Insurance is a funny thing. It’s all about your financial responsibility and how much money you’d need to stay in good shape if something goes wrong.
So how much insurance do you actually need? And what kind? How much is too much?
That’s the million-dollar question (or two million, depending on your coverage).
Life insurance comes in a few different flavours, being “term" and “permanent." One of them covers you for a set period of time, rain or shine. The other type covers your life indefinitely.
Term life insurance is straightforward: if you want coverage for 30 years, then you’ll pay a premium for 30 years and hopefully never need it.
Permanent life insurance stays with you for your whole life, including:
- Whole life insurance
- Universal life insurance
- Term-100 insurance (which pays out at 100 even if you live that long)
Permanent life insurance sounds great at first, since none of us know how long we’ll stick around. But there’s a hidden rub: you don’t need a ton of insurance coverage later in life!
Ask any financial advisor and they’ll tell you about the cycle of financial responsibility, and you can use this to see where you really do (and don’t) need life insurance:
- 20s and early 30s: where many people build careers with low costs of living.
- Mid-30s to mid-50s: people tend to buy homes, have children, and save up tuition funds.
- Mid-50s onward: where most people experience high salaries, but children move out and mortgages are paid off.
Most people only need life insurance coverage for that middle phase of life when their financial responsibilities are high. You don’t want to leave a partner or a child holding the bag for a mortgage, ever-increasing college costs, or even just the responsibility of paying for an entire family’s cost of living.
The verdict: getting term insurance for 20-35 years in the middle of your life protects the people in your life.
Car insurance doesn’t need to be as complicated as people find it, but you do need it if you drive a vehicle in Canada.
You need the bare minimum amount of auto insurance for liability coverage in the event that you’re sued for an accident. The legal minimum is $200,000 in coverage, but most insurers use $1,000,000 in coverage as the default amount—the reason being that medical costs can easily exceed the bare minimum.
So it’s safe to say that you’ll need at least some auto coverage unless you can rely exclusively on friends and public transportation. Consider these types of auto coverage for specific situations as well:
- Collision coverage: if you want the cost of car repairs or a replacement covered, then this is for you.
- Comprehensive coverage: If your car is brand-new or you live in an area where it could be heavily damaged by non-traffic factors, then this helps (think extreme winds, falling branches, and hail damage).
Extra insurance is great if you take your car seriously and want to look after it. On the other hand, you wouldn’t want to buy unnecessary coverage for a beater that you’re just trying to stretch out for every last bit of mileage (no pun intended).
Home insurance isn’t legally required in the same way that car insurance is in Canada, but you’ll still probably need to get it. If you need to take out a mortgage to purchase a property (as 99% of property owners do), then you’ll almost certainly need home insurance.
You might not want to spend money on it, but it might not be entirely up to you. How is that possible when you’ve purchased a home? Most Canadians need banks to foot the bill for their homes, then pay off that loan with a mortgage for years afterward. They give you that loan on the understanding that the house itself is collateral for the loan, so they can repossess it and sell it to recoup their money if you don’t pay the loan.
But banks can’t sell off a home that’s damaged or destroyed.
That means they’ll require proof of home insurance before they sign off on your mortgage. They need to protect their own financial interests in case an owner defaults on a mortgage.
Tenants don’t need to insure properties where they live, technically. That responsibility ultimately lies with the property owner – but that comes with a catch.
Landlords can still demand a proof of tenant insurance before letting you live in a property. Many do, in fact. While most tenant policies cover “contents" (your stuff), it can also cover modest amounts of damage to a home. It’s also a show of good faith to take on the responsibility of maintaining the property while you live there.
You may also want to consider coverage for alternative living arrangements, though it’s not for everyone. If you have a pet or a child, then it could be helpful to find a short-term residence if an apartment fire, a gas leak, or an overland flooding event make your living space uninhabitable for a while.
Most of us need insurance in our lives. The trick is to get the insurance you need without paying for coverage that you don’t. A penny saved is a penny earned!
This is a guest post from our friends at aha Insurance, an online platform that helps Canadians get the best price on home and auto insurance.