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Life and health insurance Cathy Preston: An insurance advisor would review Joseph’s total need for life insurance — not just his need to cover child support (see “Insurance to cover support,” right). Other needs may include protecting any debts or liabilities, his children’s post-secondary education or funeral costs. The advisor will take into account any savings and assets, which can be liqui- dated at the time of death to offset the total amount of insurance that’s recommended. Having a heart attack does not necessarily mean Joseph is ineligible for life insurance. He will, how- ever, likely need to provide additional details about his follow-up care, symptoms and medications after the heart attack. Depending on these details, he may be approved for life insurance. Joseph should also consider disability insurance, which insures his income if he’s unable to work due to an illness or injury. Based on his current income, he’d qualify for a $6,125 monthly benefit. The cover- age would have a 90-day elimination period (benefits start after the 90th day of disability), with benefits paid for five years. The monthly cost for Joseph would be roughly $200. If Joseph is ineligible for disability insurance, he should consider disability insurance that provides coverage for injury. This product guarantees his acceptance for injury-only coverage. Joseph would qualify for $6,000 in monthly coverage, with a 90-day elimination period and five-year benefit period. The premium would be roughly $25. Nadia should also have her own life insurance policy, since she has dependants. But without knowing her exact debts, liabilities, expenses and assets, I can’t rec- ommend how much life insurance she’d need. However, having controlled hyperthyroidism alone will not impact her insurability, especially if she’s in good health other- wise. She would need to provide additional information, such as medical history. For health benefits, a good question Nadia should ask is: How would I pay my bills if I were unable to work due to an injury or an illness? The lifestyle that Nadia and her children enjoy, planning for the chil- dren’s education, and planning for her retirement sav- ings all depend on her ability to earn a living. Based on Nadia’s current income, she would qual- ify for a $4,400 non-taxable monthly benefit amount for disability insurance. Our research shows that, for working Canadians of a similar age to Nadia, the prob- ability of incurring a 90-day-or-longer disability is about 45%. Based on this information — disability coverage with a 90-day elimination period and benefits paid for five years — the monthly cost for Nadia would be around $150. Nadia may also consider critical illness (CI) cover- age. For an additional $55.89 per month, Nadia could obtain $50,000 of CI coverage. This provides a lump- sum benefit even if she makes a full recovery, and she can use the money any way she chooses. Monthly payments $2,000 /month x 12 months = $24,000 /year Amount per child $24,000 /year ÷ 2 children = $12,000 /child /year Xavier (8) 19 majority age – 8 years old = 11 years until age 19 11 years x $12,000 /year = $132,000 total Yolanda 19 majority age – 12 years old = 7 years until age 19 7 years x $12,000 /year = $84,000 total Total insurance needed $132,000 (Xavier) + $84,000 (Yolanda) = $216,000 Insurance to cover support If Joseph decides to get life insurance to pay for his child support obli- gations, he’d need more than $200,000 in insur- ance for the next 11 years—until the young- est child reaches the age of majority at 19. Here’s how that breaks down. Joseph may apply for a Term 11 for $200,000 (covering only child support). If approved at standard non-smoker rates, the premium is around $30 per month* or $330 annually. The premium is guaranteed to remain the same for the 11 years needed. * These rates are for a simplified term product Source: Cathy Preston Alternatives to cover child support Leena Yousefi: It’s not that common in B.C. for people to take life insurance to pay for support obliga- tions. What \\\[Nadia\\\] is really looking for is not life insur- ance — it’s security. There are easier ways to make sure the children receive support. If the couple owns the house, the default is that Joseph is going to keep half of the asset after divorce. Also, if he has an RRSP or TFSA, he could designate his children as the beneficiaries of each of these assets in case of death. Once he dies, the sale pro- ceeds of the house, RRSP and TFSA will go into a trust account, and the children can get paid from that trust account by a trustee. Instead of naming Nadia as trustee, he can nominate a friend or family member, and he can allocate a second trustee in case the first trustee is unable to meet the obligations to administer the support amounts. Prior to the children reaching the age of majority, Joseph could designate that the trustee takes about $2,000 out of his assets or savings to pay child sup- port. That way, he will avoid some estate and probate costs because he’s already established a trust for his children. Another common way to ensure children receive support is to bind the estate. Once he and Nadia enter into a separation agreement, Joseph will pay $1,845 per month, after taxes, in child support. Nadia can ask Joseph to add another clause to the 34 ADVISOR.CA 33