Busting 5 life insurance myths
There are a lot of misconceptions about life insurance. It’s time to clear them up.
When people first meet Gord Stockman, a Mississauga-based financial planner, they tend to ask a lot of life insurance–related questions. Most know they need some life insurance, but they don’t know what they might already have, how much they require or how it works.
Stockman, the founder of Efficient Wealth Management, admits that there’s a lot of confusion around this financial product – and quite a few misconceptions – which is why he likes to set the record straight. “Life insurance is meant to replace income that could be lost,” he says. “Many clients don’t understand what they own. You need to buy the right products for the right needs.”
It’s always good to talk to an expert about the kind of coverage that fits your situation, but before you do, you’ll want to understand a few of the myths around buying insurance.
Myth #1: Everyone should get a lot of life insurance
“People have become convinced that everyone needs lots of life insurance,” says Stockman. He often sees clients with hundreds of thousands of dollars in coverage when they really only require a much smaller amount to take care of their needs. “They don’t look at their own circumstances,” he says, adding that he’s seen clients with no dependents and big coverages.
It’s important to assess your situation and crunch some numbers. If you have a large mortgage that you don’t want to leave to a spouse to pay off, then you may need to take out more coverage. Same if you think you’ll have a big tax bill to pay. If you have a young family, or disabled children who may need ongoing support, you may also need a higher coverage amount, depending on how much income you bring in.
In any case, don’t just get the most you can, says Graham Bodel, a financial advisor in Vancouver. Do the math and come to the right number for your circumstances.
Myth #2: Life insurance is expensive
You’re going to pay something – that’s the nature of insurance – but it doesn’t have to cost you big bucks, says Stockman. If you take out term life insurance – a policy that lasts for usually 10 or 20 years and then expires – in your 20s or early 30s, you could end up paying less than $10 a month. “Good term life insurance is affordable,” says Bodel. “Insurance companies don’t mind making your premiums quite low if you don’t need the insurance for 20 years.”
The best rates can be secured when an applicant is young and healthy, but they could still be reasonable as you age if you’re in good health. “Basic term life insurance is great value for money,” he says. “It creates peace of mind.”
Myth #3: Employer-provided insurance is sufficient to meet your needs
Many employers offer life insurance, and that is a great way to get coverage. However, workplace insurance may not be enough and it’s also not always possible to take that life insurance with you to a new job. Stockman suggests you talk to your employer to see if your coverage is portable. He also recommends purchasing a private policy in addition to your workplace one, with the option of topping up the private policy should you leave your job.
Myth #4: Life insurance is one size fits all
Many people think that they can just take out the same policy as their friend or neighbour, but that’s not the case, says Bodel. Insurance, just like any financial product, works best when it’s based on someone’s individual needs. While term life may be the most popular option, there are others, such as universal and whole life policies, which work differently. Lives are complex, says Bodel, so people must take a more tailored approach to insurance.
Myth #5: Life insurance is for paying funeral costs
There was a time when life insurance was mainly used to pay for funeral costs, and many people still connect the two. While a part of the lump sum payment can cover an end-of-life send off, it’s now used for a lot more than just that. Today, a policy holder’s family usually uses life insurance to pay off their mortgage or a large tax bill. A spouse can use it to manage their day-to-day living costs or for a disabled child’s ongoing needs. Essentially, life insurance takes care of anything that the deceased person’s income would have covered.
Ultimately, it’s important for most people to have it, as you never know what might happen. “There are really good reasons to have life insurance,” says Bodel.
The opinions presented are not necessarily those of The Canada Life Assurance Company and are provided for informational purposes only, your circumstances may be different.
To learn more about this product and if it’s right for you, contact a licensed insurance advisor.