Dependent-less at 30 I only recently bought permanent life insurance. Until now I have been insured through my employer, which was enough. Until my boyfriend and I bought a house.
While it can seem pessimistic it is actually proactive – you and your family will be financially secure and which is one less stressor should anything happen. There a few guarantees in life but death is one of them.
Having a mortgage worried me that if anything happened to me my boyfriend might have to sell the house. The mortgage would be significant financial burden for one. If I passed away in the next 16 years (our target for being mortgage free) he will be left without my income but with our shared responsibility for the house.
Questions I asked myself before picking what type of life insurance:
- How much coverage (the payout on my death) do I need?
- How long will I need the insurance for?
- How much can I afford?
- Do I want to use my life insurance as an investment?
For me the decision came down to 50% 20-year term insurance and 50% permanent insurance. The combined amount would cover the mortgage with years to spare. And the 50/50 decision gave me more cash to pay off the principle of the mortgage.
After deciding how much insurance you need do these three things
- Get a quote for coverage from at least two sources (this could be a combo of your bank, a financial advisor, a life insurance broker, or your company’s provider)
- Compare: the price, the value over the life of the contract, the insurance providers reputation, and the fine print of what is included
- List your beneficiaries (the people you want to get the money) directly so they get the money immediately and there are no additional fees or taxes
Need more information on the options?
Life versus term insurance
The price of term insurance is very attractive when you are young. For a few hundred dollars you can buy hundreds of thousands of dollars in coverage. However, in 20 years you will be older and could have a chronic illness. Both of these will increase your premiums if you want to continue with the insurance. Before buying term think about where you will be when the term is over. Will you have dependant children, a mortgage?
There are two lengths of life insurance: term and permanent life insurance. Permanent life insurance will cover you for the rest of your life as long as you pay your premiums. The rates will not go up as you age or become sick. Term life insurance is guaranteed for a set period of time (often 20 years). If you have life insurance through work it is likely term aka only valid while you work at that company.
Life insurance can be an investment vehicle. With some policies you can contribute cash to the account that the life insurance provider invests. This kind of policy can be great but typically only after maxing out all your registered savings account and build up considerable easily accessible savings.
A lot of the information on life insurance is published by life insurance providers. It can be useful but treat it with caution – it is biased.
The government of Canada has some basic information
MoneysSense has good overview of all the types of insurance out there, for once you have figured out life.