Top 10 Life Insurance Myths

More than half of Canada’s population, around 57%, has some type of life insurance policy according to a new study conducted by LIMRA. 

However, there are still many misconceptions and myths surrounding life insurance, making it one of the most misunderstood financial products in Canada.

Today, we seek to understand the truth behind these myths so you can make more informed decisions to better protect your loved ones.

Top 10 Life Insurance Myths – Debunked

Here are ten of the most common myths about life insurance

1: “Life Insurance is Too Expensive”

One of the most common misconceptions is that life insurance is just too expensive. Many Canadians are guilty of overestimating the cost of life insurance, sometimes by as much as three times the actual cost. 

The reality is that policies such as term life insurance, which provides coverage for a specific period, are quite affordable and accessible to everyone. 

In fact, young and healthy Canadians can secure significant life insurance coverage for less than the cost of a daily cup of coffee.

2: “I Don’t Need Life Insurance if I’m Young and Healthy”

While it’s true that young and healthy individuals are less likely to pass away prematurely, life is unpredictable. 

Securing life insurance while young locks in lower premiums and ensures that loved ones are financially protected from an unexpected tragedy. 

Permanent life insurance can also provide significant financial advantages early on. Besides lower premiums, policyholders can enjoy much higher long-term returns thanks to the policy’s cash value component.

3: “Stay-at-Home Parents Don’t Need Life Insurance”

Yes, they do! Stay-at-home parents may not earn an income, but their contributions to the household are invaluable. 

If something happens to them, the cost of replacing their services such as childcare, cooking, and household management can be significant. 

While life insurance can not replace the emotional loss of losing a partner, it can help provide the finances needed to hire professionals to manage the household and maintain a family’s standard of living.

4: “Employer-Provided Life Insurance is Enough”

This is a common and popular myth amongst the working population in Canada. Many employees feel that as long as they have employer life insurance they don’t have anything to worry about. 

However, that isn’t true. 

Employer-provided coverage is typically limited, often amounting to one or two times the employee’s annual salary. 

This amount is rarely enough to cover the financial needs of dependents, such as paying off a mortgage, funding a child’s education, and replacing lost income over the long term. 

The coverage also often ends when employment does and can be restrictive, preventing you from getting the coverage you want. 

As such, having a combination of individual and employer life insurance is the best way to safeguard your loved one’s financial future.

5: “You Don’t Need Life Insurance if You Have Savings”

Let’s get this straight. No matter how much you save up you still need life insurance. 

Life insurance can provide coverage for more than just death. By adding insurance riders such as disability, critical illness, accidental death, income benefit, and more you and your loved ones can stay financially protected from all types of unexpected tragedies. 

Having loved ones rely on your savings can be extremely risky as major life events can quickly drain your savings account leaving little behind for your family to sustain their current lifestyle and future needs. 

6: “Life Insurance Payouts are Taxed”

In Canada, life insurance payouts or death benefits are tax-free regardless of the coverage amount. 

Beneficiaries receive the full coverage amount to cover funeral expenses, debts, and any other financial needs and don’t need to disclose that income when filing their annual tax returns.

The only time life insurance payouts are taxed is in the case of permanent life insurance. This type of policy usually has a cash value component which grows over time. Any gains made are subject to tax just like any other capital gain. However, the death benefit of a permanent life insurance policy remains tax-free.

7: “I Can’t Get Life Insurance with Pre-Existing Conditions”

This is still a common misconception amongst many Canadians. While pre-existing conditions can affect premiums, people with health issues can still get life insurance. 

Many insurance companies offer policies tailored to individuals with pre-existing health conditions and all it takes to find coverage is a bit of shopping around and having to pay potentially higher premiums.

8: “Life Insurance is Only for Funeral Costs”

The death benefit paid out on a life insurance policy covers more than just funeral expenses. 

The coverage amount should be sufficient to pay off outstanding debts, cover living expenses, fund a child’s education, and even contribute to retirement savings for the surviving spouse. 

Thus, it is recommended to always consult with a reputed insurance broker to analyze the exact coverage amount you need to provide your loved ones with comprehensive financial security.

9: “Life Insurance is a Set-It-and-Forget-It Purchase”

This myth is again, a very common misconception that individuals have. 

While it is true that life insurance doesn’t require constant changes or updates, a policy must be reviewed periodically.

Major life events, such as marriage, the birth of a child, buying a home, etc. can alter your coverage requirements. Any changes in your financial situation or health can also necessitate adjustments to your policy.

10: “I Don’t Need Life Insurance Because I Have No Dependents”

It is fair for younger Canadians to think this way. After all, why add another expense when you are barely living paycheck to paycheck and have no dependents? 

While this may seem like a sound argument, life insurance is a valuable tool and you should consider opting for a policy as soon as you have a steady income. 

Even if you have no dependents, having a policy can help cover your debts, such as a mortgage or student loans, ensuring that your family isn’t burdened with these obligations. 

You can also use your policy to leave behind a legacy, such as donating to a favourite charity or providing for a relative’s future needs.

Get Insured Today, To Live a Fearless Tomorrow.

Secure your family’s financial future with Nova Scotia’s most trusted insurance broker – McIver Insurance Inc. 

To book a meeting call 1-902-220-3279 or email [email protected]

Frequently Asked Questions (FAQs)

Q) Is life insurance only necessary for people with children?

No, it is crucial for anyone with financial dependents or significant debts.

Q) Can I get life insurance if I have a pre-existing condition?

Yes, although it may affect your premiums and coverage options.

Q) Is it true that term life insurance is always the better option?

Not necessarily; the choice depends on your financial goals and current situation.