How to Buy Life Insurance: Your 101 Guide

Learn how to buy the best life insurance policy for you; one that fits your budget and secures your family's future. So when you’re ready to buy life insurance, you’ll know exactly what to do.

Key Takeaways

When getting life insurance, it's important to match it up to your finances, future plans, and family health history.
Tools like the DIME method or a life insurance calculator can help you figure out how much coverage you need.
Buying life insurance early saves money, especially during big life changes like marriage or starting a family.
Deciding between term life insurance and permanent life insurance comes down to what you need: get a term policy for affordable coverage for a set time or permanent for lifelong coverage.

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Understanding Your Life Insurance Needs

Life insurance is personal—it's about what you need, not a one-size-fits-all deal. Your financial responsibilities, future plans, and family health all play a role. It's there to support your loved ones, cover expenses like funeral costs, mortgage payments, and debts.

Your personal savings, amount of debt, steady income, and family obligations collectively inform how much insurance is appropriate or necessary.

How to Evaluate Your Financial Obligations

Start by adding up your debts and expenses, like mortgages, car loans, and credit cards. Then, balance that with your income, savings, and family needs. This includes:

Your mortgage
Car loans
Student loans
Credit card debt
Any other financial commitments you might have

It’s crucial to balance these financial obligations and asset values against your current budget when buying a well-suited life insurance policy.

Consider Your Future Expenses

While it’s important to consider your current financial obligations, you should also look at potential future costs. Some factors include:

College tuition for your children
Future childcare expenses, especially if you plan on expanding your family
The adequacy of your life insurance coverage as your family grows and the financial needs of your children evolve over time

Taking these future expenses into account will help you secure a life insurance policy that provides the right amount of coverage for your loved ones.

Look at Your Family Health History

Health conditions can make getting or affording insurance tougher because insurers see it as risky. Things like age, health, lifestyle, and the insurance company's policies all play a role in cost. If your family has a history of health issues, it could affect your coverage.

Choosing an insurer familiar with handling health conditions might mean better rates for you. When taking this into account, consider things like:

Age
Health status
Lifestyle choices
The insurance company
The desired coverage amount (death benefit)

If your family has a history of certain medical conditions, it could influence the cost and availability of your life insurance policy.

The Right Time to Buy Life Insurance

You've figured out your life insurance needs, so when's the best time to buy? Typically, after buying a home or starting a family is ideal. A mortgage and raising kids bring big financial responsibilities, and life insurance can ease that burden if anything happens to you.

Getting a policy about a year before you really need it can save you money on premiums and prevent rushed decisions. Planning ahead means you won't put off protecting your loved ones until it's too late.

Starting at a Younger Age

Beginning your life insurance journey while you're young is a savvy financial step. Applicants at a younger age usually lock in lower premiums, making coverage more affordable long-term. This is because the older you are, the higher risk you are to the insurance company.

Plus, you can adjust your coverage as life changes—perfect for future plans like marriage or starting a family.

Life's Turning Points

Life doesn’t always go according to plan, and major life transitions can often be the catalyst for individuals to consider the need for life insurance. Common life events that trigger the need for life insurance include:

getting married
starting a family
buying a home
starting a new business

Life's twists often prompt us to think about life insurance. Whether it's tying the knot, expanding your family, buying a home, or launching a business, these milestones signal it's time to review and update your policy. Ensuring your coverage matches your current needs and future goals is key.

Career Changes & Income Growth

As your career flourishes and income rises, so do your financial obligations. Typically happening in your 30s and 40s, career strides often mean it's time to consider life insurance. For business owners, it's crucial to cover business expenses or enable partners to buy out shares in case of death.

Getting life insurance during these pivotal moments safeguards your family or business from financial uncertainty if the unexpected happens.

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Choosing Between Term & Permanent Life Insurance

After figuring out your life insurance needs and the right time to buy, you've got to pick between term and permanent life insurance. Here's the lowdown:

Term Life Insurance: Affordable and Time-Bound

Term life insurance is budget-friendly and easy to understand. It covers you for a set coverage period, like 10, 20, or 30 years, with fixed premiums. A term life policy is usually well-suited for someone that needs coverage for a specific timeframe, for example, while the kids are still young and you're paying off the mortgage.

Most term life insurance policies have the option to switch to a permanent policy later if you want, this is called policy conversion.

Permanent Life Insurance: Lifelong Coverage

Permanent life insurance lasts your whole life. Some permanent policies offer investment options and can accumulate cash value; like whole life insurance. You can use this cash or take out loans against it, though it may affect your death benefit. While it's a longer (and pricier!) commitment, the coverage and cash value can work in your favour.

A word of caution, though: the investment potential of most whole life insurance policies isn't as profitable as maxing out your TFSA and RRSP.

Budgeting for Life Insurance Premium Cost

Now that you've picked your life insurance type, it's time to budget for those paying premiums. Here's how to make it work:

1. Fit It into Your Budget

Incorporating life insurance into your budget is essential to avoid future financial stress on your family. Adjusting coverage to match your needs can help keep premiums manageable (i.e. reducing the coverage amount or term life insurance length).

