Posted: May 1
Many people assume that life insurance policies are primarily designed for those with spouses and children. After all, isn’t the main
purpose of a life insurance policy to provide financial support for loved ones after you’re gone? While this is certainly one important
function of life insurance, the truth is that single individuals can benefit significantly from having a life insurance policy as well.
Whether you’re young and just starting your career, middle-aged with established assets, or approaching retirement, a life insurance policy
can be a valuable addition to your financial portfolio. If you’re curious about how life insurance might fit into your financial plan as a
single person, speak with a Vistaplan advisor today who can provide personalized guidance based on your unique circumstances.
Understanding Life Insurance for Singles
When you’re single, it’s easy to think that a life insurance policy isn’t necessary. Without dependents who rely on your income, you might
wonder why you should invest in life insurance at all. However, this perspective overlooks several important ways that a life insurance
policy can benefit single individuals.
Life insurance is fundamentally a financial tool that provides a tax-free lump sum payment to your named beneficiaries upon your death. For
single people, this money can serve various purposes that extend beyond the traditional family support model.
Covering Debts and Final Expenses
One of the most practical reasons for single individuals to consider life insurance is to cover outstanding debts and final expenses. Many
Canadians carry significant debt in the form of mortgages, car loans, credit cards, or student loans. In the event of your passing, these
debts don’t simply disappear.
If you have co-signers on any loans, they would become responsible for repaying the debt. A life insurance policy can ensure that your
co-signers—often parents or siblings—aren’t burdened with your financial obligations. Even without co-signers, creditors may make claims
against your estate, potentially diminishing what you intended to leave to beneficiaries.
Additionally, funeral and burial costs in Canada average between $7,000 and $12,000. A life insurance policy can cover these expenses,
preventing your family members from having to manage these costs during an already difficult time.
Supporting Aging Parents or Dependents
While you may not have children, single individuals often have other people who depend on them financially. Aging parents are a common
example. As your parents get older, they might require financial assistance for medical care, housing, or daily living expenses. If you’ve
been providing this support, a life insurance policy can ensure that it continues even after you’re gone.
Similarly, if you’re providing financial support to siblings, nieces, nephews, or other relatives with special needs, life insurance can
help maintain that support. This can be particularly important if you’re the primary caregiver or financial provider for someone with
long-term care needs.
Estate Planning and Wealth Transfer
Even without traditional dependents, many single individuals want to leave a legacy. A life insurance policy can be an effective tool for
estate planning, allowing you to leave money to loved ones, friends, or charitable organizations that matter to you.
Life insurance proceeds are generally paid out tax-free to your named beneficiaries, making them an efficient way to transfer wealth. This
can be especially valuable if you have substantial assets that might be subject to probate fees or estate taxes.
For those with significant assets or complex estates, a life insurance policy can also provide liquidity to pay estate taxes and settlement
costs, preventing the need to sell assets quickly and potentially at a loss.
Types of Life Insurance for Singles
When considering life insurance as a single person, it’s important to understand the different types available and which might best suit
your needs.
Term Life Insurance
Term life insurance provides coverage for a specific period, typically 10, 20, or 30 years. If you pass away during the term, your
beneficiaries receive the death benefit. This type of life insurance policy is generally more affordable and straightforward.
For single individuals, term life insurance can be ideal if you have specific, time-limited financial obligations. For example, if you have a
mortgage or other loans with definite end dates, a term life insurance policy can be structured to cover these periods. Similarly, if you’re
supporting aging parents who might only need financial assistance for a certain number of years, term coverage might make sense.
Permanent Life Insurance
Permanent life insurance, including whole life and universal life, provides coverage for your entire lifetime as long as premiums are paid.
These policies also include a cash value component that grows over time.
For single individuals interested in using life insurance as part of a long-term investment strategy or estate planning tool, permanent
insurance can be attractive. The cash value accumulates on a tax-deferred basis and can be accessed during your lifetime through policy
loans or withdrawals, potentially providing supplementary retirement income.
Additionally, the guaranteed death benefit of permanent life insurance ensures that you’ll leave something to your chosen beneficiaries,
regardless of when you pass away.
