Pandemic, insurance and estate planning

The current covid-19 pandemic, has once again caused me to reflect on the frailty of life and the eventuality of death. And with this the importance of insurance not only as tool to repay debt in the event of death but more widely as prudent estate planning strategy.

A recent published stats noted that more than 49% of Canadians have no emergency fund. That means, just under fifty percent of the population are only providing for their immediate needs (food, accommodation, clothing, means of travel, entertainment, etc.) from current income. For many the cry is there is just not enough surplus to allocate for setting up an emergency fund to cover 3-6 months of current expenses.

I’m open to be corrected, but I suspect only about 5% of the working population has zero surplus after paying for immediate needs. This pandemic has shown that no matter how small the surplus every family ought to be allocating something towards creating an emergency fund.

Besides emergency, excess income can then be earmarked for wealth accumulation goals, both short and long-term. Wealth (assets) can be employed to achieve a wide variety of family goals: ▪ To be invested in a home or vacation property; ▪ Building a portfolio of securities, registered and non-registered, to provide additional current income, growth or funds to draw on in retirement; ▪ Building a legacy to pass along to the next generation or to posterity in general.

At some point nearly everybody retires. But “retirement” means different things to different people: some want to travel, some want to sit by the lake at the cottage and enjoy nature, others want to spend their time engaging in community help projects.

No matter the type of retirement, they have one thing in common: they all require income.

Retirement income can come from a variety of sources: ▪ Government pension plans (Canada/Québec Pension Plans (CPP and QPP) and Old Age Security (OAS)); ▪ Employment pension plans; ▪ Private pension plans (Registered Retirement Savings Plans (RRSPs)); ▪ Non-registered investments; ▪ Inheritances; ▪ Part-time employment or self-employment; ▪ Liquidation of assets.

Debt servicing (interest and minimum payments) usually comes out of current income, and current income may be put at risk in the event of health problems, like disability or critical illness. A client’s failure to service debt could, in the extreme, result in lawsuits, foreclosure and bankruptcy unless insurance is put into place to replace the client’s own capacity to generate income or cover current medical costs.

Clearly insurance is more than planning for death , it is essential for life; it protects the lifestyle of families left behind and ensure ones wealth and legacy is preserved and protected.

I do not claim to be an expert but I have been motivated to learn more and I will share with you in future discussion series. Click here and via this link so we may schedule a time to discuss this important matter further.