So you’ve landed a job with benefits — kudos! Even better, as part of that package, you’re covered by a group life insurance policy. Now you don’t have to worry, right? Not necessarily — the insurance provided by your employer may not provide you with the amount of coverage you ultimately need, at least, not according to surveyed Canadians (Opens in a new tab).
Wondering if you need to back up your insurance? You’ve come to the right place. We’ve got the answers to all your burning questions below.
It’s a good idea if your life insurance policy lands somewhere between five and seven times your net income.” —Canadian Life and Health Insurance Association
Q: If I have a group life policy through work, why do I need more life insurance?
A: Having more insurance is like having more friends to rally around you during a breakup — you can’t really have too many shoulders to lean on. Whether you’re single or married, you’ll want to know exactly what your employer covers so you understand what financial support is available to you in a worst-case scenario.
Besides, if one day you fulfill your lifelong dream to run a Bahamian beach hut or even if you just wind up at a new gig down the street, you’ll no longer be covered by the insurance policy provided by your current job.
Q: How can I tell if the life insurance provided by my employer is enough?
A: Let’s say you make $60,000 per year and the life insurance from your employer covers $60,000 to $120,000. That adds up to one or two years of coverage. Seems like a decent payout? Truth is, it may not be enough.
Own a house? Here’s a wild guess: Your mortgage payments will stretch longer than a couple of years. And if you have little mouths to feed, you’ll likely need even more coverage. In fact, it’s a good idea if your life insurance policy lands somewhere between five and seven times your net income.
Don’t worry, you don’t need to do all this math. Just use this tool to help you find out what you need (Opens in a new tab).
Q: I’m young and healthy, so I don’t need critical illness insurance, right?
A: We hate to be a downer, but the Canadian Cancer Society states that two out of every five Canadians (Opens in a new tab) develop the disease at some point in their lives. That’s where critical illness comes in — if you’re diagnosed with a type of cancer covered by your policy, you’ll get a lump-sum payment (Opens in a new tab) to help you with your expenses, which can be crucial if working isn’t an option.
Something else to keep in mind: While you’re young and healthy, it may be a good time to get critical illness insurance. Because as you age, it could become tougher to get critical illness insurance coverage, as well as potentially cost more.
Q: And if my employer provides disability insurance? I don’t still need critical illness coverage, do I?
A: This is one you may want to think about. With disability insurance, you’d likely get a certain percentage of your income while you’re unable to work (think income replacement so you can still pay bills like your mortgage). Critical illness is financial support to help with the costs of a serious illness (think medical bills for treatments not covered by government health insurance).
At the end of the day, even if your employer group policy is second to none, you still may want to top up to make sure you’re adequately covered through major life moments, such as getting married, buying a home or starting a family.
Thinking about getting additional insurance? Get a quote today.
Maximize your investment in their future
The bond between grandparents and grandchildren is special. You get to share your wisdom and stories with eager listeners and occasionally, you get to treat them to ice cream before dinner.
If you’re able, you may want to plan to leave a legacy for your grandchildren. One of the best ways to set them up for a successful future is to contribute to their education savings.
Four strategies that can help you make smart investment choices for your grandchildren.
1. Coordinate RESP contributions with your adult children
Registered Education Savings Plans (RESPs) are specifically designed to help parents and grandparents save for a child’s education. They offer opportunities for:
- Government matching – Canada Education Savings Grants (CESGs) match 20% of your contributions up to a maximum grant of $500 each year
- Tax-deferred investment growth – no tax is due until your grandchild starts withdrawing money to pay for post-secondary education
A child can be named as a beneficiary on more than one RESP. However, there is a lifetime contribution limit of $50,000 per child and this can get complicated to track across multiple plans. Find out if your children have opened an RESP for your grandchildren, and then coordinate your contributions with theirs.
2. Consider giving your adult children the money to contribute
Rather than contributing directly to the RESP, you may want to give your children money so that they can contribute more to their child’s RESP. This can protect you from taxes if your grandchild decides not to pursue post-secondary education.
3. Complement RESP savings with your TFSA
Let’s say you plan to contribute a specific amount to a grandchild’s education savings—for example, $30,000—and you have the money available now. To maximize CESGs (assuming no one else is contributing on behalf of your grandchild), you can:
- Contribute $30,000 to your Tax-Free Savings Account (TFSA), if you have the contribution room available
- Move $2,500 into the RESP every year
That way, you’ll benefit from a TFSA’s tax-free investment growth while the money is waiting to go into the RESP. This can make a significant difference to the amount your grandchild has available to pay for his or her education.
4. Top up education savings in your grandchildren’s TFSA
When your grandchildren are 18, they can open their own TFSAs. If their education savings need a top-up, this can be an excellent place to do it.
Beyond offering tax-free investment growth, TFSA withdrawals can be used for any purpose—unlike RESP savings, which must be used to help pay for education-related expenses. That makes them a flexible source of extra money while your grandchildren are studying.
What if your grandchildren don’t need their TFSA money for school? You’ll be helping them start a lifelong habit of saving and investing—and that’s a legacy in itself.
*Content Courtesy of BMO Insurance
Contact Me:
Arvin Jimenez
Life and Health Insurance Broker
604-626-8447 | arvin@arvinjimenez.com