Wealth management means protecting your ability to earn your wealth and provide for your family. Your ability to earn income is a major asset that many people fail to adequately protect. This asset can be called your “Human Capital.”
There are 4 types of insurance that can protect your “Human Capital”:
1) Life insurance
Life insurance provides finacial security in the event of death. It is used for:
- Income Continuation for your family to ensure their ability to maintain lifestyle
- Final expenses
- Children's education
- Final taxes
- Charitable gifting
There are essentially two types of life insurance:
- Term Insurance – one can consider this type of insurance “if insurance”. It provides life insurance protection if you die during a specific period of time. It is a lower cost option that provides a higher initial death benefit to your Estate.
- Permanent insurance – one can consider this type of insurance “when insurance”. It protects you for life. The premiums are higher because the life insurance company is obligated to pay a claim when you die, as opposed to term where they only pay if you die.
There are essentially 2 types of permanent insurance:
- Universal Life – provides guaranteed protection for life. There are different costs structures and the ability to put extra money into your policy. The extra money can be invested by the owner into a variety of investment choices. Any increases in value over time accrue tax-free
- Participating Whole Life – provides guaranteed protection for life. The premium is paid into a pool of money and combined with premiums from other participating life insurance policyowners. This account is managed by the life insurance company and is known as the participating account. This account is invested by the life insurance company and any profit is paid to the policyowners in the form of dividends annually. These dividends can be taken in cash, used to purchase more insurance or pay future premiums. The policyowner does not pay tax on the dividends unless funds are withdrawn from the policy.
For all life insurance, the death benefit is received tax-free by the beneficiary of th policy.
Permanent insurance can also have a tax-advantaged cash value that can be accessed while you are living. This “cash value” can be withdrawn or borrowed against while the insured is alive.
2) Disability Insurance
Protecting your “Human Capital” can also include purchasing insurance to replace a portion of your income if you become sick or injured and you are unable to work.
There are different kinds of disability insurance coverage, including individual insurance plans, group insurance plans, and government plans such as workers’ compensation and benefits provided under the Canada Pension Plan.
Disabilities are a very real fact of life that can be financially devastating. Would you and your family be able to meet your daily financial obligations if you were unable to work?
Both personal and business disability insurance solutions are available that offer flexibility and features to help bridge the gap between income and expenses during a disability.
3) Critical Illness
Critical illness insurance provides a lump sum payment if you suffer from a covered critical illness and the survival period is satisfied. This money is received tax-free and will help with the potential significant financial cost that impacts both you and the people close to you while you recover.
You are able to spend the tax free money as you wish. This can help cover lost income, pay for private nursing or out-of-country treatment, pay for medical equipment or even be used to pay off your mortgage.
4) Long-term Care
Long term care insurance provides an income stream if you become unable to care for yourself due to aging, an accident, illness or deteriorated mental state. This income stream gives you control and choice, while at the same time protecting your wealth and legacy from being eroded by the cost of care.