You might not want to think about buying life insurance today.
That's fair. If you're in your 20s, 30s, and 40s, there's a lot more exciting firsts to be considering. You're getting settled into your career, meeting somebody you love ad tying the knot, or trying to get a grip on parenting (no doubt, you're doing great).
And because of all of this exciting stuff, , life insurance may seem like some distant point in your future when you eventually pass away. And when you're looking forward to decades of making memories with your loved ones, who wants to think about death anyway?
If anything, all of these amazing memories with those loved ones is the exact reason you should be looking at getting life insurance today.
But the reality is that although most people don't die at a young age, some do. And if the unthinkable happens, it's important to make sure that your loved ones are protected financially.
Here's why buying life insurance today protects your loved ones tomorrow.
What is Life Insurance?
Before we dive deep into how life insurance protects your loved ones, let's clarify what life insurance actually is.
Just like car insurance offers protection if something happens to your car, life insurance offers protection if something happens to your life (specifically, death). In other words, life insurance is a financial safety net for your loved ones if you pass away.
Here's how it works: When you buy a life insurance policy, you agree to pay a monthly fee (called a "premium") in exchange for your coverage. If you die while your policy is active, your insurer will pay out a death benefit to the beneficiary you designate on your policy.
This death benefit is a tax-free lump sum payment equal to the coverage amount of your policy. Your beneficiary can use the death benefit in any way they'd like to. For example, they could use it to make mortgage payments, fund daily expenses, or even pay for the annual family vacation.
Who Does Life Insurance Protect?
Most people buy life insurance to protect loved ones who depend on them financially.
While you're alive, you can choose to financially support anyone you care about. But for Canadians, the most common dependents are kids, partners, and aging parents.
There's a reason why so many people start to look at buying life insurance when they have a child.
Although kids fill your heart with love and joy, they also fill your credit card account with charges. There's no denying it - even with all that cuteness, having a child is expensive from day one. And unless they become successful child actors or YouTube stars, they'll probably be financially dependent on you at least until they finish high school.
Life insurance ensures that if, you die while your kids are still young, their financial needs will still be met. Depending on your family's circumstances, this might mean making sure that they have food to eat each day and clothes to wear to school. For others, it could mean allowing your child to stay at their private school or keep pursuing competitive hockey or swimming. In short, it helps keep their standard of living the same as much as possible, so they aren't hit with any more major changes than losing a parent.
You can also use life insurance to make sure that there will be money to pay for your kids' postsecondary education. That way, even if you're not physically around to help your kids pursue their dreams, you can at least ensure that they won't struggle financially to get there.
Keep in mind that although most kids become financially independent adults in their late teens or 20s, your kids may have unique needs. For example, if your child has special needs, you might want to ensure that you can financially support them during adulthood too.
Even if you're part of a dual-income household, you and your partner probably depend on both incomes to fund your lifestyle. You likely both contribute to mortgage payments, utility bills, and vacation expenses.
This means that you and your partner are financially dependent on each other. So if one of you dies, the other partner might not be able to cover all of these expenses on their own.
With life insurance, you know that your partner won't have to worry financially right away, and can take time to adjust to life after such a major change.
Transitioning to life on just one salary can be tough enough, but this is paired with the loss of a loved one. Bouncing back is tough. But if you have life insurance, it can help your partner with the expenses that your income used to help with.
For example, your partner can use your life insurance death benefit to pay off the mortgage on your home, cover those annoying hydro bills, secure childcare for your kids, or manage any other family expense.
Of course, if your partner isn't employed, they're probably mostly or completely dependent on your income. As a result, you'll want to make sure that your death benefit would cover all of their financial needs. This way, they won't suddenly be left struggling to make ends meet if you die unexpectedly.
Another dependent a lot of Canadians have is their parents. You might be helping a parent cover their basic living expenses or even have them living with you. This means that your parents could be in a bind if you pass away and your income isn't around anymore.
Unlike your partner or kids, your aging parents may not be able to look for a job to replace the financial help they were getting from your income. Fortunately, if you buy life insurance, you can make sure that your aging parents won't struggle to get by if you're no longer alive.
Life Insurance Isn't Just for Dependents
Most people in Canada buy life insurance to protect dependents. But even if you don't have people who depend on you financially, you might still need life insurance.
