Serious Money Discussion Risk Management- Life Insurance

by Geoff Sgarbossa, CD,CFP, RIS, Financial Planner

Going back through history, when misfortune struck a family, it was common for others in the community to collectively aid in an effort to manage through a crisis. Through time, it became evident that when the degree of risk could be estimated, it was possible to share the risk of economic loss. Starting in the 1500's, experts have continued to collect and analyze data to develop more effective tables of mortality. As mortality data improved, insurers were able to better quantify the risk, pool it across larger groups, and build long-term financial reserves to enhance their long-term financial stability; Which is essential for ongoing solvency to ensure money will be available when it comes time for your survivors to put in a claim.

As discussed in the Serious Money paper on the 5-step risk management process, insurance is a risk financing strategy. When you buy a policy, you are transferring a specific financial risk from your family to an insurance company. With life insurance, the risk being transferred is the financial hardship that may follow a death.

Why It Matters

Most families do not have enough liquid capital sitting on the sidelines to absorb a sudden loss of income or the additional expenses due to death. Life insurance is designed to fill that gap so that grief is not compounded by financial crisis.

The harder part is choosing the right coverage, in the right amount, for the right length of time. A useful starting point is not the product, but the need you are trying to protect. Most needs fall into two categories:

• Temporary needs have a clear or expected end date, such as a mortgage, income replacement while children are dependent, education funding, or business debt.

• Permanent needs are expected to exist no matter when death occurs, such as final expenses, tax liabilities, estate liquidity and probate, charitable giving, or legacy planning.

• Matching the insurance to the need keeps the plan efficient, understandable, and easier to maintain.

Main Coverage Areas

• Term life insurance provides coverage for a defined period, typically 10, 20, or 30 years. It is often the most cost-effective way to protect a temporary need such as a mortgage, dependent children, or income replacement. Term policies eventually expire, and renewing later can be significantly more expensive, so the term length should be matched to the goal rather than the lowest first-year premium. A convertible policy also allows for a conversion to permanent coverage later without new medical underwriting.

• Permanent life insurance is designed to last for life, assuming the policy stays in force. It is generally used for needs that do not disappear with time, such as final expenses, estate costs, tax liabilities, charitable giving, or providing liquidity to beneficiaries. Common forms include whole life, universal life, and term to 100 (T-100). Whole life tends to be the most common and straight forward. Universal life offers much more flexibility but also attracts added complexity and should be reviewed regularly like any investment portfolio. The T-100 a more recent addition to the lineup, and can be described as a straight forward term policy, but that term is for life.

• Investment features inside permanent policies can be useful, but the primary purpose of the policy should still be focused on risk financing. Borrowing against policy values or skipping deposits can affect long-term performance and may require additional premiums later. Permanent insurance should compliment and support the plan, not replace other wealth accumulation tools such as an RRSP, TFSA, or RESP.

Each tool solves a different problem. The tool is generally the least complex solution that matches the need, timeline, and budget.

Group Coverage

Many Canadians have life insurance through an employer group benefits plan. Group coverage can be a useful and cost-effective part of the plan, but it has its limitations.

The employer typically owns the policy, which means the employer may be able to change the coverage, switch insurers, reduce benefits, or end the plan outright. Coverage may also end when employment ends, and conversion options at that point may be limited or more expensive than expected.

Group insurance can be part of the plan, but it is generally recommended to not be the entire plan. Individually owned coverage stays with you as your career, health, and family situation change. Group plans may not.

Misconceptions

A few misunderstandings come up time and again in client discussions.

• No medical means no questions. No medical insurance usually means no blood work or fluid samples required at time of application. It does not mean no questions. Insurers may still ask about health, lifestyle, medications, occupation, travel, and medical history. Answers must be honest and complete. While becoming less common, post-claim underwritten policies still do exist, meaning eligibility is fully assessed only after a claim is made and it is very possible to be denied a claim in these cases. The golden rule of insurance is the more questions asked during the underwriting process at time of application, the fewer questions are asked at claim time.

• The lowest premium is the best deal. Life insurance is a legal contract. Definitions, exclusions, renewal terms, conversion rights, and waiting periods all matter. A cheaper policy that does not pay when expected is not actually cheaper. Additionally, matching the term length to the length of the need will generally attract a higher premium to start, but can significantly reduce the total lifetime costs of the plan.

• My workplace coverage is enough. It may be enough for now, but it is usually tied to employment and may not follow you. Replacing it later can be harder if health, age, or occupation have changed in the meantime.

• Applications can wait. Health, age, and occupation can all change, and applying to the wrong insurer can lead to declines or ratings that may follow you for life. An independent broker can usually access multiple insurers, position the application properly, and explain the fine print before it is submitted. That is particularly valuable for clients with health concerns, and higher-risk occupations such as first responders, military service, or aviation exposure.

• Insurance, investing, and banking are interchangeable. Insurance is for risk financing. Investments are for wealth accumulation. Banking is for cash flow and lending. Strategies that combine these roles can make sense in specific cases, but complexity does not equal better. In many cases, the simplest solution is the best solution.

Conclusion

Life insurance is not about predicting the future. It is about preparing for a financial risk that may arrive sooner than expected. Nobody enjoys paying premiums, but beneficiaries are grateful the coverage is there when a claim needs to be made.

The right policy can protect income, preserve a home, provide liquidity, cover final expenses, and give survivors time to make decisions without immediate financial pressure. The best strategy is rarely the biggest or most complex one. It is the policy that matches the need, fits the budget, and can be understood by the people relying on it.

Speak to one of our Wealth Advisors at Keill & Associates to make sure your family is properly protected when life happens.

Disclaimer and Notice to Reader: This Serious Money Paper should not be construed as financial, legal, or tax advice but rather only as a general statement and explanation of the topic matter. Professional financial, tax, and legal advice should be obtained for the reader's own personal situation. For more information on this topic or how it applies to your family, please contact our Wealth Advisory Team.

Revised May 2026