I mentioned in an earlier post that my wife and I have purchased additional life insurance through my employer’s group plan. This plan offers a heckuva great deal on life insurance if you are a younger, non-smoking employee or spouse.

The Cost of Life Insurance

My wife’s additional life insurance of $200,000 costs us $4.10/month.

My additional life insurance of $200,000 costs us $7.90/month.

For those of you unfamiliar with Life Insurance, females are proven to be less of an insurance risk with their typically longer life spans and lower frequency of accidental death. Therefore, it is usually very inexpensive to purchase term life insurance for a female in her twenties.

I really couldn’t believe how cheap a good life insurance policy can be. If you’d like to check it out for yourself you can click here to get a free life insurance quote.

Employer Sponsored Life Insurance Benefits

Like many employers, both my wife’s employer and mine offer life insurance as part of a paid employee benefit package. Our employer paid plans are quite different and it is fairly typical that not all plans are created equal.

My wife’s employer sponsored life insurance plan offers her a flat benefit (as of her union’s last contract) of $177,000. This equates to approximately 3X her annual gross salary at this time. However, her life insurance benefit is not indexed to inflation (except when a new bargaining agreement is reached) and is not derived as a function of her salary. As such, when her salary increases as it does annually, her life insurance benefit remains at $177,000.

My employer sponsored life insurance plan, on the other hand, is derived as a function of my salary. It is in fact 3X my gross earnings (not including commissions and bonuses). My employer sponsored life insurance is now $186,000.

How Much Life Insurance Should I Have?

There are many, many schools of thought on life insurance and I am certainly not an expert in the field. However, I do feel that my wife and I are adequately insured.

Because our only debt is our mortgage at about $175,000, my $386,000 in coverage will more than cover that debt allowing my wife to focus her income solely on the day to day living expenses of the household which would obviously decrease if I am not around to eat 90% of the groceries, take long hot showers, and leave the TV on all night!

This would also leave my wife with $211,000 tax free dollars to invest for my daughter’s future and take care of any unexpected expenditures that may arise in the future.

If the life insurance proceeds invested in a basket of dividend growing common stocks, this lump sum should provide her with approximately $8,000/year in additional income that is likely to grow at a higher rate than inflation over time.

Do I Really Have Enough?

As mentioned earlier, there are many different schools of thought on the calculations that should be used to determine the “proper” amount of life insurance. Some people would say that I need at least 10X my income; I think that is over-insuring.

I don’t want my wife and daughter to struggle financially, but at the same time I don’t want to spend a lot of money banking on my own demise that I could invest in other assets with current cash flow- like stocks (which would be left to my wife as well) !

There has to be a happy medium and I believe that I am very close to that with my current insurance situation.

Your Take on Life Insurance

Am I missing anything?

How do you calculate your life insurance needs? There are several calculators out there, most online insurance companies have them on their websites. Click here and go to InsureMe.com to use their calculator for your life insurance needs.

I’d love to hear your thoughts in the comments.

Well, it’s not necessarily that I have been avoiding it because I believe that our portfolios deserve as much attention now as they do when the bulls are raging!  The fact of th ematter is that the media sensationalizes everything.  Granted, it is their job to sell magazines, newspapers and subscriptions and to deliver the “news” to the public.  However, there is no happy medium with traditional market coverage.

Have you ever noticed that the headlines either yell “Sell…sell..sell” or “Buy…buy…buy”!  It’s true that a magazine with the headline “Now Is The Best Time To Do Nothing With Your Stocks” would not sell very well, but that is exactly what is needed.

I’m not avoiding coverage of  dividend stocks

In fact, I’m doing quite the opposite.  Now is a great time to comb over some high quality companies whose dividend yields are above their respective historic averages and pluck some of the good fruit that has been battered down with the market.

Have you heard of the saying “A High Tide Lifts All Ships”?  That means that even the poor companies benefit from a rising market.  Well, the opposite is also true in markets like we are experiencing now.  Some great companies are being beaten down simply because the overall market is taking a hit.

