Is Life Insurance Worth It?

It's important to understand the different types of life insurance before buying a life insurance policy. There are several different types of life insurance, but the two major categories are term life insurance and permanent life insurance which can be purchased from various life insurance providers.

Term life insurance is usually a more affordable and less expensive life insurance. It only covers life for a certain amount of time, typically around 20 to 30 years. Term life insurance can help your loved ones if you pass away during this period. The cost of term life insurance will depend on the length of coverage needed (usually in increments of one year), your age when applying, and your health following with medical exams.

The life insurance can be used to help pay off debts, like mortgage loan or car insurance, and final expenses (such as funeral expenses), or any other expenses and any other debts, so that the family members have some money when they need it most. Term life insurance can have a cash value which pays off the life insurance policy in case of death and is payable to your beneficiary via the death benefit.

Permanent life insurance, on the other hand, is an insurance that stays in place for life. Also called whole life insurance, it provides the insured with a death benefit should he or she pass away before the life insurance policy expires, and there is a life insurance payout to dependents if the person dies while insured under this type of life-insurance.

Permanent life insurance, including whole life insurance and universal life insurance, can also be converted into an income stream later on so that once the life insurance policyholder dies, they can still receive a steady income for life. It can also be used for estate-planning and retirement planning since permanent life insurance has a cash value component.

Pros and cons of term life insurance

Pros of term life insurance include:

• Term life insurance is a more affordable of the life insurance options when compared to a permanent life insurance policy.
• Term life provides an easy way for a family to gain some financial security, in case something were to happen and their breadwinner would no longer be there to. Many people have found peace of mind knowing that they will not have to worry about the financial future of their spouse or children.
• Term life also provides a way for families to be financially secure without taking on the risk of permanent life insurance, which has an indefinite term and can be expensive over time. Most people who buy term life do not purchase it with the intent to keep paying premiums for life insurance until they die, but instead as life insurance for a set period of time.

Cons of term life insurance include:

• They do not provide life-long protection - it will eventually expire without the individual purchasing additional term life insurance or converting term life insurance policies into permanent life insurance.
• Term life policies also have limited options, such as being able to cover just one person's medical needs based on their medical exam history.
• You cannot build up any cash value over time with a term life insurance policy, whereas with permanent life insurance, you can build up cash value

Pros and cons of permanent life insurance

Pros of permanent life insurance include:

• Lifelong protection - It will never expire. Purchasing life insurance for the entire family is possible as well, and you can build up cash value over time with a permanent life insurance policy.
• Permanent life insurance can provide a death benefit to beneficiaries if you die prematurely. The death benefit provides many with the peace of mind that their family will be taken care of.
• Permanent life insurance policies include more options than term life, such as whole life insurance or universal life insurance. These life insurance policies also have a cash value component that builds over time which is accumulative and tax deferred until withdrawn from the account. This means it would take longer to break even, but a whole life insurance policy is not limited

Cons of permanent life insurance include:

• It is expensive to buy life insurance for a large family. It is usually a more expensive life insurance than term life insurance
• On top of the life insurance premium payments, there are other costs that can be incurred such as annual fees and charges. This would have an impact on your monthly budget if you don't pay off the loan at once
• The cash value component will eventually get spent faster than life insurance
• You can't cash out permanent insurance as easily because there are certain criteria you have to meet in order for a financial institution or life insurance company to buy back your life policy.

Is life insurance a smart investment?

There's a lot of talk about life insurance being a worthwhile investment but it's not always the case. Life insurance, like most investments, will fluctuate in value and may lose or gain money as time goes on. It is important to weigh your life expectancy (which can vary from person to person) with how long you would need life insurance coverage, and what type of life insurance policy would best suit your needs.

In many cases, life insurance (much like health insurance or auto insurance) is worth getting given the benefit of providing financial security for your loved ones.

A term life insurance policy does not have a cash value or investment component. So, a term life policy would not be seen as an investment option. Term life insurance is different from permanent life insurance.

Permanent life insurance (also known as whole life insurance) policies can also be purchased as an investment vehicle, but it is not guaranteed that your money will grow faster than inflation so there are risks involved with investing. Permanent life policy's cash value accumulates with interest and dividends, while whole life insurance premiums are paid. For seniors, these policies might also provide tax benefits (save money on taxes) and serve as an alternative to traditional savings or investment accounts.

If you were to die during the period of life insurance, then your beneficiaries will receive a death benefit from either term life policy or permanent life insurance policy. The death benefit is typically equal to the amount of money that was invested in the policy and can be an inheritance for children who may still be living at home or be used to fund their savings accounts. When considering a policy, consult an insurance agent who specializes in life insurance to provide valuable advice and guide you through the underwriting process.

