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Re-evaluating Your Insurance Needs

As people advance from a period in their lives when they're raising children, to a time of retirement filled with travel, they should regularly re-evaluate what types of insurance they are eligible for, how much premiums cost, and what insurance they likely need most.

As people advance from a period in their lives when they're raising children, to a time of retirement filled with travel, they should regularly re-evaluate what types of insurance they are eligible for, how much premiums cost, and what insurance they likely need most.

For people facing costs of raising a family, a lengthy mortgage, and vehicle purchases -- Statistics Canada reports average household debt reaching a record high 163 per cent of disposable income -- life insurance is likely a prudent thing to have. But retired people wanting to spread their wings and see the world might find travel medical insurance to be a bigger priority.

Health Insurance

Common types of health insurance provide coverage for medical, dental, drug, vision and casualty expenses, and there's travel medical insurance to handle out-of-country expenses beyond what local insurance covers.

Provincial plans usually cover part or all of many health basics, such as the Alberta Health Care Insurance Plan, which provides residents with full coverage of medically necessary physician and hospital services, plus a portion of some drug and vision costs, as well as specific dental and oral surgical health services. Most people want additional medical coverage from private insurers, to pay for more services or products.

People switching employers or entering retirement should examine what group medical insurance coverage they may be giving up by going to a new employer, becoming self-employed, or retiring. As part of an early retirement package, employees may be able to negotiate some medical coverage after leaving. In any situation, it might be worthwhile to compensate for lost or reduced coverage by taking out additional individual insurance.

To be eligible for Alberta Health Care, residents must physically be in Alberta at least 183 days of a 12-month period. But even people who are away less than that are strongly advised to purchase travel medical insurance, because many out-of-country costs are only partially covered by local insurance, if at all.

A former Edmontonian went to Mexico with a friend, who suffered severe medical problems while swimming there, requiring both of them plus two medical attendants to fly by private jet to Florida for treatment. A $5,000 credit card deposit on the charges was paid, but the friend had taken out travel medical insurance in Canada, and all costs were covered including the deposit.

Long-term Disability and Critical Illness Insurance.

Many employers offer long-term disability or care insurance, which reimburses an employee a portion of their salary for a certain period, sometimes one year, while they cannot work due to a prolonged illness or accident.

Individuals can also take out critical illness insurance, where people who survive a period of usually 30 days after diagnosis of a disease they are cover for, receive a one-time lump sum payment depending on the amount of coverage.

A basic critical illness plan covers heart attack, bypass surgery, cancer and stroke until age 65, with pre-set premium increases every 10 years. Or you can initially pay more for level coverage with no premium increases to age 65, 75, or 100. And another rate allows you to get your premiums back at various ages if you don't make a claim. Other levels of coverage can add conditions such as multiple sclerosis, kidney failure, deafness, blindness, Lou Gehrig's disease, Parkinson's disease and Alzheimer's disease.

Life Insurance

David Chilton says in his book The Wealthy Barber that life insurance is best held by people with huge looming expenses, such as raising a family, and little savings. He asks the question, if you were to die and your employment income would vanish, could your family carry on and be financially comfortable? Many people approaching retirement with no debt, reduced living expenses and enough savings to pay for funeral expenses, don't need life insurance.

There are two main types of life insurance, term and permanent, the latter usually being universal or whole life. Term insurance is the cheaper variety, paying a lump sum upon death, but premiums increase as the policy is regularly renewed. Permanent is more expensive, but premiums don't increase over time, and it includes a fixed payment upon death, plus an investment component that compounds over years.

Some people opt for whole life because of its forced savings component. But many advisers suggest having term insurance and investing the difference you save in premiums yourself, having time to achieve returns that outperform the low-rate returns of whole life, which opts for security.

Home, Mortgage, Auto Insurance

Shop around. Home insurers are often competitive, and an insurance broker may get you the best deal. Renters often ignore insurance, but are often wise to obtain renter insurance covering their personal belongings. Mortgage insurance is usually obtained through Canadian Mortgage and Housing Corporation, but conditions for acceptance have been toughened. With auto insurance, update your information; you can get reduced rates if you're self-employed at home instead of driving to work daily. Also, you often don't need additional insurance on car rentals, as it may be covered under your personal auto insurance or your credit card.

Insurance and Taxes

Most insurance benefits are not taxable, but some of the cash surrender value of a permanent life insurance policy is. Also, the federal government has moved to eliminate tax benefits for two insurance products, a leveraged insured annuity and a 10/8 arrangement.

Meanwhile, insurance premiums are treated different ways. Provincial medical insurance premiums cannot be claimed as a medical expense, but premiums for private insurance, plus the medical part of travel insurance (excluding cancellation insurance) may be claimed. With long-term disability insurance, taxation of benefits received depends on who paid the premiums, often split 50-50 between employer and employee. The employee pays no tax on benefits received up to the total amount of premiums he or she paid over time. If you'd paid $5,000 in LTD premiums the past 10 years, you don't pay tax on the first $5,000 in LTD benefits.