How do I know if I have the right type of insurance?

W.A. (Bill) Finlay
B.A., C.A.

The most important questions to ask in determining which type of insurance you need are:

“What are my greatest financial risks?” and “When do I need to be protected?”

Loss of income is arguably the most significant risk people face. Other risks encountered on a regular basis include the need for liquidity to pay estate taxes, fund a shareholders agreement, or provide for future generations.

Loss of income is caused by the inability to work due to three factors:  accident, illness, or premature death.  In all three of these situations, you can be protected.  Disability insurance can replace a portion of your income; critical illness insurance can provide financial assistance with medical and living costs; life insurance can provide capital to replace your income in the event of premature death.

In each of these situations, insurance is likely needed on a shorter-term basis for a fixed dependency period, therefore level cost term insurance makes the most sense.

Estate planning goals are longer term in nature.  Protection for the short term is combined with planning for the future.  Permanent life insurance, universal life, or whole life insurance is used to meet these needs.

By determining your greatest financial risks and the time frame over which they may occur, you can determine the right type of insurance to meet your needs.