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I'm retired. Do I need Life Insurance?

For the person or couple whose children are grown and either approaching or enjoying retirement, their insurance needs are much different.  They've created their nest egg and in the event of their death, there is sufficient income from investments to provide income for themselves and their dependants.  So the question that is usually asked by these people is "Why do I need life insurance now?"  However, because of tax legislation in Canada, a huge tax liability usually arises upon the second death of a husband and wife.

While we are living, RRSPs are a wonderful place to tax shelter our investments.  However, upon our estate, they will create for most, the largest tax bill they will ever have.  Unless the holder of an RRSP or RRIF has a spouse or dependant child under 18 to roll to, the whole amount of the RRSP or RRIF will be included in income in the year of death.  This will create a tax bill of approximately 46% of the value of your registered investments.  Other tax liabilities may include unrealized capital gains on such things as stock portfolios or even the family cottage.  Many families may find themselves selling the family cottage at fire-sale prices in order to pay the taxes owing.

Life insurance will provide the liquidity exactly when it's needed in order to pay for those inevitable taxes that may be incurred upon your estate.  However, instead of using funds from your estate to pay for the taxes, which will cost $1 for every $1 of tax, you can use pennies for every $1 through life insurance to pay for the same taxes.  By doing so, the full value of your estate may be preserved for your heirs.  

Usually, a life insurance plan called a "Joint and Last to Die" plan will be used for this purpose.  The taxes normally aren't payable until the second death of the couple.  By using a plan such as this, the insurance costs are dramatically reduced as the insurance company doesn't have to pay a death benefit until 2 people die.  This means a lot less risk to the insurance company, hence, a lot less premium.

The issues discussed here are more sophisticated and comprehensive.  Due to the complexities associated with estate planning, we recommend that a complete analysis of the above issues with a qualified and experienced insurance professional will help you to determine what your need for insurance may be.  For a no obligation analysis of your estate planning needs, please contact us to discuss and review your options for your unique situation.

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