Life insurance 101: false beliefs

All life insurance is created equal

False. Insurance companies don’t all cover the same things. Sometimes premiums increase annually, sometimes not, and what about exclusions or exceptions? Like any contract, you have to read it carefully and, most importantly, make sure you understand it well to avoid problems later.

The life insurance provided at work is sufficient

Not necessarily. While only one life insurance policy is often enough (because we only have one life to insure!), sometimes it’s better to combine different products to meet all your needs. Group insurance, including life insurance, usually insures you for one or two times your annual salary. This may not be sufficient if you have children and a house, for example. You should also consider the fact that, in most cases, you’ll lose this coverage if you leave your job, not to mention the fact that you may have a hard time taking out new life insurance if health problems arise in the meantime.

Life insurance is for life!

Yes and no. A lifetime is a long time... and life changes, as do your needs. A young worker who is renting doesn’t have the same needs as a new father who’s having a house built, or the couple whose children have left the nest and who are selling the house and moving into a condo. During major life changes, it’s important to review your coverage needs to avoid finding yourself over- or under- insured.

It’s best to choose life insurance without a medical exam

It’s generally more advantageous to opt for insurance products that require you to complete a medical questionnaire. Meeting this requirement will enable you to get higher coverage at a much lower price than with insurance that guarantees your acceptance without any questions about your health. These products are geared towards people who are in poorer health or who have already been refused by other insurance companies, because the premiums are much higher.

You don’t need life insurance when you’re young

Maybe, but... While life insurance is certainly not the most exciting item in your budget and may seem even useless for some, you have to think about it sooner rather than later. The younger you are, the less expensive life insurance is. Another reason to buy it when you’re young and generally healthy is to guarantee your insurability, because if you have the misfortune of falling sick, it becomes very complicated and expensive to purchase insurance.

It’s important to insure your child

Yes and no... Your children will always be your priority, but according to financial experts, insuring their lives should not be your priority. Life insurance serves to compensate lost income, so it’s important for parents to be adequately insured. This said, adding an endorsement for a child to your own life insurance coverage for a minimal cost may be worthwhile. Opting for a product that can be transferred to the child when they’re an adult protects their insurability. Otherwise, RESPs are a very attractive option in terms of investing in their future.

Mortgage life insurance offered by the bank is mandatory

False. You’re never obliged to take out insurance, and that goes for the banking institution that lends you the money to finance your home. Often, the premiums for mortgage life insurance are fixed, but the value that is covered decreases with each payment you make. And don’t forget that with this insurance, the only beneficiary will be the bank.

It’s not important to shop around for life insurance

False. We shop around incessantly for a TV or plane ticket, for example, but while these items can be expensive, they’ll have very little impact on your finances in the long term. Life insurance is paid over a long period (10-15-20 years or more), which is one more reason to make sure you have the best price in comparison to an equivalent product. As an example, a difference of $20/month will save you $4,800 over 20 years! On the other hand, for two equally priced products, look for distinctive elements that might set the product apart from another; for example, increased coverage at no additional cost, a benefit in case of critical illness, and so on. So, what are you waiting for? Shop around and don’t hesitate to compare two or even three quotes.

No need to insure my spouse who doesn’t work

False. Even if stay-at-home spouses don’t earn income, the value of their contribution to maintaining quality of life is invaluable. The death of a spouse is the loss of the family’s emotional support as well as the person who took care of everything in the household: daily chores, child care, meal preparation and much more. These tasks must now be performed with external help. So while the loss of a spouse (without mentioning the grief obviously!) would change nothing in terms of your income, it would have a significant impact on your expenses.

Once children have left the nest, there’s no need for life insurance

Even if your children are financially independent, they may still need financial support in the event of your death. The same goes for your spouse, an aging parent or your grandchildren. Also think of the debt that you could leave them, especially to pay your taxes and funeral expenses. Life insurance is useful even after 60.

The best advice is therefore to shop around for your life insurance. Ask any questions that come to mind and don’t hesitate to repeat the experience as soon as a significant change occurs in your life.