Determining If You Need a Life Insurance Policy
So how do you determine if life insurance makes sense for your situation as a single person? Consider the following factors:
Financial Obligations and Debts
Take inventory of your current debts and financial obligations. Do you have a mortgage, car loan, or significant credit card debt? Would
someone else be responsible for these debts if you passed away? If so, a life insurance policy could help protect those individuals from
financial hardship.
Canadian student loans through the National Student Loans Service Centre are typically forgiven upon death, but private student loans often
are not. Check the terms of your specific loans to understand the potential impact on others.
Dependents and Family Support
While you may not have a spouse or children, consider whether you provide financial support to anyone else. Do you help aging parents with
bills or medical expenses? Do you contribute to a sibling’s education or support a niece or nephew? A life insurance policy can ensure this
support continues even after you’re gone.
Future Plans and Insurability
Your life circumstances can change quickly. You might currently be single but plan to have a family in the future. Obtaining a life
insurance policy while you’re young and healthy typically means lower premiums, and many policies allow you to increase coverage or convert
to different types of policies later without additional medical underwriting.
Health conditions that develop later in life can make obtaining life insurance more difficult or expensive. Securing a life insurance policy
while you’re in good health can protect your future insurability.
Estate Planning and Legacy Goals
Consider what you want to happen to your assets after you’re gone. Do you want to leave money to family members, friends, or charitable
organizations? A life insurance policy can help ensure that your wishes are carried out and that your chosen beneficiaries receive financial
support.
Life insurance proceeds are generally paid directly to named beneficiaries, bypassing the potentially lengthy and costly probate process.
This makes a life insurance policy an efficient tool for transferring assets.
The Investment Aspect of Life Insurance Policies
Beyond providing a death benefit, certain types of life insurance policies can serve as investment vehicles. This aspect can be particularly
valuable for single individuals focusing on building wealth and financial security.
Permanent life insurance policies, such as whole life or universal life, include a cash value component that grows over time on a
tax-advantaged basis. For single individuals who have maxed out contributions to RRSPs and TFSAs, the tax-sheltered growth within a
permanent life insurance policy can provide an additional way to build wealth.
The cash value can be accessed during your lifetime through policy loans or withdrawals, potentially providing supplementary retirement
income or funds for other financial goals. This flexibility makes life insurance more than just a death benefit—it becomes a versatile
financial tool that you can benefit from while alive.
Some permanent life insurance policies also offer dividends or investment options that can potentially increase your returns over time.
While these policies typically have higher premiums than term insurance, they provide both insurance protection and investment potential,
creating a dual-purpose financial solution.
Using Life Insurance for Charitable Giving
Many single individuals are passionate about causes and organizations that matter to them. Life insurance can be an effective way to leave a
significant charitable legacy, often at a fraction of the cost of an outright donation.
You can name a charitable organization as a beneficiary of your life insurance policy, ensuring that the organization receives the death
benefit upon your passing. This approach allows you to make a substantial future gift while maintaining control of your assets during your
lifetime.
Alternatively, you can donate a life insurance policy directly to a charity, potentially receiving tax benefits for the premiums you pay.
This strategy allows you to support causes you care about while also potentially reducing your tax burden.
For single individuals without heirs who want to leave a meaningful legacy, charitable giving through life insurance can be a powerful
option. It allows you to create a lasting impact on causes that reflect your values and priorities.
Securing Your Financial Legacy
A life insurance policy isn’t just for those with families or dependents. For single individuals, a life insurance policy can be a valuable
financial tool that provides protection, investment opportunities, and legacy planning options.
Whether you’re looking to cover debts and final expenses, support aging parents or other dependents, build wealth through tax-advantaged
investments, or leave a charitable legacy, a life insurance policy offers solutions tailored to your unique needs and goals.
As with any financial decision, it’s important to carefully consider your personal circumstances and objectives before purchasing a life
insurance policy. Speaking with a financial advisor who understands the Canadian insurance landscape can help you determine if a life
insurance policy makes sense for you and, if so, what type and amount of coverage would best meet your needs. Reach out to a Vistaplan
advisor today to discuss how a life insurance policy might fit into your overall financial strategy and help secure not just your future,
but the future of those you care about most.
About the Author – David Motkoski
David is a well-respected insurance advisor with over 30 years of experience helping healthcare professionals, business owners, and their
families secure their financial futures. He takes the time to make certain his clients understand the life, disability, and health insurance
products they are purchasing, so they can make the right choices for their budgets, plans, and futures.
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