2. Evaluate Affordability

If cash is tight, review your essential expenses to see if you can swing life insurance premiums within your personal finance criteria. Planning for this expense ensures continuous protection for your loved ones.

3. Payment Options

Life policies offer various payment frequencies—annual, semi-annual, quarterly, or monthly. Choosing the right frequency is key. While more frequent payments may seem cheaper individually, they can add up. Annual payments often reduce the overall cost. But make sure to check in with the insurance company to see if it's possible first.

Preparing to Buy Life Insurance

While getting ready to purchase life insurance, it's crucial to research life insurance companies and understand the application process. While life insurance is a legitimate financial tool, make sure to look at the insurance company's reputation and customer reviews.

Finding the Right Life Insurance Company

Before you commit, research life insurance companies to find a policy that fits your needs and budget. Shop around, compare policies, and check customer service reviews. Look into their policy options and financial strength ratings from agencies like AM Best and the Better Business Bureau (BBB).

Doing your homework ensures you choose a trustworthy company with the coverage you need at a price you can afford.

The Best Places to Buy Life Insurance

Once you’ve done your research and decided on the type of life insurance policy that suits your needs, the next step is to apply for coverage, finalize your coverage amount, and designate beneficiaries.

The application process can vary among life insurance companies, but it typically involves providing personal information, undergoing a medical exam, and providing personal and family health histories.

The Application Process

Applying for life insurance involves sharing personal details and possibly a phone interview. Expect a medical exam and questions about your health history. If you prefer, there are no-exam options, but they come with higher costs and lower coverage.

Once you've applied and completed the medical check, the insurer assesses your eligibility. You might need to provide more info, like an attending physician statement. Disclose existing policies to prevent over-insuring.

Finalizing Coverage & Setting Beneficiaries

After approval, work with your agent to tweak the policy. You'll have a "free look" period to reconsider. The process timeline varies, from a week for straightforward cases to longer for complex ones.

You may get temporary coverage during the process, depending on your health answers. Once approved, discuss any premium concerns with your agent.

Managing Your Life Insurance Policy

Purchasing a life insurance policy is just the beginning. Regular review and necessary adjustments are essential for effective policy management. This ensures that your coverage reflects changes in your career, family dynamics, and financial responsibilities.

Additionally, if you’re living with a spouse or roommate, they can be added to the life insurance policy by informing the insurance company. Also, a child may take over the life insurance policy at age 21 with a company like Gerber Life.

Keeping Your Policy Up-to-Date

Regularly reviewing your life insurance coverage is essential to keep it in line with your changing life. Aim for a check-up every two to three years. But if big changes happen, like having kids, buying a house or starting a business, it's smart to review and adjust more often.

Investing in Life Insurance: A Good Money Move?

While life insurance is crucial for financial security, it's not always the best investment tool. Typically, it's wise to opt for term life insurance and invest any extra cash elsewhere. Term life provides essential coverage without the added investment element, ensuring your loved ones are protected financially.

But that's not a black-and-white rule. Some people are indeed a good fit with a life insurance policy's investment options. Certain insurance types, like whole life insurance, offer a cash value component, which can grow over time. But remember, it's not the most efficient way to grow your money compared to other investment options.

If you haven't maxed your traditional investment vehicles like your TFSA and RRSPs, start there first!

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Secure Your Future: Buy Life Insurance Today

The best time to buy life insurance is now! Don’t wait until it’s too late to secure your family’s financial future. Life insurance safeguards your family by providing them with a non-taxable amount upon your demise, ensuring they are not burdened by your debts or financial obligations. It remains effective even after retirement, offering continuity of coverage beyond the workplace.

Don't wait until it's too late to secure coverage. Whether you're single, a parent, or a business owner, life insurance provides peace of mind and relief from financial burdens. So why delay? Take action today and protect your future with life insurance!

Should You Buy Life Insurance for Your Child?

While it may seem unusual, there are some benefits to securing life insurance for your kids:

Ensures future insurability, protecting against health issues or risky activities down the road.
Locks in low premium rates at a young age that won't increase over time.
Some policies can build cash value for future needs.

But life insurance's cash value growth may be slower compared to other investments like college savings plans.

Can You Buy Life Insurance for Your Parents?

You may wonder about getting life insurance for your parents to support their future needs. In Canada, you can buy life insurance for your parents if you can prove a financial loss would occur upon their passing. Purchasing life insurance on your parents can cover expenses such as:

Funerals
Taxes on inheritances
Joint debts
Financial support if they contribute to your income

Both term and whole life insurance options are available, with term policies being cheaper and whole life providing lifelong coverage. Keep in mind, your parents must consent, sign the application, and possibly undergo a medical exam. The process involves choosing the policy, determining the coverage, and completing the application.

Summary: buying life insurance

Determine your life insurance coverage needs and choose between term policies and permanent life insurance policies.
Regularly review your life insurance policy to ensure it meets your evolving needs.
The timing is crucial in buying life insurance; don't wait until it's too late and lock in your rate while you're at a young age.
Before buying life insurance, research your options thoroughly whether it's for yourself, your child, or your parents.

FAQs: More on how to purchase life insurance

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What are the reasons to buy life insurance?

