WRT your disability at work: you said it was $2.43 for the 5 year plan now, but did you mean it was $2.43 for the "to age 65" plan right now?

In any case, if you are forced into picking one or the other, know that you can always get your own private insurance with a 5 year waiting period that would kick in after your 5-year work coverage expired – with a 5 year wait period, it would reduce the coverage premium for the private insurance the average disability lasts about 2.9 years or so.

Let me know about those rates – it didn’t read right.

Re: insurance companies insuring each-other. Some of the largest insurance companies are "re-insurers". It helps avoid the insolvency of any one company if they happen to get hit with many claims (i.e. hurricane insurers years ago) and they can’t afford to pay the claims all at once. It helps spread out the risk between all the insurance players – and they are all about reducing risk.

I think it only goes the one extra level – i.e. no re-re-insurers. :)

In fact one re-insurer is called General Re (do a google search on them and click on about us –> Gen Re.

You will note they are owned by Berkshire Hathaway – Warren Buffett’s holding company! :)

I realize that I won’t be at the company forever, however I can get coverage for myself when I leave the company and/or my next employer will probably have a coverage as well.

I didn’t realize that the insurance company could have insurance too. It doensn’t seem to make much sense. Do the insurance companies that provide the insurance for other insurance companies also have insurance on their own polices that cover the other insurance companies?

My calculation for the life insurance doesn’t have to be used for school. I mean, my spouse just actually got out of school and is trying to start her own business. She could take the money, have very little expenses (save taxes, food, bills, and maintenance on the house) and start up her own place rather than renting space from someone else in her line of work. I could go back to school and get some certifications on what I want to do. We’d just have the couple of years to figure out how to move on and get our bearings. It’s not like I meant that things would be ‘normal’ after 2 years. Just because you’re on the track doesn’t mean the track doesn’t go through a mountain range :)

I just think that if the most that the survivor would need is food (say 400/month), maintenance on the house (Say 150/month), property tax ($200/month), Random bills (400/month), and childcare (500/month, 2 kids), RESP’s (250/month), that’s around 1900/month or 22800 / year. So if you plan on having all the debt paid at your demise and maybe 100K to live for 2 years I think that’s plenty to get by. In my own family that would be done on about 250K of insurance. 150K for debt (including the mortgage) and final expenses and 100K to live for the next while. That would last a few years if you wanted it to and should get things pointing back in the right direction.

1) Work provided insurance is not as robust as private coverage. My former boss had a friend who had both private insurance and group insurance. He died in a snowmobiling accident and had trace amounts of alcohol in his system. The alcohol content voided his group coverage as the underwriting is done at time of death. The private insurance paid out immediately. With private insurance, since you have underwriting at time of application once the policy is approved you are paid out almost no matter what (your beneficiaries could get paid out even if you commit suicide after the policy has been in effect for 2 years). The payout to claim ratio might be (just for example) 80% for group insurance and 99% for private. Check the fine print.

2) Consider that most people do not remain with a company their entire careers – most people who leave their employer do not transfer over their insurance coverage and all the premiums that went to the insurance company is just gravy. They make tonnes of money on group insurance.

3) Insurance companies have insurance too. In some cases they re-insure themselves through other carriers – just another way to spread the risk out between them.

4) Your formula for calculating life insurance is fine, so long as you are sure that is what would happen – a death of a big part of the family may require more than 2 years to get back on track no matter what you see on Desperate Housewives… :) (tongue firmly planted in cheek) :P

I’ve always thought that the best way to determine my insurance coverage is to make sure all debts are paid, and allow enough for 2 years living expenses plus 2 years of schooling. That way the surviving spouse can go back to school, pick up some more skills, make themselves more marketable and move on. If you can’t live on one salary with no debt and no worry about the roof over your head there are probably other problems that need resolving anyway. Plus, my kids RESPs are included in our expenses, and we are planning only to pay for about half of a 4 year university program. I know I may sound cold hearted, but if they don’t work themselves through I think it will just go to waste because they won’t appreciate where they are as much.

