Why is Life Insurance Necessary?
Tim Doubroff EPC RHU
For Canadians, purchasing life insurance can be a touchy subject. Many people ask why life insurance is necessary when they have group coverage already through their company or other source. At first glance, it can seem an unnecessary additional expense for someone in this situation. However, there is no such thing as too much protection.
If a company goes under or if benefits cut back, people might find themselves without adequate coverage, and whether it is to cover short-term or long term needs, everyone should look at coverage. When asked, Tim Doubroff, a licensed life insurance broker with FS Financial Strategies (who partners with LSM Insurance), stated that the most common reason people give him for wanting to purchase life insurance is “in case something happens.”
For many people who purchase life insurance, while they do not want to think about the possibility of their passing, they do want to ensure that those they leave behind aren’t left in a lurch.
One of the many reasons why life insurance is necessary is its ability to help you prepare for the future. According to Tim, you could use it as a form of “income protection, or for a business, it could be used to facilitate a buy-sell arrangement between business partners or for estate planning purposes.”
For example, if a person had no children or relatives and wished to leave something, they could arrange in their will for the money from the insurance to be given to charities or set up scholarship funds. In cases like this, life insurance becomes a way to leave a legacy behind.
When looking at getting coverage, the first thing to know is what kind of coverage you will need — short-term or long-term? Using the example of a mortgage, Tim explained it this way. if a person only needed the coverage to pay off their mortgage, which is for the span of 15 years, then a term 15 policy would be their best bet. However, if a person were looking for something to pass on (say, to their grandkids) then in that case, it would be better to opt for either permanent life insurance or a mix of both.
But what about the cost? While you can see why life insurance is necessary, affordability is a big factor in determining which type of policy to get. There are two main types of life insurance policies: term insurance and permanent insurance. Term life insurance is just that — life insurance coverage for a set period. You can purchase it in year increments such as 10, 15, or 20 years — the longer the term, the higher the per-monthly premium.
Permanent insurance is coverage that extends for the life of the insured person. The three main types of permanent are whole life, term 100 (which is a policy that expires when the person turns 100), and universal life insurance, each one with its own unique features. When asked what the difference between these three are, Tim explained it like this.
- Both universal and whole life plans build up cash values within them that policy holders can use, take out a policy loan against, or cancel have those values returned. You can find more
information on this here .
- Term 100 doesn’t build up cash values within the policy. If a person cancels the policy, the most they can expect returned are premiums paid and perhaps some interest.
Term insurance, because it is for a shorter period, can often be cheaper in the short run. However, after the policy expires, the person wanting coverage will find their rates have increased — often drastically — when it comes time to renew, and there are no cash values in the policy. Permanent insurance, on the flip side, is more expensive per month. However, the rates will not change as a person ages.
As we age, the reasons why life insurance is necessary increase — but so to do premiums. The reason why premiums are generally higher the older the insured gets is because the risks associated with them get higher too. That’s why many insurers recommend that people purchase policies as early in life as possible, or for their children. The younger a person is, the lower their premium. But for those who are not young or in good health, there are other factors or options to look into.
- Preferred rates: When asked about these rates, Tim explained that they are determined by the underwriters and what they do is give someone a better-than-average rate on life insurance. They include things like your height and weight falling within certain parameters, having no family history of certain illnesses, or low blood pressure. For example, if a 45-year-old man who has never smoked, and who's in good health with no prior health issues, wanted to get a quote on a $500,000 life insurance policy, according to Tim’s calculations, in this scenario, this man would be looking at $89.55 per month for a Term 20 plan, $509.85 per month for a Term 100 plan, and $565.65 per month for permanent coverage through Desjardins Insurance.
- Non-medical or guaranteed-issue policies. If someone is in poor health or has been turned down in the past, these types of policies can be an alternative. According to Tim, they are often only for lower amounts of coverage (perhaps $150,000 to $200,000) and may have time restrictions on them, but they may be able to provide much-needed coverage.
Many Canadians ask, “Why is life insurance necessary?” Often with many other bills to pay and responsibilities to look after, it can get pushed to the wayside. It can be easy to rely on coverage provided though an employer, but if something happens, it is always best to be prepared. Whether it’s for the short term or long term, or permanent, everyone should look into getting coverage.
For more details on why is life insurance necessary, please contact us at 1-866-899-4849, or visit this page .
Tim Doubroff has dedicated the last 13 years to helping people understand how life, health, and disability insurance can protect their future. His compassion and his ability to help his clients prepare for tough situations are the cornerstones of his success.
Posted by Chantal Marr.
Chantal Marr is a member of the Independent Financial Brokers of Canada.
Much of her success stems from her ability to listen to her clients' needs.