Life insurance is your safety net, ensuring your loved ones are financially protected when you're no longer around. It covers funeral expenses, outstanding debts, and can replace your income to maintain your family's standard of living. Moreover, life insurance can provide peace of mind, knowing that your family won't face financial hardship during an already difficult time.

In Canada, where the cost of living can be high and unexpected events can happen, having life insurance is a smart move to safeguard your family's future. This is especially true in the face of a difficult situation, like the loss of a loved one.

Is it a good idea to invest in life insurance?

Yes, investing in life insurance can be a good idea for protecting your family from financial losses and providing long-term financial stability. But it's important to carefully consider your options, such as choosing between term policies and permanent life insurance policies. Also, make sure to take a close look at your specific financial situation to get life insurance that suits your needs at the best rate.

What factors should I consider when determining my life insurance needs?

When determining your life insurance needs, consider your financial obligations, future expenses, and family health history. This includes debts, expected costs such as children's college tuition, and any hereditary health conditions. These factors will help you assess the appropriate coverage for your situation.

Who can buy life insurance on someone else?

In Canada, anyone with a financial interest in someone's well-being can buy life insurance on that person, provided they have their consent. This includes spouses, parents, children, and business partners.

Buying life insurance on someone else, also known as third-party ownership, is common for family members who want to protect their loved ones financially. But it's essential to have open communication and ensure everyone involved understands the policy's terms and purpose.

Can you buy life insurance for anyone?

You can typically purchase life insurance for immediate family members, like spouses, children, parents, and business partners. But it must be bought with their explicit consent. You also need to demonstrate an insurable interest, meaning you would suffer financially if the insured person were to pass away.

This ensures that life insurance is purchased for legitimate purposes and not for speculative gains. While it's common for family members to buy life insurance for each other, it's crucial to have open and honest conversations about the policy's terms and the reasons behind purchasing it.

When considering buying life insurance for someone else, it's essential to understand their needs and preferences to ensure the policy aligns with their financial goals. Whether it's providing financial security for your family or protecting your business interests, life insurance should always be purchased with the insured person's best interests in mind.

Can you buy life insurance for someone who is dying?

Buying life insurance for someone who is already terminally ill may be challenging. Most insurance companies require applicants to undergo a medical examination and provide accurate health information. If the insured individual's health condition is known to be terminal, it's unlikely that they would qualify for a traditional life insurance policy. But there are specialized products like guaranteed acceptance or simplified issue life insurance that may provide coverage without needing a medical exam (this insurance is can also be referred to as funeral expense insurance or burial expense insurance).

These policies typically have higher premiums and lower coverage amounts, but they can offer peace of mind by providing financial assistance for end-of-life expenses.

It's essential to explore all available options and consult with an experienced insurance advisor when considering the financial situation of someone that's terminally ill. They can help navigate the complexities of insurance products and find the best solution based on the individual's circumstances. Additionally, having open and honest conversations with the insured person and their family can ensure that everyone is on the same page and that the chosen policy meets their needs during a difficult time.

Do you need life insurance to buy a house in Canada?

While life insurance isn't a mandatory requirement to buy a house in Canada, it's a smart move to consider. Purchasing a home often comes with significant financial commitments, such as a mortgage, that could burden your loved ones in case of your untimely passing. Life insurance can step in to cover these expenses, ensuring that your family can keep their home without added financial strain.

Having life insurance in place when buying a house provides peace of mind, knowing that your loved ones won't face the risk of losing their home if something unexpected were to happen to you. It's a proactive way to protect your family's financial future while securing the roof over their heads. So, while it may not be a legal requirement, it's a wise decision to consider life insurance when purchasing a house in Canada.

At what age should you get life insurance?

The ideal age to get life insurance is when you have dependents or financial obligations that would be at risk if something were to happen to you. For many Canadians, this often happens in their late 20s or early 30s when they start a family or take on a mortgage. However, there's no one-size-fits-all answer. Your decision should be based on your individual circumstances, like your health, financial situation, and future plans.

In general, getting life insurance when you're younger and healthier can result in lower premiums, meaning you pay less for a higher death benefit. But even if you're older, it's never too late to consider life insurance! The key is to assess your needs and take action to protect your loved ones' financial future. So, whether you're just starting out or well into your career, it's worth exploring life insurance options to ensure peace of mind for you and your family.

Do you need to buy life insurance for your children?

Life insurance for children isn't a necessity for everyone, but if you can cover the policy cost, it can offer some benefits worth considering. One key advantage is securing insurability for the child's future, regardless of any health issues that may arise later in life when they're no longer at a young age. And policies taken out on children often come with a low rate that stay fixed over time, providing long-term financial protection.

That said, your child may not need to get life insurance. While it can be good for securing low rates in the future, it's understandable that many new parents can't justify the cost. On top of this, the child may be covered by your life insurance if you have an additional child rider.

Whether to purchase life insurance for your children depends on your unique financial situation and goals. While it may not be a priority for everyone, it's worth exploring as part of your overall financial planning strategy. Consulting with a financial advisor can help you determine if life insurance for children aligns with your family's needs and future plans.