3 Alternatives If You’re Not Eligible for Life InsuranceSubmitted by MacDev Financial Group on September 30th, 2018
If something were to happen to you today would your family be financially covered and able to sustain the same standard of living? Life insurance is not just about you—it’s about providing a protective safety net for your family and even your business. That’s why it should be a critical component of any financial strategy. However, what if purchasing life insurance is just not in the cards for you? Perhaps, you can’t afford the premiums due to your financial situation, or you’re not insurable for various reasons (including medical). There are still options available to you that can give you peace of mind in terms of preparing for retirement and covering end-of-life expenses.
A segregated fund is an investment fund that combines the growth potential of a traditional mutual fund with the security and financial protection of a life insurance policy. Sold by life insurance companies, segregated funds are individual insurance contracts that contain a diversified variety of asset mixes that can provide you with a guaranteed investment option when you’re close to retirement (10 years or more).
When you invest in a segregated fund your money is pooled with the money of other people who have also invested in the same segregated fund. The fund is managed by a professional fund manager who strategically buys and sells a variety of investments such as stocks, bonds and mutual funds.The advantage of a segregated fund is when the market goes down, a portion of the money you invested—75 to 100 percent—is protected if you hold the fund for a certain length of time as defined by your contract (typically a 10-year maturity date). That means that 75 to 100 percent of your investment is guaranteed when your contract matures or upon death.
Under certain conditions, if your designated beneficiary is a family member (spouse, parent, child, or grandchild), they will directly receive 75 to 100 percent of your contribution tax-free. This contribution, which is like a death benefit, is not subject to probate fees if your beneficiary is named in your contract. Segregated funds also offer the potential for protection against creditors in the event of bankruptcy or lawsuit—a feature that is particularly advantageous for business owners.
As life expectancy rates of Canadians increase, more seniors who have not saved enough for retirement are outliving their retirement funds and working part-time jobs to make ends meet. If you’re unable to qualify for a whole life insurance policy or don’t have an employer-based pension plan to help fund your retirement, purchasing an annuity will help you take the guesswork out of retirement income planning. Annuities are designed to help you with retirement income planning, especially if you’re concerned about possibly outliving your retirement savings.
An annuity is a contract between you and a life insurance company that allows you to convert some of your retirement savings from non-registered money such as group retirement or savings plans or from a RRSP, RRIF, or TFSA into guaranteed periodic income, depending on the type of annuity you choose.
You can purchase an annuity ahead of time in you’re working years and make payments into it gradually or you can purchase an annuity with a lump sum payment. Depending on how you pay for an annuity, you can defer payments until retirement, called a deferred annuity, or start receiving payments right away, known as an immediate annuity.
The amount of income you receive from an annuity is contingent on several key factors:
· The amount of your initial deposit
· Long-term interest rates
· Your age (life expectancy based on projection of how long you may still yet live)
· Your health (life expectancy based on your whether it is good or poor)
· The length of time payments is guaranteed for
· The type of annuity you choose
Though the concept of an annuity is straight-forward, there are different types of annuities to choose from depending on your needs. For example, some annuities pay you an income for a fixed period such as a term certain annuity, other annuities, such as a life annuity, will pay you a guaranteed income for as long as you’re living. If you pass away within the guaranteed period, income payments for a remainder of the period or a lump sum may be paid to your beneficiary or to your estate.
An annuity can also be a solution for you if you don’t have permanent life insurance that will provide your spouse with a death benefit, but you want to ensure your spouse still has a fixed income in case you pass away. A joint annuity is a policy with two annuitants set up on the contract that allows you to pass on your guaranteed income payments to your surviving, living spouse. This type of annuity is also known as a last survivor annuity.
A prescribed annuity, which is only available to individuals and not corporations, provides the annuitant with special tax treatment on the interest income by spreading it out evenly over the life of annuitant, allowing it to remain level. The return on capital is not taxed. An annuity where the interest income is taxable, but not the return on capital, is known as a non-prescribed annuity.
You plan financially for every major life event. Marriage. Births. Your funeral should also be one of them. Many people will allocate the death benefit of their life insurance policy to cover funeral costs and final expenses. However, life insurance may not be a feasible option for everyone, especially if you're not insurable. Perhaps you can't afford to pay premiums or you're unable to qualify for life insurance due to pre-existing medical conditions such as diabetes, high blood pressure, or heart failure.
If you don’t have life insurance, funeral insurance is like having life insurance to cover your funeral expenses and any final expenses you may want to take care of. Therefore, if you can't afford life insurance or are not insurable but need a way to settle your end of life affairs, funeral insurance is a great, affordable alternative.
A medical exam is not required for funeral insurance. Premiums don’t change and there is no renewal process. Even if you are 90 years old, you can still apply and be eligible for funeral insurance. There is also no waiting period—coverage is immediate.
Funeral insurance is also a non-taxable benefit designated to a beneficiary of your choice, such as a trusted family member. Your beneficiary manages funeral expenses on your behalf based on the conditions outlined in your will and the plan you established at the time you purchased your funeral insurance policy. You also have the option to designate a funeral home to make your funeral arrangements. Remaining funds can then be used to pay off outstanding debt or last expenses. Residuals are then dispersed to your beneficiary.
With pre-planning and funeral insurance, you eliminate the risk of your family emotionally overspending on your funeral and gain peace-of-mind knowing your final wishes will be respected. Funeral insurance gives your family the freedom to grieve during a difficult time and removes the stress of having to arrange and pay for your funeral. The failure to plan could cost your loved ones more than you had anticipated and put them under financial duress.
For more information about these options, email us firstname.lastname@example.org or call 877.534.7266.
Disclaimer: This information is given for informational or educational purposes only. All financial endeavors should be vetted through a financial professional; example, life insurance broker, financial but not limited to its agents, staff, associates and/or partners will not assume any liability for any information printed in this article; indirectly, or assumed.