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Chris Fry
Bryndon Fry
Connie Taccone

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Oshawa, ON
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Reviewing Your Insurance

Reviewing your financial plan on a regular basis is a sound wealth management practice and helps ensure you remain on course to meet your financial goals and objectives.

As an important part of your financial plan, your insurance portfolio should have a thorough and objective assessment every five years, or more frequently if there has been a significant change in your family situation or within your business structure. A comprehensive insurance review evaluates whether proper protection is still in place and considers the following:
  • Amount of coverage

  • Type of coverage

  • Cost of coverage

  • Cash value of the policy

  • Ownership of the policy

  • Beneficiary designations


Amount of Coverage

Life insurance is typically used to create a source of immediate capital when it’s needed the most. For example, to replace lost income, offset a tax liability or pay off debt upon the death of an individual or business owner. However, as individuals and businesses transition through different phases over time, so can the need for insurance.

An insurance review can ensure that proper coverage continues to be in place – to address the right risks – and can provide recommendations on how to re-purpose existing insurance to address new or emerging needs.



Type of Coverage

Insurance can be purchased on a term or permanent basis; each of which addresses different types of risks in your financial plan. Term insurance typically has a built-in price increase every "term” and a set expiry date. Permanent insurance, on the other hand, provides coverage for the insured’s lifetime and can have a cash value component to the contract.

Term insurance initially purchased to cover a debt or mortgage may be kept in place to fund a child’s university education and, eventually, to cover a capital gains tax liability resulting from death. As your needs change over time, the decision between term and permanent coverage will also change. Sometimes it will be more efficient to use a permanent insurance policy to fund term insurance needs.

Adjustments within an existing insurance portfolio can mean converting a term insurance policy into a permanent policy. An insurance review can recommend strategies for transitioning existing coverage that’s no longer needed and address new needs.



Cost of Coverage

The ongoing cost of insurance coverage should be appraised regularly. Term insurance can often be renewed after the initial coverage period has expired, but at a higher price. A healthy individual may actually be better off providing new evidence of his/her good health and applying for new coverage at a lower premium. A cost benefit analysis can be performed on your insurance policies to ensure that premiums are in-line with the market, based on up-to-date personal circumstances and pricing trends in the insurance industry.



Cash Value of the Policy

The cash value of a permanent life insurance policy can be used to fund the insurance coverage at the time when the policyholder decides to suspend the annual premium payments. For example, an insurance policy could be funded over a 15-year period in such a way that the cash value at the end of 15 years is sufficient to support the insurance coverage without any further premium payments. This means that the cash value is critical in order to keep the coverage intact.

The cash value of a universal life policy is an investment that must be actively managed. There are a variety of investment options to choose from – ranging from fixed income to equity-linked options. The policyholder manages the cash value component of the policy by changing the investment mix or adding more money to the policy.

A whole-life contract credits the policy’s cash value component with an annual dividend which the insurance company declares annually. The policyholder of a whole-life contract can only manage the cash value component by adding more money.



Ownership of the Policy

The owner of the insurance policy has control over the policy and the obligation to pay the annual premiums. The ownership of the policy may be changed if the current owner no longer needs the coverage. For example, a parent might buy an insurance policy on their child’s life, and later transfer ownership of the policy to the child when the child is older and has financial responsibilities of his/her own. Changing the ownership of an insurance policy is a fairly
straightforward process. However, it is considered a disposition of the contract, and the existing owner may realize taxable income as a result of the change in ownership.



Beneficiary Designations

Consideration should also be given to the fact that the last named beneficiary is entitled to the insurance policy’s death benefit. If the policyholder changes the beneficiary of the policy, the new beneficiary designation cancels the previous one. A beneficiary designation in a Will is considered dated at the time the Will is signed and can override a policy designation, if the Will is dated later. Contingent beneficiary designations should be considered for those situations where the primary beneficiary might predecease the life insured.



Ensure You’re Properly Protected

The purpose of an insurance review is to ensure that your insurance portfolio continues to provide protection to meet your ongoing needs. By proactively completing an insurance review, issues and concerns can be addressed and corrective action taken.

We can recommend a BMO Nesbitt Burns Estate and Insurance Advisor who can help evaluate all aspects of your insurance portfolio, assess the effectiveness of the policies you have in place, and recommend solutions to mitigate any unintended objectives and resulting outcomes.