What to Look For

While I love Canadian bank stocks, it may be a prudent time to steer clear of banks until the dust settles a little more.  However, just like Canadian bank stocks,  the major Canadian insurers are high quality companies that are more likely to perform at this time in my humble opinion.

I still believe in the Canadian banks as great dividend plays for the long haul due to their strong capitalization, but insurance companies seem to be offering great value in the near term – maybe 12-18 months.

While their core business is insurance, they compete against the banks in savings and investment products, and enjoy superior credit ratings. While I don’t agree with the products themselves, the capital guarantees insurance companies provide with investment funds and annuities tend to rise in popularity when stock markets are volatile.

Some names to research for adding a Canadian insurer to your dividend portfolio are:

Great West Life (GWO.TO)
Price = $28.43
Yield = 4.12%
Beta = 0.57
P/E = 13.95
ROE = 18.69
5 Year Div. Groth Rate = 17.54

Sun Life Financial (SLF)
Price = $44.23
Yield = 3.23%
Beta = 1.16
P/E = 11.63
ROE = 14.02
5 Year Div. Growth Rate = 30.36

Manulife Financial (MFC)
Price = $34.63
Yield = 2.75%
Beta = 0.99
P/E = 16.83
ROE = 13.87
5 Year Div. Growth Rate = 23.73

There you have it!  A great place to start with research to add a high quality insurer to your dividend portfolio.  All three of these companies are near their 52 week low and offer higher than average yields historically speaking.

(Disclosure: Dividend Money owns shares in SLF) 

Car Insurance

It is crucial that you act as a responsible driver and have the correct type of car insurance.  This can get you out of all sorts of trouble: roadside breakdowns, crashes, scrapes and scratches to the bodywork of your car, and can also step-up in the event of legal confrontations and debates.  Careful planning beforehand means you don’t have to pay a hefty cost afterwards, so it is well-worth taking care of these administrative extras for a smoother ride through life. Don’t try to save money by cutting corners on the policy instead it’s a good idea to look out for online discounts. The Co-operative bank, for instance, offer a 10% discount on car insurance quotes to online customers.

Home Insurance

Home insurance is needed to protect not only the bricks and mortar of your house or flat, but also its contents.  There are practical ways to reduce the cost of a home insurance premium, for example, you can fit a recognised burglar alarm, or, if you are over 50 you can save up to a third on home insurance with RIAS.

Life Insurance

This is basically a way of looking after and protecting loved ones in the event of your death. However, it can also be used as a fruitful investment you can dip into during your lifetime depending on the type of policy you choose.  For example, the investment type can be cashed in at any point, helping you pay off unexpected debts such as mortgages, university fees, and medical bills, which can be a huge hill to climb if you suddenly lose your job.  An investment plan can provide emergency financial aid when needed.  Check out the Department for Work and Pensions for help in planning your future with financial suss.

For example, it is likely that you have a mortgage, and you will have signed an agreement when you took that mortgage out saying that if you were unable to keep up your repayments, the whole property would be repossessed by the mortgage lender. Thus if you passed away, and you were the main breadwinner in your family, it is possible that they would have nowhere to live. If you had outstanding debts to repay, such as hire purchase commitments, car finance, and credit card balances, there may not be a way of discharging these obligations and your estate – i.e. your family – would be liable.

Thankfully we can all protect ourselves by taking out a life insurance policy with someone like Legal & General. There are lots of different options to consider, but life insurance policies fall into two main categories – level term and decreasing term. If your priority is to ensure all financial commitments such as mortgage and other debts were repaid on your unexpected death, thus offering a good degree of financial security for your family, you should opt for a level term policy. This pays out a fixed amount, equal to your initial mortgage amount. So if you passed away towards the end of the insurance term, there would be more money available to repay other debts. Obviously, if you died near the start of your policy term, it is possible that the payout might not be sufficient to cover these.

If you preferred a lower cost option, but still retain peace of mind that your mortgage would be repaid, you should go for decreasing term life insurance, where the sum insured reflects the balance outstanding on your mortgage. A good place to start researching the range of life insurance policies available is the Legal & General website itself, where you will also find links to policy information and details of who to contact if you have any questions. There is also the opportunity to take out one of their high quality insurance products when you have made your decision.