Life insurance guide
In reality, not all Canadians need life insurance. However, if you have loved ones (usually a spouse, children, or elderly parents) who rely on you for financial support, or you have a large debt that could potentially affect your family in the event of death, you probably need it.
You may recognize yourself in one of the following five situations.
Yes! This is a great time to buy life insurance. Especially if you’re young, as insurance costs will be less expensive and affordable. In addition, your future children will depend on you financially, so you’d have to replace your income in the event of your death to sustain their living standards.
Example : Benjamin
- 32 years old
- Married for 7 ans
- Planning to have a child in the next two years
- Co-owner of a house with a $125,000 mortgage loan
- Owns a car with a $22,000 debt
- $50,000/year salary
Benjamin is a caring spouse, and he doesn’t want to leave his partner with over $147,000 in debt should he die; not to mention, the funeral costs that average at around $10,000. Based on that information, Benjamin could definitely benefit from a good insurance
If your family depends on you financially, or you have debts that your family will be left with in the event of your death, the answer is clear: yes! You need insurance.
Example : Emily
- 34 years old
- Mother of two children
- Co-owner of a house with a $200,000 mortgage loan
- Owns a car with no debt
- $75,000/year salary
Based on Emily’s family situation alone, she needs life insurance.
Young single adult
Not necessarily. If you don’t have any debts, and nobody relies on your salary, you don’t need life insurance right now.
However, if you have a dependent, for example an elderly relative, you might want to consider getting some life insurance.
Example : Jonathan
- 25 years old
- Renting an apartment
- Has a car on a 4-year lease contract
- $100,000/year salary
At this point in time, Jonathan doesn’t necessarily need insurance. Obviously, if Jonathan buys a house or has children, his needs will change. Moreover, since insurance costs increase with age and according to health conditions, it would be in his best interest to buy insurance as soon as possible.
Couple without children
It all depends on your ability to maintain your living standards without your spouse’s financial contribution. If you have no difficulty covering the debts you’ve accumulated as a couple with your income alone, you don’t necessarily need insurance. However, if that isn’t the case and your partner would struggle without your income, it might be a good idea to look into insurance.
Example : Max and Charlie
- 30 and 35 years old
- Together for 3 years
- Not planning on having any children
- Co-owners of a town house with a $175,000 mortgage loan
- $35,000/year salary for Max and $60,000/year salary for Charlie
Charlie could probably pay the mortgage if Max died, but he would have a hard time making ends meet in the event of Charlie's death. Max could buy insurance on Charlie's behalf, to make sure he’s covered in the event of his death.
Individual with group insurance
If your job offers life insurance as a part of its group insurance policy, you should still consider purchasing your own insurance. You should never rely on the life insurance offered by your work, because if you happen to lose your job, or decide to change jobs, you will also lose your insurance.
It’s best to buy a small insurance to make sure you’re still protected should your employment situation ever change.
Example : Stephanie
- 28 years old
- Owns a condo with a $130,000 mortgage loan
- Owns a car with a $7000 debt
- $45,000/year salary
- Has $90,000 in life insurance coverage through her workplace’s group insurance policy
One might be tempted to think that since Stephanie already has life insurance coverage through her workplace plan, she doesn’t need additional life insurance coverage. However, two things must be taken into account: first, her group insurance doesn’t cover all of her debts which add up to $137,000 and, secondly, her group life insurance will most likely be lost should she ever change jobs. This means Stephanie could be left in a very precarious financial situation. She would probably benefit from having personal life insurance.
Don’t take forever to decide on life insurance
Think you’ve got a lifetime ahead of yourself? Or, that you only have to buy insurance when you purchase a home or have children? All that procrastination won’t pay off. Instead, you’ll be paying for it! Take a look at the chart below and see for yourself the staggering monthly price difference between life insurance purchased at age 20 versus the same life insurance purchased at age 45. Remember that when you buy insurance, you agree to a set price that won’t change during your predetermined coverage period. However, should you ever break your contract and change insurers, the chances are that your insurance policy pricing might increase.
As you can see, a $300,000 insurance over 20 years costs just over $20 a month if it’s purchased at age 20, but the same plan will cost over $30 a month if it’s purchased at age 35, and it will cost over $60 if purchased at age 45.