Thursday, July 06, 2017

Life, Loss, and the Importance of Insurance: Protect the Ones You Love

This past year has been filled with change, and learning, and a fair bit of anxiety, as most of you will know. My husband's death last August, at age 52, left our family reeling, and, on a practical note, facing a future without our primary breadwinner. I wasn't sure how we were going to cope financially, let alone emotionally. Right away, the funeral and related expenses cost over $16,000. Then there was our well-used line of credit, our mortgage, and all the expenses of daily life. Oh, yeah. And saving for Michael's future education.

If we hadn't been prepared with insurance and retirement planning, I don't know what I would have done. I likely would have had to sell our home, the home where we've raised our kids, and the only home Michael has ever known. Heaven knows I'd never get back into the housing market here in Toronto!

Thankfully, Jim had solid life insurance coverage, providing enough to pay off our debts (other than the mortgage, but including the funeral expenses) and make a big dent in both boys' educations. It has also allowed me to set up an emergency fund, which recently paid for a new roof. It saved us financially, and, combined with Jim's pension plan, which I opted to start drawing on immediately, we are going to be okay.

Why Do I Need Life Insurance?

Life insurance is rarely a high priority on the to-do list of most young people. In fact, a recent survey of 1000 Canadians aged 18 and up, completed for TD Insuranceconcluded that more than half (55%) of milennials carry no life insurance. None. And that scares me.

I understand that, as a young adult, your own death is likely the last thing on your mind. It seems so remote. Respondents to the survey reported paying down debt (25%) and saving for a home (21%) as being much higher on their list of financial goals. Purchasing life insurance came in dead last.

And I get that there's something about admitting you need life insurance that at the same time forces you to admit you are mortal and won't be here forever. But we need to get past that and remind ourselves that this insurance is not for us, but for the protection of our loved ones. If, heaven forbid, something were to happen to you, that insurance is there to pay for your funeral, pay off debt, replace your lost income, contribute to your children's education, and any other number of financial responsibilities you leave behind.

How Much Do I Need?

How much insurance you need to purchase really depends on your current family and financial situation. A young, single, childless individual without a lot of debt might need little more than enough to cover burial expenses. Not something you like to think about, but an accident or critical illness can happen to anybody, and you don't want to leave your parents with a big bill. If you have a spouse, children, or other financial obligations, then you will need more insurance to cover those responsibilities.

Jim's death brought home to me just how important the right coverage can be. Currently I own a whole life policy that I've had since I was 18. It's only $50,000, so it will cover my burial and credit cards, but little else. I recently discussed my financial plan with an advisor, looking at my current income, age, the age of my kids, my investments and liabilities. All of that came into play to help us determine the type and amount of life insurance to purchase. And to be honest, although it sounds complicated, with the help of my advisor it was actually pretty straightforward. Now I know if something were to happen to me tomorrow, the boys would be ok. At least in the financial sense.

TD has a great online tool that makes it easy to determine the amount and type of insurance you need in their Right Fit Coverage Assessment Tool. This was developed to help Canadians who are unsure about life insurance get more information on what coverage will best fit their needs. Answer the simple questions (which are accompanied by useful information on why they are important) and the system will give you detailed coverage options. Click "Start My Life Insurance Quote" to give a little more info and get an estimate of what your monthly insurance costs would be. Then you can talk to one of their Licensed Insurance Advisors for more information and to get set up.

When Should I Be Thinking About Life Insurance?

How about right now? It's important to start thinking about insurance earlier rather than later. Did you know that the younger you are when you buy life insurance, the less you’ll pay for your coverage over the course of your policy term? Premiums are set based on your age and health at time of purchase, and don't increase during your term. Get insurance now, while you are young and healthy.

Healthy is also key. Certain health conditions can make you ineligible for life insurance, as they are seen as high risk. You may be eligible for a group policy through your employer, but these policies generally don't offer as extensive coverage as a private plan, plus you no longer have the policy if you lose your job, or change employers. Owning your own insurance policy is a much more secure way to plan for your family's financial future.

What's Stopping You?

According to TD's recent survey, millennials said the top barrier to purchasing life insurance was the cost (55%), and more than a third (37%) said they haven’t purchased life insurance because they don’t have any dependents. Fair enough. You do need to be cognisant of monthly cashflow and buy an amount of coverage that you can afford today. But remember that the older you get, the more expensive your life insurance will become, so purchasing early makes financial sense. And even if, with no dependents, you purchase a small policy to cover funeral expenses, at least that's a start. I just did a test run on the Right Fit Coverage Assessment Tool for a single, 23 year-old renter, with $30,000 in student and car loan debt, and the tool suggested $25,000 in life insurance, to pay for funeral and estate taxes. The lowest amount I could get an online quote for was a $50,000 policy. That $50,000 policy, for a 23 year-old, non-smoking woman came in at $10.42 per month on a 20 year term. Most millennials likely spend more than that on coffee in a week.

The Verdict

Life insurance is cheaper the younger you are when you purchase it, so purchasing early makes the most sense. None of us wants to think of our own death, but it is going to come, and it's best to be prepared. Life insurance is a critical piece of our financial planning, and an important way to protect our loved ones after we are gone. Reach out to the professionals and get the advice you need, now, to select the policy that meets your needs today. And, I must add, as time moves on and your responsibilities change (marriage, children, home ownership, death of a spouse, etc.), be sure to take a moment and re-assess your insurance needs. They will change over time, so stay on top of them.

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Disclosure: This post is brought to you by TD. All opinions on this blog, as always, remain my own.

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