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Lawyers Financial dispels myths about insurance

The best way to dispel myths and inaccuracies about insurance and financial planning is to speak to an advisor, says Dawn Marchand, interim CEO and president of Toronto-based Lawyers Financial.

"Together you can determine the best suite of insurance coverage to meet your needs today and into the future," she tells AdvocateDaily.com.

Marchand says there are four common myths:

  • Insurance through a workplace is enough to meet your needs.
  • Beneficiaries will have to pay taxes on death benefits.
  • Mortgage insurance must be purchased from your bank.
  • All you need is life and health insurance.

Not so, says Marchand.

While there are those fortunate enough to work for a law firm that provides life insurance as part of its benefits package, it may not be enough, she says, adding that the amount is often equivalent to one or two years' salary.

"But making this your only source of life insurance is probably not the best move," says Marchand.

She says one has to consider whether the amount is adequate into the future as your obligations — such as a family — grow.

"Second, and most important, you can't take the insurance with you if you lose or leave that job," says Marchand.

"By purchasing your own separate insurance policy — such as Lawyers Financial Term Insurance — you decide how long you want to be covered, you get coverage that fits your personal financial needs, and you keep it for as long as you want,” she explains.

Insurance beneficiaries don't have to pay tax on death benefits, says Marchand. However, if you don't assign a beneficiary or make your estate the beneficiary, the death benefit will be included in your assets for probate and therefore will be subject to estate tax, the amount of which depends on the value of your assets.

"If you name a preferred beneficiary — a spouse, parent, child or grandchild — then the death benefit is not taxed and it's protected from creditors,” she says.

As for the myth of having to buy mortgage insurance from a bank, "Not only is this not true, it's generally not a good idea," Marchand says.

Instead, she recommends purchasing a term life policy which is "generally quite a bit less expensive and is more flexible than mortgage insurance."

Marchand says the key difference between the two is that mortgage insurance “pays the remaining balance of what you owe the bank if you pass away. It's a decreasing amount over time, but the premiums don't decrease.

"Term insurance pays the entire death benefit to your beneficiary and they can use it to pay off the mortgage."

While life and health insurance are both important, there are two other types of coverage you should consider — disability insurance which protects your income if you're not able to work due to serious illness or accident, and critical illness insurance, says Marchand.

"Your income is your greatest asset and it should be protected,” she says. “I think disability insurance is probably the most important coverage people should consider."

If diagnosed with a critical illness, Marchand says a person and his or her family "face large, unexpected costs at a time when all you should be doing is focusing on your health and recovery."

She says critical illness insurance “pays a one-time, tax-free, lump-sum payment to help you avoid financial hardship as you work to beat your illness."

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