November 21st, 2019

Insurance Understood: How to determine the right type of insurance

By Steve Meldrum on May 11, 2019.

When I grew up my mom would often make apple crisp for desert. The main ingredients were simple – apples, flour, oats, cinnamon and sugar.

However, her process was the secret weapon. After the main baking was done she would turn down the heat and leave it to crisp in the oven a while longer.

This extra time allowed the top layer to crisp up to perfection without drying the apples out. Of course, a generous scoop of vanilla ice cream always helped as it melted into sweet lava. Yet that can be overdone, too.

A proper balance and timing is required to have the full experience. I have tasted a lot of other apple crisps but none can match my mother’s. These thoughts brought me to the experience people have with purchasing life, disability and critical illness insurance. Essentially, the premise is simple; protect yourself and the people you love by paying a premium to an insurance company in order to share the financial risk of something negative happening among a group of people.

However, not everyone’s baking is the same nor is the balance of the extras (comparable to ice cream) on the plan.

I will now explain some simple ingredients into determining each type of insurance. For life insurance, it is common to cover your debts, funeral expenses, final tax bills (calculated in advance) and provide an income to your loved ones for a period of time.

Some people will choose a shorter period of time but most like to replace their income until retirement. If you add all of that up, it will give you’re a guideline for your total amount of life insurance required. If you have an existing insurance policy or one from work you can subtract that from your total to discover your remaining need or gap.

For disability insurance I believe that you should first do a cash flow plan. This will provide you with a rough guide of your monthly expenses to maintain your current lifestyle and keep your financial future on track. This is your income need.

If you have an existing personal disability plan or one through work, please take a few extra steps to investigate the features of it. Each plan can differ widely o the definitions of disability, the waiting period before a claim can be made and the amount of time your income will be replaced. If there are gaps in your plan you can top it up, fill in the gaps or even create a backup plan if the definitions are weak.

When it comes to critical illness, it is more arbitrary. A lot of establishing your need comes down to preferences. I guess like determining how much cinnamon to put in an apple crisp. I commonly see people wanting to cover their debt obligations and one to two years of income. We all know people that have had either a heart attack, cancer or stroke (which are only a few of the covered conditions). The recovery time varies widely so you have to choose a level of comfort between the best and worst case scenarios.

Just like adding ice cream to your apple crisp, you can add additional features to each of your insurance plans. Those features can enhance your coverage.

However, you need to make sure that adding them does not take away from your ability to afford the appropriate amount of coverage. Just like my mom has shared with me her methods of preparing a wonderful apple crisp, an insurance specialist can help you understand your insurance needs to protect you and the people you love.

As for apple crisp, I will post my mother’s recipe this coming week on social media. Of course, I am always happy to review your apple crisp or insurance plans. Cheers!

Steve Meldrum B.Mgt. CFP CLU is the founder of Swell Private Wealth Ltd. For over a decade he has specialized in helping individuals and businesses expand protect and perpetuate their wealth. For further information or tailored advice, contact him at 403-487-0490, or connect on social media.

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