As mentioned in our previous communication, the emergence of the COVID-19 pandemic has had us rethinking and refocusing our attention in many ways. For instance, we have been reviewing, now more than ever, our clients’ financial plans to ensure that they are still relevant and have also had many conversations around insurance coverage. Especially in the case of our clients that fall under the category of essential workers. Below are just a few questions that have evolved from these conversations:

• Do I have enough to provide for my family if I contract the disease and have an adverse outcome?
• Can you review my permanent insurance coverage, so I understand exactly how this benefits my family and estate?
• Am I able to apply for coverage under these new social distancing rules?

 

In order to address these questions, we reached out to CIBC’s Insurance and Estate Specialist, Bruce Morrison, to provide some context and commentary around insurance and risk management during this pandemic. Here are his comments:

 

Over the last few months the current conditions have made people more conscious of the need and desire for life insurance. Whether it be the traditional need of debt coverage and protecting quality of life for loved ones, or maximizing tax efficiency on estate planning, now more than ever people are wanting to review their existing insurance coverage.

 

To put it simply, the purpose of life insurance is to create peace of mind for the insured. In the early stages of one’s life, this is often the need to cover debt and ensure that their loved ones are looked after. The traditional rule of thumb for the coverage amount required is 5 to 7 times annual salary plus outstanding debt. Please note that this is only a starting point. An individual’s particular situation and goals need to be taken into account to determine the actual amount they put into place. The amount of life insurance coverage that one chooses may not be the same amount that someone else would have in a similar situation, it is very much a subjective process.

 

Term Policy vs Permanent Policy

Since debt and the need to look after ones' dependents reduces over time, the life insurance product initially chosen to provide this coverage is typically Term life insurance. This is usually in the form of Term 10 or Term 20. The number following indicates the length of coverage provided by the term policy. It is this finite period of coverage where a death benefit is provided “if” the insured dies, which makes term insurance so inexpensive relative to other life insurance products. As clients make the transition to retirement, the need to review these life insurance coverages becomes important as they usually no longer have dependents or debt to consider. Also, their ability to retire indicates that income replacement may no longer be the primary goal. If this is the case, we often refer to the individual as “self-insured” and no longer requiring term life insurance to be in place. This does not mean that they should not have life insurance it just may be time to consider a different type of insurance.

 

Permanent insurance may no longer be “needed”, however, it can be used as a very effective tax minimization strategy as part of one’s estate planning goals. These goals can range from estate equalization, charitable giving, privacy and elimination of contestability. To achieve these later goals, it is necessary for the life insurance product chosen to be a Permanent policy. The difference between a Permanent policy and a Term policy is that, with a Permanent policy, the death benefit is guaranteed to payout "when" the insured dies as opposed to “if” the insured dies during the designated period of time (e.g. 10 years) which is the case with Term insurance.

 

Insurance Coverage During COVID-19

Is it even possible to attain or increase insurance coverage under this current COVID-19 environment? The answer is yes. In an industry where applications and policy deliveries are almost always done face to face and medical testing is required on the insured, it looked bleak for insurance companies as social distancing literally did away with their ability to assess an insured’s health. However, the good news is that life insurance companies quickly adapted and implemented the potential for non-medicals for certain ages and amounts of coverages. They are also allowing electronic applications to be completed over the phone. Adding to these concessions, insurance companies are working with advisors on a case by case basis to see if certain requirements can be overlooked when considering life insurance on an insured life. Over the last few months we have experienced the benefit of insurance companies offering Plan “B”s to clients so some form of life insurance coverage could be offered.

 

In summary, whether you’re a young professional just getting started or a retiree who has recently sold their business, life insurance is an important part of your portfolio. For these reasons, it is essential that an insurance review be done to ensure that clients have the appropriate coverage amount and product type to achieve their goals and create that peace of mind. Mark and Jason are both life licensed and can gladly arrange an insurance review as well as facilitate the purchasing of new insurance based on the need or desire.

 

I hope this article has helped put you on the path towards achieving peace of mind regarding your life insurance.

 

We have included a few articles of interest that can be of assistance in quickly determining your coverage requirements as well as some common insurance strategies we have recommended to help clients achieve their desired goals.

 

/documents/1094647/1094811/charitable+giving+using+life+insurance.pdf/f3814485-042b-4e42-94b9-3d66f6ea3377

/documents/1094647/1094811/Intergenerational+Wealth+Transfer+Using+Life+Insurance_Advisor+Article.pdf/46f494b0-dd7a-4ce4-9ab5-3116fcd4261c

/documents/1094647/1094811/Life+Insurance+Asset+Class+Document.pdf/300879c3-d9e3-4169-85e4-b28a8ebfbe3e

/documents/1094647/1094811/Insurance+needs+analysis+for+clients.pdf/3e3a4d15-e6dd-462d-81ce-a3b84f9b9a3e

 

 

Disclaimer: This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2020.