Do I Need Life Insurance?

Maybe you heard some co-workers talking about it. Maybe you started your financial journey and a financial advisor told you about Life Insurance. Maybe, you just bought your first house and are wanting your wife and kids to live in it in case something happens to you. All of those are good reasons to start thinking about Life Insurance. The question is, Do I actually NEED life insurance? In this article we are going to share some common life stages and whether or not at these life stages getting life insurance is the right decision.

 

Twenty-Something with No Dependents.

At this stage, it is likely your income is relatively low compared to where it could be. You are likely contending with student loans. Further, you are likely starting your personal finance journey thinking about saving, investing, buying a home, and more. At this stage, with no dependents, life insurance is not necessary. You will likely already have something in place through your work. That should be enough. The one thing to consider is that life insurance will never be cheaper than it is today. So if your family has a history of heart disease, cancer, stroke, etc it might be worth locking in a cheap price now.

30s-50s: Spouse, Kids and House

During this phase of life, you have people that depend on you and the income you earn. You likely have some form of coverage through your work, however, this is likely not enough to provide for your family and clear your debts if you die unexpectedly. At this stage doing a proper NEEDS ANALYSIS would be the right approach. Ask yourself questions like, “what are my debts?, what are my assets? how much will my family need to survive in my absence?” Do some math.

https://jesse.thelinkbetween.ca/insurance/needs-analysis

 

When you add up your debts and how much your family will need if you die unexpectedly, that will give you how much life insurance you need. Subtract the total from any policies you have through work and that will give you how much you need to buy. In general, we would recommend buying term insurance. It is cheap and it will cover you for a specific period of time 10, 20, 30 years. When your kids are grown up and the debts are paid off, you no longer have a need for insurance and can therefore cancel it.

50 Plus

Generally, at this stage of life, kids are grown up and many debts are paid off. The need for insurance is relatively small which is good because at this phase of life it gets considerably more expensive. The fact of the matter is, at this stage in life you only really need insurance for estate planning purposes. Do you have a cottage? Do you have more than one property? Would you like to pass on any assets to children or grandchildren? This is where life insurance comes in. Speak to your accountant to figure out what the potential tax liabilities would be when you die. Then you can buy a permanent insurance policy to deal with those tax liabilities. Make sure you are doing your research, because of the costs associated with insurance at this phase of life, doing an analysis on whether the amount you pay will be more than your tax liability.

Overall, Life insurance can be helpful if the income earner of the family dies unexpectedly. However, we do not believe in people being overinsured or paying for something you do not need. The best thing to do is to do your own research to determine what you think is best for you and your family. If you need assistance book a free call.

 

 

 

Are you really diversified?

Diversify. Are you diversified? Are you over diversified? Do not put all your eggs in one basket. Diversification is key! If those sound familiar it is because that is a standard line that any financial advisor will tell his client. “You should be diversified.” This is good advice but the failing of most financial advisors is that they never take the time to explain what diversification actually means and even worse they do not take the time to find out if their clients are actually diversified.

Here is what people think diversification means…

Many think that being diversified means having pockets of money at many different financial institutions. I have worked with many clients that have an investment account at TD, a TFSA with CIBC, an RRSP with Canada LIfe, and a LIRA at CI Investments. When I ask them ” is your portfolio diversified?” they will rattle off the list of institutions they have money with but can not tell me what is in their portfolio. Here is where the problem comes in…you could be invested at 30 different institutions but if your money is invested in the exact same way, you are not diversified. For example, if all your investment accounts at TD, CIBC, Canada Life, and CI only hold Microsoft you are not diversified.

Here is what diversification actually means.

You do not need to necessarily hold multiple accounts and multiple institutions to achieve diversification. This can be accomplished by having your investments under one roof and simply making sure the money is invested across multiple sectors (sector diversification), multiple geographies (geographical diversification) and multiple asset classes (asset class diversification) can give you the diversification you need. Having a portfolio that has some holding in technology, health care, infrastructure, energy, and precious metals would make it diversified. Having a portfolio with companies that operate in the US, Europe, Canada, and other countries would give geographical diversification. Having a portfolio with some real estate, equities (stocks), cash and gold give you asset class diversification.  Whether the money is held at a single institution or multiple institutions should not matter if actual diversification is taking place.

Over Diversification

One thing to note is that you can be over-diversified.  This means that if you have too many different types of investments, holdings and asset classes it can actually make your investment perform worse and not add any additional security to your portfolio. Some financial advisors call this diworseification. Meaning you are actually making your investments worse.

Conclusion

Overall, there is nothing necessarily wrong with holding money at more than one institution and you may very well be diversified. That being said, if all the financial institutions you deal with invest your money in a similar way, you may not be diversified at all. Further, you may be diworsified. My personal opinion is that we should simplify our lives and have everything under one roof and make sure it is well diversified.

Socially Responsible is NOT necessarily Halal

The investment world is becoming more contentious. As a Muslim, a millennial, and a human being I am ecstatic that profit is not the be-all and end-all in the investment world anymore. I remember first getting started in this industry and a bunch of the old school advisors was ripping on socially responsible investing and how it would never beat out conventional investing. Haha, they were wrong.  Socially responsible investing (SRI) is in really high demand and performing well for the most part. That being said, Muslims need to be careful when approaching SRI investments. Although the goal of SRI funds is to be ethical and responsible, not all ethical funds classified in the west are necessarily halal. Further, the standards to determine if a fund is Socially responsible are much less rigid than to determine if something is Halal.

What makes an investment Socially Responsible?

The reality is this is kind of arbitrary. Most SRI funds use a grading system and if the good a company is doing outweighs the bad it would appear it is deemed socially responsible. In halal investing, this is not the case. If a company sells liquor even if they donate to orphanages you can not invest in that company. There is nothing to prevent an SRI fund from investing in interest-based investments. Most SRI funds look to issues of corporate governance, environmental impact, and how they treat workers to determine if they are in fact Socially responsible. All of this is good and better than not caring at all. However, impermissible companies like banks, gambling companies, and insurance companies can be found in some SRI funds. This would make many SRI impermissible for Muslims to invest in.

What makes an investment Halal?

For an investment to be halal it has to follow some specific rules. Firstly, it can not make money from interest. So a halal fund would avoid all fixed-income. Secondly, it can not have impermissible business activity. This means a halal investment can not profit off of things like Alcohol, Gambling, Tobacco, Drugs, Weapons, Interest and more. Halal investment funds would avoid these type of businesses. Finally, there are specific rules surrounding leverage and risk that a halal investment would avoid. All in all, a halal investment must meet these criteria to be halal. There is not a grading system to say the halal aspect of this company outweighs the haram.

What does this mean for you?

Nothing really. Do your best to invest in a halal way. Have Canadian Islamic Wealth or other halal companies invest on your behalf. Just keep in mind that just because it is Socially responsible does not mean it is halal. SRI would be a great option if you are forced to contribute to a company retirement plan and all the choices are haram but you have to make one. In that scenario, I would choose SRI if there are no other options. Otherwise, stick to Halal.

Islamic Wealth Talk
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3 Misconceptions About the Bank

Islamic Wealth Talk
Islamic Wealth Talk
3 Misconceptions About the Bank
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