Planning for the future can be challenging, especially when the end can seem so far away. That’s probably why most people procrastinate or put it off altogether. In fact, the majority of Canadians are not prepared in the event of unforeseen circumstances down the road. Over 90% of Canadians are under-insured. Add to that, three-quarters of Canadian adults don’t have a valid or up-to-date will, and the reality of just how unprepared we are as a country is evident.
The good news is, you don’t have to be part of those statistics, and you can start today! There’s no time like the present to plan for the future, so read on for a breakdown of why having both a will and life insurance is essential and the main differences between the two.
The importance of having a Will
A will (more formerly known as a Last Will and Testament) is the only way to legally document your wishes and protect your loves ones after you die. Most Canadians don’t understand just how important it is for every adult to have a will, regardless of your situation in life.
Perhaps the best way to stress the importance of having a will is to explain what happens if you die without a will (called dying intestate).
If you die without a will:
- You give up all control when it comes to where your assets end up. And instead, put that control in the hands of the government and the intestacy laws of your province.
- You don’t get to select who will care for your children should you and your partner pass away while they are still minors
- You create a situation where your loved ones could spend a lot of time and money sorting out your affairs (adding to an aleady stressful situation since they will be grieving.)
Having a will prevents these things from happening. It allows you to decide on the distribution of your estate in advance and have conversations with your family while you’re still alive to avoid any unpleasant surprises after you’re gone.
A will let’s you choose the person you want to be guardian for your young children and raise them the way you want.
And finally, a will allows you to appoint and executor, who you trust to wrap up your affairs like closing you bank accounts.
The importance of having life insurance
Life insurance helps you protect your loved ones by leaving them a tax-free lump sum of money at the time of your death. It becomes especially critical when you have anyone who depends on you financial (dependents.) For example, a spouse or minor children.
There are two main categories of life insurance:
- Term life insurance (a.k.a. term insurance)
- Permanent life insurance (a.k.a. whole life insurance)
Term life insurance covers you for a specific amount of time whereas whole life insurance (as the name would suggest) covers you until death. Term is often the more affordable route and suits many families with young kids since they only want the coverage while their kids are in school and still financially dependent on them (roughly 18-25 years.)
There are many policies to choose from and it’s a good idea to speak to a financial advisor or broker to find out which one is the best for you as it can change depending on your life stage.
How beneficiaries work
Both a will and life insurance protect your loved ones in the event something happens to you where you can no longer support them. And you name beneficiaries in each case.
It’s important to remember that, while both documents serve a similar purpose, they are also different in important ways. Firstly, your life insurance beneficiary is guaranteed to get their payout upon death. But your life insurance policy doesn’t control what happens to everything else you own. That’s where your will comes in.
Your will controls what happens to your assets like bank accounts, investments, real estate, and possessions. However, life insurance policies are not included as part of your will.
The life insurance payout is paid immediately and is not considered part of your estate. It can be used to cover expenses like the burial and funeral. The rest of your estate is distributed to the beneficiaries named in your will according to your wishes but this can take longer depending on the probate process.
In both circumstances, you should regularly review and update your beneficiaries in both your will AND life insurance policy if needed.
In summary: It’s important to have both a Will and life insurance to protect your loved ones
Every adult must have a will as it’s the only way to legally document your final wishes. Life insurance isn’t a legal requirement; however, it’s highly recommended if you have people in your life who depend on you financially.
It can be hard to plan far in advance when the ‘in advance’ is decades away. But if you want to ensure your loved ones are protected long after you’re gone, you’ll consider having both a will and life insurance.