financial Literacy 2020

51

• Mortality cost is the chance that the policy will have to be paid out as a claim. To
determine your mortality cost, the life insurance company would look at the factors
mentioned above.
• Administrative expenses include salaries, commissions, wages, office expenses of
the actual insurance company.
• In regards to investment return, the insurance company collects premiums from
groups of people and invests those premiums. Depending on the rate of return that
is generated, the investments could lower the cost of premium.

Beneficiaries of Life Insurance

The beneficiaries of a life insurance policy can either be named beneficiaries or estate as
beneficiary. There are consequences regarding each. Keep in mind that the named
beneficiary can be revocable or irrevocable. Most policies are considered to have the
beneficiary designation as revocable unless stated otherwise. With revocable beneficiary
designations, the policy holder can designate new beneficiaries if required.

When the Beneficiary is an Individual

o The name of the beneficiary would be written out in the policy
o Death benefit would be paid directly to the beneficiary
o The payment would flow to the beneficiary tax free and non-contested
o The amount would be under creditor protection

When the Beneficiary is Estate

o The insurance proceeds would be a liquid asset for the estate
o With the insurance payout, the executor would settle the estate much easier
o Keep in mind that the death benefit would be prone to probate fees.
o Life insurance proceeds could be susceptible to creditors

*** if a beneficiary is a minor, then it is handled by the courts until the child turns 18. ***
How Much Life Insurance Do You Need?

When it comes to how much insurance an individual would need, there is no right answer. It
depends. There are a number of important factors to keep in mind when deciding on how
much insurance to purchase. Some factors to consider

• Tax needs at the time of death, estate costs
• Final medical expenses, burial costs
• Outstanding debts such as mortgages, credit cards, car loans, income tax