What life insurance coverage is most appropriate at various life milestones?
After the Covid-19 pandemic, the popularity of life insurance has only grown in Canada, and for good reasons. Today, more than half of the Canadian population has some form of life insurance according to a report by PolicyMe.
There is no denying that life insurance is the most effective financial tool for Canadian families looking to safeguard their loved one’s future from a financial standpoint. It can help cover funeral expenses, pay off outstanding financial obligations, assist in wealth transfer, and much more!
However, not all life insurance is the same. In fact, depending on what stage of life you are in your coverage needs may be very different. As such, in this article, we will cover the different types of life insurance and what coverage you should be looking for at various life milestones.
So, let’s get to it!
Types of Life Insurance Options in Canada
There are two types of life insurance options in Canada; Permanent Life Insurance and Term Life Insurance.
Permanent Life Insurance
Permanent life insurance, also referred to as, whole or universal life insurance, offers lifetime coverage and the added benefit of building up “cash value”. This form of life insurance is most suited for high-net-worth individuals who have long-term financial planning goals. It is also suitable for assisting with wealth transfer and estate planning.
Term Life Insurance
Term life insurance offers coverage for a specific period usually for 10-30 years and is the more popular and affordable option. As most Canadians have life insurance covered by employers, they likely have a term life insurance policy as part of their group benefits plan.
Term life insurance is predominantly used for covering specific financial obligations, such as your mortgage, outstanding debts, children’s education expenses, funeral expenses, etc. This type of policy also allows for more flexibility, allowing policyholders to choose term length and a coverage amount that best fits their financial needs. This makes it a more suited choice for the average Canadian family.
What Coverage is most Appropriate at various Life Milestones?
With only two types of life insurance policies, you may think that choosing the right policy should be easy. However, that isn’t the case.
Many Canadians feel that they are either overpaying for their policy or aren’t getting the coverage they need to fully protect their family. And, there are many reasons why these feelings are warranted.
You see, your life insurance needs to change depending on life milestones. Major life events, such as marriage, having a child, buying a house, and even retiring can all influence the type and amount of life insurance you need.
When considering a life insurance policy you need to first understand what your current and future financial obligations are and what coverage amount would be needed to adequately protect your loved ones in the event of your death.
How to Determine Coverage Amount?
When determining coverage amount you need to factor in your current income, debts, and future expenses. A higher coverage amount or death benefit payout would mean higher premiums, so, ideally, you want to get that perfect balance to ensure your family is adequately protected without overpaying.
There are many formulas to help you figure out coverage amount from multiplying your income by 10 to the DIME method. However, these methods or formulas don’t offer a full picture, so, the best way to determine coverage amount is by speaking to a professional and trusted life insurance broker.
Coverage Amount Needed at Various Life Milestones
Your coverage amount can also vary depending on what life milestone you are at. If you are a young adult or a millennial, for example, you would consider a term life insurance policy to cover specific financial needs such as student debt repayment and income replacement.
In this case, 10x of your income is a sufficient coverage amount as you likely have no dependents, large assets, or liabilities such as mortgages or loans. The premiums for such a policy would also be very affordable.
On the other hand, if you are the sole earner for a family of four, the coverage amount or life insurance policy to consider may be very different. Now, apart from debt repayment and income replacement you also need to factor in future educational expenses for your children, mortgage payments, retirement, and more.
Luckily, insurance policies aren’t set in stone. Term life insurance policies, in particular, offer a ton of flexibility that allows you to integrate life insurance into a broader financial plan. As your financial goals and life circumstances change, your policy can also be updated to match those changes.
That is why it is essential to review your insurance policy annually with a trusted insurance advisor to ensure you have the coverage you need and aren’t overpaying.
An experienced advisor can not only help you personalize your policy based on individual or family circumstances but also guide you on cost comparisons, strategies, and policy features that would be most beneficial to you.
McIver Insurance – Nova Scotia’s Most Trusted Insurance Broker
At McIver Insurance we specialize in health insurance, life insurance, and group benefit plans that are personalized to match the needs of individuals and businesses. Get in touch with us by calling us at 1-902-220-3279 or email us at [email protected]
FAQs
Q) How do I determine how much life insurance I need?
You can use numerous methods to calculate how much life insurance you need. However, the best way to determine life insurance coverage is by speaking to financial advisors or using proprietary online calculators.
Q) Can I change my coverage as my life changes?
Yes! Most life insurance plans offer plenty of flexibility to not just adjust coverage amount but also to convert from term to permanent life insurance coverage if needed.
Q) Is life insurance through my employer enough?
Employer-provided life insurance is often inadequate, especially if you have dependents. It is best to assess your coverage with a financial advisor and consider additional insurance if needed.
Q) How do you choose the right life insurance provider in Canada?
The best way to choose the best life insurance provider or company is to go through a brokerage firm. You can also do your own research by looking for providers that display strong financial stability, have a lasting reputation, and have plenty of positive customer reviews. You can then compare quotes from each one to see what policy best matches your needs and budget.
