In the immediate term, life insurance can pay off debts, like a mortgage, or provide money for living expenses, like food and clothing. In the long run, it can fund your child’s college tuition or help your spouse fulfill their retirement dreams.
People buy life insurance for different reasons, but it all starts with understanding which policy is right for you.
Find the Right Policy for You
For most people, term life insurance is sufficient. However, some may require the additional benefits that whole life insurance offers.
Term life insurance covers you for a limited period, but it costs significantly less than whole life. It allows young families to purchase more coverage for less money. Since term life insurance offers protection for a set period of time, it is most suited for financial needs with an end date. If you want life insurance to cover your mortgage or financially protect your family until you retire or your children complete college, term life insurance may be just right for you.
Whole life insurance doesn’t have an end date. It provides coverage as long as you live as long as you pay the premiums. Whole life policies also include a savings component called ‘cash value’. A portion of your monthly premium goes into this account, which grows on a tax-deferred basis. You can withdraw from or borrow against your cash value at any time. You can even cancel your policy after it has been in force for a few years and take the cash value.
A whole life insurance policy could make sense for someone with a lifelong dependent. It may also be a good option for a high-net-worth individual who wants life insurance to use as an investment tool.
When shopping for life insurance, consider your long-term needs and current financial situation. If a term life policy can cover your family’s needs adequately, don’t look any further because whole life insurance costs five to 10 times more than a comparable term policy.
Regardless of whether your buy term life insurance or permanent insurance, make sure your policy is sufficient for your family’s needs. As a rule of thumb, aim for a death benefit amount that’s at least 10 times your annual income.
Reasons You May Need Life Insurance
Here are several reasons why life insurance is important.
You Have Debt
Your debts, like a car loan or mortgage, don’t simply disappear when you die. Generally, your estate is responsible for paying any debts that you leave behind. If you have a co-signer, they could be on the hook for the unpaid debt.
If you pass away with unpaid debts, your assets can be used to pay them off. This might include using money in your bank account or selling your home or other assets to pay off the creditors.
Unpaid debts can eat into the inheritance you were hoping to leave to your family. And if a loved one, like a spouse, co-signed a debt, the creditor will go after them to recover the money.
If you have taken a loan, ask yourself, “Will my family be able to pay off the debt and still maintain a comfortable lifestyle if I were to die suddenly?”
If the answer is no, you need life insurance.
Your loved ones can use the proceeds from your policy to pay off your debts. Buying life insurance gives you peace of mind that comes from knowing you won’t be leaving behind any debt for your family to worry about.
When purchasing life insurance to cover debts, remember two things:
- The policy amount should be sufficient to cover all your debts
- In the case of term life insurance, your policy should last as long as your largest debt. For most people, that would be a mortgage loan.
Generally speaking, term life insurance is a much better option for covering debts than permanent life. That’s because it is significantly cheaper.
You’re Planning to Get Married
Getting married? Congratulations. But with marriage may come added financial responsibility, and you should strongly consider adding life insurance to your to-do list.
Why get life insurance before or soon after marriage? Glad you asked.
When you were single, you probably didn’t have anyone depending on you financially. But that is likely to change after your marriage.
Your spouse may depend on your income to support your lifestyle. Even if your spouse is earning a paycheck, she may not be able to pay off a debt that you’ve taken together, like a mortgage, on her own, or save enough for a child’s education.
This is where life insurance can prove crucial. It can help your spouse maintain a similar standard of living if you were to pass away before you expected to.
You’re Going to Have a Baby
The birth of a first child is an exciting time, but it’s also something that requires a lot of financial planning.
Life takes on a whole new meaning when you become a parent. No longer are you responsible for only yourself; instead, you are now responsible for the family you’ve created with your partner.
So it’s important you take steps to protect your family from any unexpected situation, including your untimely death. Life insurance is one way to secure your family’s financial future. It will help your family stay afloat if the unthinkable happens.
You Support Ageing Parents Financially
Should I get life insurance if I support my aging parents?
Many people have asked this question, and the answer is yes.
While most people associate life insurance with protecting a spouse or children, millions of Canadians act as caregivers for a parent. If you support a parent, grandparent, or in-law, or plan to support them one day, you need life insurance. Proceeds from your policy will help pay for long-term care or everyday living expenses if you are no longer there to provide for them.
The general rule of thumb is, if someone depends on your paycheck for their wellbeing — a spouse, a child, or even a parent — you need life insurance.
You Are Self-Employed
Is life insurance important for those who are self-employed? Do you need life insurance if you are run a business or work as a freelancer?
The answer is yes. Being your own boss is fun, but it also means more responsibility. If you are an entrepreneur, you might want to not only safeguard the financial future of your family but also your business.
How would your family manage if you died unexpectedly? What about your business? How will it fair?
That’s what the stakes are, and this is where life insurance can make a world of difference. It can keep your family — and your business — afloat if something bad happens.
Here are several ways life insurance can work for you:
- Your life insurance policy can provide income replacement for your family to help them make ends meet. Your ability to earn a living is your biggest asset. If you died unexpectedly, would your family have enough financial security to live comfortably? Proceeds from your policy can support your loved ones in your absence, and take care of both living expenses and long-term debts, like a mortgage.
- Your policy can cover funeral expenses. The average cost of a funeral in Canada is between $5,000 and $10,000. It could cost even more depending on your preferences. Planning final arrangements in advance can take a lot of pressure off your loved ones. It can spare your family from worrying about funeral expenses while they are grieving.
- You can use life insurance as collateral for a business loan. If you die with a balance on the loan, the lender could make a claim against the policy.
- You can use life insurance to fund a buy/sell agreement. As a co-owner of a business, you have put in a lot of hard work to build valuable interest in your business. But how can you ensure your family receives an adequate payment for your interest in the company after your death? The answer is through a buy-sell agreement. It can make sure your surviving family members get adequately compensated. In addition, it will also protect the business financially.
You Have a High-risk Job
Life insurers will take into account your occupation while assessing your insurability. Simply put, people who work in dangerous fields are at a greater risk of untimely death than those who have a desk job.
If you work in construction, police, firefighting, or any other high-risk job, expect to pay more for life insurance. However, the high-risk alone makes putting a life insurance policy in place all the more important for you.
So if your job puts you at a heightened risk of injury or early death, the question you should be asking yourself is not why get life insurance, but rather how much coverage do you need. Consider buying life insurance coverage that’s at least 10 times your annual salary.
Whatever the reasons for buying life insurance, the important thing is to pick a policy that meets your long-term goals and fits your current budget. Get in touch with Dundas Life, and we’ll help you find the right coverage at the lowest-possible price.