Thinking About Life Insurance

Owning life insurance is a very rational decision. Many people let their emotions take over and that leads to weaker decisions. Many more start with products and that almost never provides the right answer.

When they stick to the rational decision, they discover the final decisions will be about the amount of coverage required, the premium due, variations in the amount of the need, the duration of the need or parts of it, the format of the policy or policies needed, and attention to available options.

Amount of coverage.

This relates to the purpose. If it is a business policy to cover a buyout requirement, the number can be fairly easily determined. It is common to add more than the share value to provide funds to replace the deceased expertise and time.

If it is a family situation it is what amount is needed to allow the survivors to enjoy the lifestyle they have, or you wished for them, for some period of time. It usually changes as the children become adults on their own. The decision to pay off mortgages and set up education funds is in addition to the ongoing lifestyle need, and if done simplifies other calculations.

Watch for spontaneous income like pensions and CPP.

The premium

Everyone has a budget and their tolerance for insurance premiums is frequently limited. As one client said, “It is like betting against the home team.” If you have the right amount of coverage and know why it is that particular amount the form of the policy will affect the price. When you understand how the need behaves over the future, you can assess the kind of coverage you should have. The common practice is term insurance when you are young because the need is vast, and resources to pay premiums are limited. As one gains financial maturity policies that are permanent, like participating whole life, or universal life, become more appropriate. They provide ways to create cash for particular problems that may arise in the estate –  Specific bequests, additional income for the survivor, or tax liabilities.


Most policies have alternate ways to build them. Term for 10 years versus 20 or even times like 27 years or 12 years. The participating policies have several ways to address the duration of premiums due and how dividends are reinvested. Universal life allows you to build cash values to suit your own needs. There are additional coverages (riders) you can add.

Some things to notice.

  1. If you pay annually instead of monthly, you get almost one free month each year. Be sure you want the monthly charge. It is expensive.
  2. If you use bank-offered life insurance to insure your loans, you get a very weak contract at a very high price. In nearly 40 years I have never seen one that was a good deal compared to personal coverage.
  3. If you have an estate need that doesn’t appear until the second of you dies, like income tax liabilities, use second-to-die insurance. It is noticeably less costly.
  4. Insurance poor is a thing if the program is aimed at the wrong goals or the policies are poorly designed. You can fix this problem once you discover it.
  5. Having too little coverage means the survivors will be insurance poor. They cannot fix this problem

The bit to take away

Once you can describe your purpose(s), you can build a cost-effective insurance portfolio.

I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Federal Business Development Bank.

Be in touch at 705-927-4770 or by email at

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