Do I need life insurance? Which product should I choose?

Life insurance needs can vary depending on whether you approach the issue from a business perspective, a philanthropic perspective, or a personal perspective. Let’s focus here on the latter, we will touch on the subject from other angles in subsequent chronicles.

Of course, these guidelines do not replace the services of a financial planner or a financial security advisor and can never replace their expertise, which remains essential. The aim here is rather to allow you to have a more critical mind and to provide you with a basis for starting a dialogue with your advisors.

That said, to determine if you should buy personal life insurance, first ask yourself these two big questions:

  • Is part of my income used to meet the needs of one or more other people?
  • Do I hold a loan jointly or for which a relative acts as guarantor or endorser?

If you answered no to these two questions, you can stop reading, you have no need for life insurance. Otherwise, there may be a need.

Loans: It is usually prudent to cover any loan for which you are not the only person involved, so as not to leave the burden on those who will survive you. By definition, this need is temporary and generally decreasing, since you gradually repay your loan. Term insurance is therefore quite appropriate.

Dependents: If you have people who are financially dependent on you, you should consider whether your estate cash would be sufficient to support them. Due to the calculations involved, we strongly recommend consulting a financial planner. He will be able to determine the value of your estate liquidities and if they are sufficient. If they are, you don’t need life insurance. On the other hand, if these are insufficient, you need life insurance. Now you have to determine which product is the most appropriate depending on the duration of the need.

Permanent need: When your need is permanent (for example, if you have to protect a severely handicapped child who will never be independent), permanent life insurance with no cash value is the product of choice, unless you have maximized your RRSP accounts and TFSA and paid off all your consumer debt. In this case, you will then need to consider whether you want to maximize the value of your estate. If so, participating in the whole life insurance or universal life insurance with cash values ​​added to the death benefit are appropriate choices. Otherwise, you should opt for life insurance whose values ​​are not added to the death benefit.

Temporary need: When the need is temporary (for example, if you wish to protect your family until your children are independent or to cover the balance of your mortgage loan), it is then necessary to determine whether the need is stable or decreasing. If it is decreasing, 10-year term life insurance or declining capital term life insurance is recommended. Otherwise, opt for term insurance that corresponds to the duration of the need (for example, term insurance 20 years, term 65 years, etc.)

Note that in theory, most needs are temporary and decreasing. Indeed, since those who depend on you are aging and since your assets are increasing and your debts are decreasing, your need for insurance should decrease over time.

Hoping that this short introduction will help you see things more clearly the next time you are offered a life insurance product.

What is life insurance?

The concept of life insurance includes insurance that covers the risks of death and disability – it is in this context pure risk life insurance– and others that mainly intervene in the context of private old-age provision – in this case, we speak of capital-building life insurance. 

What is life insurance and who is it for?

Life insurance covers several needs simultaneously. While young adults can use it as cover in the event of incapacity for work, families can use it as cover in the event of death. I’ retirement savings and homeownership, on the other hand, are useful for everyone, because the coverage under the AVS and the Pension fund often turns out to be insufficient. Life insurance makes it possible to fill these gaps, to guarantee optimal pensions.

Which life insurance to choose?

This question cannot be answered in general. The choice of life insurance depends on your personal situation. You will not have the same needs if you are single or if you have a family. Different solutions are available to you depending on these circumstances. Discuss with your adviser your financial situation in the event of incapacity for work and the protection of your family in the event of death. Also, check together whether there are any gaps in your pension situation. This analysis will allow you to determine quickly – and reliably – the pension insurance adapted to your personal needs.

What is the monthly cost of life insurance?

Every life is different, and so is pension – and so is the cost of life insurance. The premium for your personal pension insurance depends entirely on your life situation. Depending on the product and individual circumstances, capital-building insurance can be taken out from around CHF 100.– per month.

Does life insurance come with tax benefits?

In pillar 3a, life insurance premiums are deductible from your taxes up to the authorized limit. And when paying out life insurance, you benefit from a reduced tax rate.

Conversely, pillar 3b does not come with any tax advantages. Under certain conditions, however, the life insurance payout is not taxable.

What is the duration of a life insurance contract?

Life insurance belongs to long-term provident insurance.

In pillar 3a, the duration is generally linked to the retirement age. Payment can be made at the earliest 5 years before or at the latest 5 years after reaching the ordinary AVS retirement age.

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