David Christianson
Vice President, National Bank Financial
1. What type of life insurance do you own?
A combination of term 10 for temporary needs (income replacement, earlier in my life for debt coverage) and permanent insurance, for permanent needs (estate liquidity for taxes, corporate-owned for CDA to help reduce tax on post-mortem distributions).
2. What factors did you consider when determining the coverage amount?
a. For income replacement, I look at family expenses and the capital needed to replace that and provide a surplus. This involves making a reasonable and conservative assumption about the income that can be produced from the estate capital, in the event of the death of a breadwinner.
b. For permanent needs, we consider projected taxes on the estate, the client’s objectives for their estate, and any opportunities to pass on a larger estate after-tax, possibly using charitable gifting strategies, corporate CDA strategies, et cetera.
3. Do you believe in life insurance for children?
I think there are good reasons to buy permanent insurance on children, with guaranteed purchase options, to ensure future insurability. I have known clients whose young-adult kids could not buy insurance for various reasons, and in some cases the only protection they could purchase for their families was guaranteed by their juvenile policies.
I admit I am not a big fan of buying large amounts of term insurance on children, as I don’t know too many parents who’d want to cash in on the death of a child.
(On a different note, I’m always amused when people ask if I am “a believer” in any particular type of life insurance, as I don’t consider insurance to be a religion. I think insurance decisions should be more objective and analytical. Otherwise, purchase decisions can either be discouraged by people’s irrational phobia about life insurance, or influenced by guilt and manipulation. Better to base it on the facts, and the way insurance can be a great tool to assist in estate planning, tax-deferral and reduction, and especially family protection.)
4. What is the biggest life insurance mistake people make?
The biggest life insurance mistake people make could be purchasing a small whole life policy at a young age when family protection is the objective, instead of purchasing the appropriate amount of term insurance for immediate protection.
Number two on my list would be purchasing life insurance — or especially disability insurance — on a mortgage or other loan directly from the bank. The disability insurance tends to be paid all up front at an horrendous cost, and the life insurance is a decreasing term policy, at a higher cost than a personal, guaranteed contract of high-quality term insurance.
5. Outside of life insurance, what other types of individual insurance are often overlooked?
The most overlooked type of insurance is probably disability, given the epidemic of self-employed people over the last 15 years. My guess is that very few of them have the protection in place to live a comfortable life in the event of disability, which is much more likely than premature death.
David Christianson is author of Managing the Bull, a no-nonsense approach to personal finance published through the Knowledge Bureau. David’s “day job” is as an award-winning financial planner and investment advisor. He is a Vice President and a leading advisor with Wealth Professional Magazine.