Re: the life insurance. You just inspired me as to what my next post can be on. You mention a joint-life policy for the two of you. Manulife has a family term product that is basically two separate policies instead of a joint-first-to-die (which is what you would normally use for your reason) and the cost is only 2 or 3 dollars extra per month than having a joint policy.

There are a couple of benefits:

1) If you and your spouse were to die in the same incident – then there is twice as much insurance available to the guardians.
2) If one of you dies first, the remaining person still has life insurance. With the joint-first policy when the first person dies the policy pays and is then complete – no more insurance in effect – perhaps the remaining spouse has become sick and uninsurable, but the kids are still not self-sufficient.
3) You can have different levels of insurance on each life – from what you mention right now, you would need more coverage on your life since you are the main bread-winner for the time being. If the low income earner right now were to pass, you may not need as much insurance to be able to carry on.

Morbid to think about, but you have to really examine your options.

Depending on the differing levels of insurance required on each life, the cost may actually work out to be the same as a joint policy, but with all the above-mentioned benefits.

Look into it, and look soon. If you want some quotes I have some insurance companies’ quoting software installed on my laptop – I can give you a ballpark estimate, and then you can look on Kanetix.com to see what the going rates are for other carriers.

You shouldn’t be without adequate coverage for a day when you have kids.

If you are so inclined, please look at the 12 part series I wrote on life insurance if you haven’t already – it’s a long read, but very worthwhile. I think part 12 is when I look at how YOU can determine how much coverage you need yourself, and use that in discussions with an insurance agent.

Disclosure: (although I’m sure you are aware) I’m a stockbroker and I am life-insurance licensed – so I would recommend taking everything I say with the knowledge that no matter how hard I try, or how gosh-doggone nice I am, a conflict of interest exists! :)

Nonetheless, I try my best to act only in others’ best interests and I hope this answer was helpful.

Preet

That was a long time ago now, I hadn’t even planned to buy a house at that point and was just saving for a down payment in the RRSP through work. Then my spouse decided to go back to school, then we decided to buy a house, now she’s starting a business rather than getting a normal job so she won’t have a huge income until she gets things up and running.

So as it stands we just RRSP for me, Individual RESPs for each of the kids (one through CST [YUCK!], and one using TD E-Funds), and trying to keep up with everything else while we basically have one income. That’s probably the way we’ll stay until next summer and we’ll see if her business is taking off. If at that point her income is up then we will be opening an RRSP for her and starting investing in non-registered accounts, but I’ll probably just do that through Questrade, or the at the time best discount broker for our situation.

As for the other things since she isn’t going back to work we have to set up some disability insurance for her and set up a joint term life insurance for the two of us in case something happens to her or I to cover the cost of raising the kids. Once we have that all squared away I would be willing to bet we’re much farther ahead than most of the population.

They do however, lack a good grasp of all the other important aspects of finances – like long term tax planning, estate planning, insurance planning, etc.

If I were you, I would start looking for a financial advisor to write up a financial plan for you NOW. Is there someone your friends or colleagues use and recommend?

When I started in the business, many of my clients were young, straight out of university looking for advice on how to save for their first house and start saving for retirement. Most, if not all, moved with me to my new firm which is more upscale, but they had saved and while they don’t meet the firm’s soft minimum level of assets yet, they have great potential and I treat them like my bigger clients. It’s all about building a long-term relationship, so it is totally possible to find a planner who will work with you NOW. The clients that started out with me will probably be my best clients 10 years down the road in terms of assets and referrals – and the loyaltly (both ways) will be unbreakable.

So, if you can find yourself an advisor who is candid, intelligent and willing to work with you even though the pay off to them is years down the road – great. If you aren’t sure about the advice you are getting, I’d be happy to give any financial recommendations a second look through for you – as a reader of my blog! :) (no charge)

Preet