In particular, it's smart to have life insurance if you have debt that could fall on someone else's shoulders if you die.
For example, imagine that you and your mom co-sign a loan for your car. Even if you've been making all of the loan payments on the car, your mom could be on the hook for the balance if the loan isn't paid off when you die.
You can protect your co-signer in a situation like this by factoring your loan into your life insurance policy. This way, there will be money set aside for your co-signer if you die before the loan is paid off. And they won't have to dip into their savings to pay back the loan on their own.
Life insurance can also come in handy for covering your funeral expenses. If you've ever paid for a funeral before, you know that they can be expensive with a capital "E." In fact, a funeral can cost as much as $5000 to $10,000 in Canada.
Your loved ones might not be financially dependent on you. But this doesn't mean that they can come up with thousands of dollars on the spot for your funeral, especially if your death was unexpected. However, if you buy life insurance, you can select a coverage amount that will include funds for your funeral.
Life Insurance Isn't Just Income Replacement
If you're a stay-at-home parent or unemployed for other reasons, you might think that you don't need life insurance. After all, you don't have an income. So you don't have an income that would need to be replaced, right?
But before you skip out on completing that life insurance application, ask yourself this: "Do I contribute economically to my loved ones in any way?"
For example, do you provide "free" childcare for your kids? Cook and clean for your household? Visit an aging parent every day to help them with basic daily tasks?
If your answer is "yes," you might not be supporting someone else financially in a traditional sense. But you still contribute to their lives economically. After all, if you died and your contribution suddenly disappeared, your family might have to hire someone to take on these responsibilities instead.
If something happened to you, your partner might have to pay for daycare or your siblings might have to hire someone to help your parent. Having life insurance can ensure that your family would have the money they'd need to cover these new expenses.
How Much Does Life Insurance Cost?
The first thing you may be thinking about when looking at getting life insurance today is the price.
If you're buried in bills these days, you might feel anxious about committing to another monthly expense by buying life insurance. But the good news is that life insurance can be very affordable, especially if you lock in a low rate at a relatively young age.
The price that you'll pay for coverage will depend, in part, on whether you buy permanent life insurance or term life insurance.
Permanent Life Insurance
Permanent life insurance is coverage that protects your loved ones for the rest of your life. This means that your beneficiary will receive your death benefit no matter when you die - it's just a matter of when.
If you're determined to give your loved ones the best financial future possible, choosing permanent life insurance might seem like a no-brainer. But keep in mind that because insurers always have to pay out death benefits on permanent policies, the premiums are pretty darn expensive. Plus, most people don't actually need life insurance for the rest of their life. So if you buy permanent life insurance, you might end up overpaying for coverage.
Term Life Insurance
In comparison, when you buy term life insurance, your coverage lasts for a fixed number of years (e.g., 10, 20, or 30). Your beneficiary will receive your death benefit if you die during this period.
Most Canadians buy term life insurance because it's much more affordable than permanent life insurance. It also lets you pay for coverage only during the years when your loved ones need a financial safety net. Think about the financial needs if your kids are young or your mortgage isn't paid off.
Wondering how much these term plans cost? Check out the table for a breakdown of monthly premiums for different life insurance rates in Canada.
|$250,000 of coverage for 20 years||$500,000 of coverage for 20 years||$750,000 of coverage for 20 years|
|Male, aged 30||$18/month||$30/month||$46/month|
|Female, aged 30||$15/month||$23/month||$34/month|
|Male, aged 40||$28/month||$49/month||$72/month|
|Female, aged 40||$22/month||$35/month||$53/month|
|Male, aged 50||$72/month||$130/month||$195/month|
|Female, aged 50||$51/month||$85/month||$129/month|
Protect your Family's Future with Life Insurance Today
Your death may seem like it's a long way off. And we sure hope that it is.
Even with that, it's smart to buy life insurance today. There's a level of peace of mind when you know your loved ones are protected, no matter what were to happen to you.
When you have life insurance coverage, you can ensure that your loved ones will be able to maintain their quality of life and avoid crippling debt even if you pass away.
And until then, it'll help you sleep a bit easier at night knowing that the people you love are protected.