Life Insurance 101: What You Need To Know
When it comes to protecting your assets and those who depend on you financially, insurance is an obvious, must-have product; of particular importance for anyone with dependents is life insurance. If you’ve never had a life insurance policy before, or aren’t sure if you need one, don’t fret! We know that navigating the world of insurance can be a bit intimidating for some, but it doesn’t really need to be. In that light, we invited Katie McCann from PolicyMe, Canada’s most affordable life insurance provider, to share her expert opinion on all things life insurance for Money Talks readers. Welcome to Life Insurance 101! We’ll let her take it away…
Nobody wants to plan for dying. But if you have anybody who relies on you financially, it’s important to think about it – and life insurance is a huge part of that consideration. But for first time buyers, it can be a daunting purchase. What do you need to know? And how do you get the best coverage for your dollar?
Consider this article your life insurance 101 crash course. We’ll answer all of your life insurance questions to help you make the best purchase you can. Let’s get started!
What is life insurance?
It makes sense to start at the top - what is life insurance? Life insurance is essentially a contract between you and a life insurance provider, where you pay a monthly fee and they will pay your family if something happens to you. The monthly fee you pay is called your “premium” and the payment your loved ones receive is called the “death benefit”.
If something happens to you, the policyholder, your loved ones receive this money tax free. It can be put towards any expenses that your income was going towards, like a mortgage payment or childcare. Life insurance is actually a huge part of your personal finance. Without it, you can leave your loved ones in a horrible financial spot.
When you start looking for a policy, there are a few things you will want to consider – who your beneficiaries are (the people who receive your death benefit), how much coverage you want, and for how long.
What is a beneficiary?
A beneficiary is the person who receives your death benefit. When you are going through applying for a policy, you have to choose who this would be.
Your beneficiaries can be anybody you decide, really. Ideally, you would want to make a beneficiary the people who rely on your income, as they would need the money if something were to happen to you.
Your beneficiaries can be your spouse or partner, children, or even parents if you’re supporting them! Take a look at who you find yourself supporting financially – that will give you a good indicator as to who your beneficiaries are.
What is a coverage amount?
The coverage amount is how large a death benefit you would want your beneficiary to receive. While the average recommendation is to get a death benefit that is around 5-10x your salary, it’s actually more complicated than that.
Consider if you were a stay-at-home-parent. You technically have no salary, so you wouldn’t need life insurance by that logic. But consider the cost of the labour you do! If something were to happen to you, your partner would need to potentially pay for childcare, support in getting the children around, or prepared meals.
That’s why it’s even more important to talk to a professional and get their advice. They’ve been in the industry long enough to know these things you may not think about.
What is the average term length for life insurance policies?
There are two main types of life insurance – term life insurance and permanent. Term life insurance lasts for a set length of time, whereas permanent is a forever solution.
For the most part, a term life insurance is the way to go. Term life insurance policies have cheaper premiums and you can pick a term length that lasts as long as you have people relying on your income.
When you’re choosing how long you need coverage, you want to decide how long people will rely on your income. If you have a five year old child, chances are they will need support until they can support themselves so you might want a 20 year policy. Plan your term length based on how long your dependents will be, well, dependent!
You want to outlive your term life policy – it means you were around for everything!
Who needs life insurance?
If you’re just getting your financial footing, you probably don’t need life insurance yet. Life insurance becomes more of a need when you have people who rely on you financially or as you acquire debts that people would be left with.
If you have somebody who relies on you financially, you’ll want to get a life insurance policy. Having a policy in place is extremely important when you have a partner, children, or aging parents who rely on you for financial support. The death benefit can be the difference between losing somebody they love and their home if finances pile up.
By this logic, there are groups that don’t need life insurance as well. This includes:
Anybody who is single and has no dependents (there’s nobody your death would financially impact)
Anybody with builds up enough savings to provide that financial safety net on their own
Children! They don’t have anybody relying on them financially, so a life insurance policy doesn’t make a ton of sense
How much does life insurance cost?
Since life insurance is such a personal product, the cost varies pretty greatly between policies. It’s important to get a personalized quote based on your distinctive needs. This guarantees you pay for what you actually need.
However, there are some key factors that contribute to the cost of life insurance.
Biological Sex: Being biologically male or female can have a decent impact on your monthly premium. Males are priced higher than females because life insurance companies are statistically more likely to pay out a policy for a male. Males pay a higher premium to account for the risks associated
Age: It’s recommended to get a life insurance policy in place as soon as you have dependents due to age being a huge factor in your price. The longer you wait age wise, the higher the price goes as your health risks increase with age.
Risk Level: Is your favourite part time hobby heli-skiing? Do your regularly go deep sea diving or have a ton of reckless driving tickets?
Health Problems: Ongoing health problems will naturally boost your life insurance price. This ranges from past (or current) cancer diagnoses, to diabetes, to being overweight. Depending on the health issue, you can work to improve it and reapply. If not, there are life insurance options that don’t require a nurse visit.
Smoking Status: Smoking status is a huge factor on life insurance prices, and they take it quite seriously. If you’ve even touched tobacco in the last year, you may see your rates increase due to being a “smoker”. If you don’t want to pay the higher rates, you can actually quit and reapply after you haven’t smoked for a set period of time.
If you want an idea of what your price would be, you can use PolicyMe’s life insurance calculator and get a quote!
How do you get life insurance in Canada?
If you’re trying to find the best life insurance in Canada for your needs, you’re not alone. It can feel overwhelming so many different companies and ways to purchase.
However, if you’re ready to start your search, there are three main ways to shop:
Directly with a company (think PolicyMe)
Through a local insurance agent who represents numerous companies
Through a third party online broker
How do you evaluate different insurance providers?
Once you receive some more information, you’ll need to decide on a provider – and there are a decent amount of providers out there, with new ones popping up every day.
So how do you narrow down your options? Here are three factors to consider.
Price: How much does the policy cost you each month? Since your coverage won’t change with providers (a 20 year policy with $500,000 is the same everywhere), you want to look for the most affordable option. This does not impact your product quality.
Time: How long does it take to get approved for a policy? Depending on the product, you can get an accelerated underwriting. But some products also take weeks. If you want to get coverage sooner, a long approval period may deter you. Keep your eyes peeled for companies that can give you a decision on your application right away to avoid waiting weeks just to get declined.
Process: This has become less of a factor given the coronavirus putting most industries online more, but some providers still may have more of their business offline. You want a company that has a strong online experience, so you can deal with your claims or applications online.
Using these factors will help you narrow down your decisions!
Final Thoughts on Life Insurance
When you start making more money moves, life insurance is definitely something you’ll have to consider. Take the time to evaluate your needs and look into quotes.
The extra effort is worth it in the long run! When it comes to your life and protecting the people you care about, you want to get the product that you feel best about, and with PolicyMe, you can feel good without breaking the bank!
Thank you so much to Katie for sharing this with us! We really appreciate you sharing your expert knowledge of life insurance with Money Talks readers. PolicyMe is 100% online, provides Canada’s most affordable life insurance, and filling out an application will only take you 15 minutes. If you’re interested in getting a free quotes for a life insurance policy to suit your needs, click here.
Check back to Money Talks every Monday for a new post featuring more tips and tricks on how to reach your saving goals, and subscribe to our mailing list for blog updates!
Have a suggestion for something you’d like us to write about? Shoot us a message at contactus@quber.ca and we’ll get to work.