How to pick the right life insurance plan?
Recently,
I got quite a bit of inquires
asking about life insurance.
They understand insurance is important
in their financial plans
but they are just not sure where to start.
So in this video,
I want to talk about 4 simple steps
that you can pick the right insurance plan
so you will not have a buyer's remorse
Hey!
Welcome back!
This is Thomas
Here to help Canadians to make better choices
On Retirement Wealth and Insurance
My goal is to make sure you can take
1 or 2 ideas home
And start making better financial decisions today
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Let’s jump into it!
In canada,
there are a ton of insurance choices.
First there is life insurance,
health insurance,
disability insurance and so much more.
And when you look closer at each one,
you’ll soon find out that there are
100 different options for life insurance alone...
With so many variations to choose from,
it’s hard to tell what you really need.
And there are more questions you need to
answer before you pick the right insurance:
For example
How much coverage do you need?
Should you go for term or permanent?
How can you know if this type of insurance
is really good for you?
How much should you expect
in terms of payment?
All of the things to consider can
make you want to just run away
and not pick any insurance at all…
But to make your life easier,
I want to share my 4 easy filters
that help you choose the right insurance.
Similar to diamonds,
I have my own 4C Method
to choose the right insurance plan.
and it stands for:
Coverage
Cashflow
Customization
Carriers
These are the four things you need
to consider when picking insurance –
and I will explain them in greater detail now.
Ok, let’s go to the first C…
When choosing an insurance plan,
the first question you want to ask yourself is:
What is the purpose of this insurance?
Usually there are four problems
that insurance can help.
1. To cover debts
2. To continue the existing lifestyle expense
3. To provide additional tax shelter vehicle
4. To move asset much more efficiently
Once we decide what problems to tackle
then we need to ask ourself
“What coverage should I get then?”
And here is how I usually calculate
the coverage for the insurance needs:
When it comes to life insurance,
there are two ways to calculate your coverage.
You can calculate all your debt
such as mortgages, loans, and final expenses.
Also how much you like to provide for your
family in case something happens to you –
The right amount of insurance should be
enough to cover the debt
and the future income power.
This way is more accurate
but there are a lot of moving parts
so it might take a longer time to calculate.
Another way to calculate your
needed life insurance coverage is to
take your income and times it by 10 to 20.
The reason behind it is because usually,
the mortgage is 6 times your income already.
So the remaining 4 times
should be to cover other debt.
Say If you make $100k a year,
then I will recommend at least
a million dollar of life insurance coverage
But again just like drinking water,
it’s recommended 7 – 8 glasses per day.
But each individual will be slightly different.
Ok.
How about health insurance?
When it comes to sickness insurance or
what we called the critical illness insurance,
I usually recommend 3-5 times your income.
The reason for that
is that you want your insurance to
cover as much as possible.
Imagine for example
if you’d suffer from cancer or heart attack –
there is no way for you to
go back for work soon,
so you need to be financially protected for
at least 3–5 years
without worrying about the money.
But Thomas
what if I am a housewife with no income,
then I suggest using
your husband’s income as a reference.
As a knock on wood,
when you are sick.
Your husband needs to take time off
to take care of you,
so he needs a plan to provide financial support.
For sure,
we don’t hope that you get so sick
that you can’t work anymore.
But that’s exactly what insurance is for:
to be protected in case anything happens.
Now,
I also want to share how you can
calculate the coverage for disability insurance.
This one is different from life insurance
and sickness insurance…
where if you buy 2 life insurance,
then you get double the coverage.
disability insurance is
direct income replacement insurance.
The maximum you can get is usually
between 65-80% of your full income.
So there is a glass ceiling
how much benefit you can receive.
Ok,
once the coverage is settled,
it’s time to look at the second C…
The cash flow deals with the budget
you should set aside for your insurance.
I always recommend using
no more than 10% of your income
for all the insurance plans.
My philosophy is always using the 10%
to cover the remaining 90%
of your income and assets.
Here is what I mean:
Let’s say Company A offers you a job for 100k,
the numbers sound amazing
but they have no benefits for you.
That means,
If you are sick or disable,
they won’t pay you.
If you pass away,
the the company won’t handle your debt.
And when you retire,
they have no pension plan for you.
Versus company B
they could offer to pay you 90k only.
However,
they pay you when you are sick and disable
they give you a pension plan when you retire.
And also they pay your family
a lump sum of money if you pass away.
Now which job you are interested in?
So how do you compare the quotes?
There is a possibility to use
websites to compare different quotes.
But keep in mind that normally,
those quotes are just a reference.
This gets me to the point
why I never recommend
buying insurance strictly online.
Some people feel drawn to
buy insurance online because
it’s fast and it seems like you can
choose exactly what you need.
But what these people don’t consider
is that insurance is not a product.
It’ requires a plan –
it has a lot of moving parts.
It’s not like a house or a car where
you have a set price and a set return.
Insurance is more complicated than that
- that’s why it’s so hard for many of us.
This gets me right to the 3rd “c”
Oh before that,
if you have an existing insurance plan that
you are not sure if it’s the right fit for you,
feel free to connect with us.
We can do a policy review with you
FOR FREE!
There should be a link below
in the comment section.
I‘ll see ya there!
The next C has to do with
how flexible your want your insurance to be.
Points I recommend to look at are:
Do you want this insurance plan to
cover you temporarily or for the entire life?
Term means that your insurance runs
for a set amount of years
- for example,
30 years.
Your premiums is very affordable.
However,
once the 30 years is over,
the premium will go up more than 300%
Permanent plan is the opposite.
It covers you for the entire life,
but the premium will be higher.
Also most of the insurance plan is
pay as you go plan.
As long as you paid,
you get covered.
However,
there are plans that can be limited paid.
Meaning you can pay the entire
permanent plan in 10,15 or 20 years.
Like buying a place.
So you know exactly how much
you are paying into this plan.
Also there are riders.
Meaning you can add different benefits on top.
For example,
there are options where you can
get back all your money back
if there is no claim involved.
Or if you are in disability.
Then you don’t have to pay the premium.
There are like
at least 30 riders you can choose from.
And there is a lot to consider.
This is very different from carrier to carrier
and it can be a bit confusing
because it’s not always transparent.
Which gets us to….
When choosing insurance
it also matters which company or carrier you pick.
Because different companies
focus on different things.
For example:
Some companies focus on
doing whole life insurance,
they give out better dividends
Some focus on term insurance
Some focus on a professional market
- like doctors or dentists
Some focus on family or young individuals
And Some focus on rejected cases.
Even you get declined by
other insurance companies before,
some can provided guarantee acceptance.
Which is quite unique in the market.
When you choose any insurance,
remember the 4C’s:
Coverage, Cashflow, Customization, and Carriers
Remember,
insurance is a solution,
not a product.
And I suggest at least talk to a professional first.
Because for the coverage and cash flow,
you can find it out on your own –
but for customization and carriers,
you need an advisor’s help.
Hey if you are interested,
I can make a video on
how to choose the right insurance agent.
Just let me know in the comment below!
Alright!
Thanks for watching!
This is Thomas and
I will see you in the next video.