The simple fact is, life insurance is one of the most crucial investments you will ever make. It’s the key to financial security when life happens—a guaranteed way to protect your loved ones and assets, and help secure their financial future when you pass on.
The Costly Consequences of Life Insurance Myths
You may be surprised to learn that many Canadians are still on the fence about investing in a life insurance policy, opting to manage their finances in the belief that their savings are enough for any final expenses. But this isn’t a healthy financial outlook, especially when final expenses exceed your savings, further putting your loved ones in a precarious financial position, on top of lost income – and the stress of bereavement.
Others simply believe they don’t need life insurance when they don’t have dependents to secure. And worse, some are resigned to the common misconception that pre-existing conditions or lifestyle habits automatically make them ineligible for coverage.
All of these are myths about life insurance—and these myths are costly. By falling victim to these, you and your family are at risk of financial insecurity in the event of your death. It’s time to debunk these myths and see why you need to start investing in the right life insurance policy.
Life Insurance Myths Debunked
1. I am too young to need life insurance
False. Life happens at any age, and no one is ever too young to need life insurance. In fact, it’s a struggle for many young people to take care of their current financial obligations, let alone final expenses, such as medical bills, funeral costs, and any personal debt after their passing.
The fact that you rely on your income for day-to-day needs, and accumulate some credit card and other debt along the way means you need life insurance to make these payments, rather than risk passing these on to your loved ones.
2. I don’t have dependents to insure
Even if you’re single and currently have no partner or kids, you still need life insurance. It’s common to think that being single means being financially low-risk, but this isn’t always the case.
Among couples, it often takes having kids to consider investing in life insurance. Even then, many fail to consider the impact of a sudden loss of income should their partner die unexpectedly. This is why you need the right life insurance coverage amount early on, whether you have dependents or not, to ensure that your financial obligations are settled, without burdening your spouse or other family members.
3. I’m not the family’s breadwinner, so I don’t need life insurance
One of the most crucial considerations in purchasing life insurance is income replacement. Aside from final expenses and outstanding financial obligations, family breadwinners, such as parents, have to deal with the impact of a sudden loss of income on their family’s quality of life.
As a society, we often fail to consider the value of the work performed by homemakers. When a stay-at-home parent dies, the family has to deal with previously unpaid reproductive labour, like cleaning and childcare. The death benefit paid out by life insurance can help pay for these new expenses.
4. I already have coverage from my mortgage lender
Let’s set the record straight: mortgage life insurance is not life insurance. This coverage only covers your mortgage if you pass on before the loan term is over. And while keeping a roof over your family is crucial to ensuring financial security, it’s only one of many final expenses.
A life insurance policy covers all your other financial obligations and final expenses and secures your family’s financial health in the face of untimely loss of income.
5. My employer provides enough life insurance coverage
Group life insurance may be one of the most attractive employment benefits—proof that you are valued at work. But what happens when you change jobs? Even when you are enrolled in group life insurance, you don’t own the policy.
Worse, changes to your employer’s plan could leave you with insufficient coverage. This is why your best option is still to have your own life insurance policy—adequate coverage based on your financial needs, regardless of your employment history.
6. Smoking or vaping makes me ineligible for life insurance
A lot of smokers are discouraged from purchasing life insurance because they keep hearing about higher premiums, or worse, ineligibility for coverage. But this isn’t true. While smokers may be charged higher premiums compared to non-smokers, you are still eligible for coverage.
Moreover, many insurance companies will consider you a non-smoker if you have been smoke-free for one full year. Life insurance is affordable for smokers and previous smokers, and considering the risks associated with smoking, it’s a sensible investment.
7. My life insurance coverage should only be twice my salary
The reality is that there is no clear-cut figure for how much life insurance you need. Your coverage should be tailored to your financial health, lifestyle and occupational risks, and the needs of your dependents if any. When purchasing life insurance, many people like to assign a ballpark figure for their coverage amount, such as twice their annual salary. But is it enough? It depends.
The best way to know how much life insurance you need is to speak with an insurance broker. Talk to them about your assets, financial obligations, income, investments, family and other factors. All of these need to be considered to ensure adequate coverage – which could be well above just twice your annual salary.
8. Term life insurance is always enough
Term life insurance is often the most practical, budget-savvy option, but it may not always be right for your needs. Depending on your financial situation and coverage needs, permanent life insurance may provide better value, which guarantees coverage at the time of death, even well outside standard limits in term policies.
9. It’s better to invest my savings elsewhere
Diversifying your assets is one of the best investment strategies, but this doesn’t mean you don’t need life insurance. Until you accumulate more than enough liquid assets for your final expenses and the financial future of your family, life insurance provides a valuable safety net.
Between the cost of mortgage payments or rent in Richmond Hill and other lifestyle needs, many Canadians are not currently in a position to guarantee enough savings and assets to secure their financial future. Even with enough assets to pay for final expenses, the remaining amount that could be used to keep your family financially secure will be significantly depleted.
10. COVID-19 deaths are not covered by life insurance
Although a timely concern, this is one of the most unfortunate myths currently surrounding life insurance – and it simply isn’t true. Much like any other illness or death by natural causes, COVID-19 deaths are generally covered by life insurance. Having a life insurance policy may provide some peace of mind during this difficult and uncertain time.
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