There are different life insurance policies for individuals and families, each with their own variable features and riders. Its important to evaluate your life insurance needs before you decide on what kind of life insurance policy is best for you. Through your research, you'll learn that factors like age, health and financial status play a huge role when it comes to finding the best life insurance policy for you. Additionally, return on investment and access to funds from savings account or investment account options might be important takeaways to consider.

One advantage of seeking professional advice from agents providing these services is that they can help you make informed decisions based on your unique situation, whether you are a young adult, a parent, or a senior. Look for customer reviews and quotes of policies to make an educated decision.

There are also many reasons and ways to save money buying life insurance that can help keep your life insurance costs within budget. Be mindful of policy lapse and conversion options, as these features can significantly affect your coverage amount and claim options, especially in cases where flexibility is crucial.

What can life insurance be used for?

The beneficiary of a policy, which could be a child or spouse, receives a non-taxable amount, known as the death benefit from the life insurance company at the time of death. This death benefit can be used to cover education expenses or other financial situation, such as putting money away to savings accounts.

Covering outstanding debts is a common use case. Mortgage, auto debt, credit card debt among others can be paid off with the proceeds from the policy.

Large uncovered debts like a mortgage payments can quickly and tangibly impact your family’s lifestyle and possibly living situation. If an income source disappears, this large cash benefit injection can either facilitate a lifestyle transition or enable your family to maintain their existing lifestyle.

These transitions are much more difficult than most people realize. In uncertain economic times as well, where gig economy workers are becoming more prominent and some lines or works are more unstable, employer-provided life insurance doesn’t follow you from job to job (and the coverage is usually inadequate).

A life insurance policy of your own can be made to fit your life.

Life insurance choices in your 20s

Most people don’t necessarily need to purchase life insurance in their early 20s.

As new grads leave school and start setting up foundations for their lives, they often have no assets to insure. If someone in their early 20s has student debt or credit cards that they wouldn’t want to burden their family or partners with. In case of an unexpected death, an insurance conversation might make sense. In such cases, getting life insurance quotes to manage funeral costs or provide compensation might be a prudent choice. However, there are other non-insurance options that might make more sense rather than buying life insurance, like setting aside a lump sum in an RRSP.

However, if someone in their 20’s has bought a house, buying a term policy, makes sense. Many people buy a house in anticipation of starting a family eventually, so if someone in their 20’s buys a term policy to cover the term of their mortgage, not only would that be prudent, that person would get a discounted rate for being young. Keep in mind that insurance agents receive a commission for selling policies, and sometimes, they may also receive a renewal commission. This commission is the same whether you work with an agent or the insurer directly.

Be careful with products that mortgage brokers and banks position and always check with an independent advisor for options. Check out our blog post on Mortgage Insurance vs Life Insurance.

One overlooked area of insurance that people in their 20’s don’t consider often is critical illness insurance.

Everyone seems to know someone that was diagnosed with cancer or some other debilitating illness and there are affordable ways to protect against these unexpected illnesses financially. A critical illness policy purchased in your 20s can be cheaper on a run-rate basis than when buying it later in life and provide financial protection for decades to come. Press your insurance advisor on what critical illness insurance can do for you.

Life insurance choices in your 30s

Here situations become more complex. Many people have trouble answering the question "is buy life insurance worth it in their 30s?"

Different people choose different paths in their 30s, but many have children, buy houses, and take on financial obligations risk. We’re not going to suggest buying insurance just for the sake of having coverage (though we would suggest contributing to an RESP if you have children).

Many people, especially in countries like Canada, have different needs in their 30s compare to their 40s or 50. A strategy needs to be created just like in wealth management to ensure you have the right coverage and are not overpaying for coverage you don’t need. This is particularly important for parents or a couple considering factors such as mortgage rates and the advantages of a policy loan.

Sure, your work might provide some coverage, like a short-term group plan. Simultaneously most of those policies don’t follow you when you change jobs, and many aren’t malleable to your specific situation. In such events, it can be helpful to seek a quote from insurance companies that cater to your needs and finances. This includes options such as cash-value life insurance, a rider on an existing policy, or an annuity product for long-term financial stability.

A great insurance advisor will assess your group benefits, mortgage, financially dependent, and future plans like ongoing TFSA contributions to ensure you are financially covered in the context of the broader economic landscape, including currency exchange rates. Often times, understanding and planning your finance effectively is a small price to pay in light of any of the possible contingencies that can emerge with everyday life.

If you already have insurance, it should also be assessed in your thirties. For people who were anticipating having six children in the countryside to having two children in the city, oftentimes there are different needs and requirements - especially when considering what it is you are trying to protect. One factor that can affects your life insurance cost, is your gender. Prices are different for men and women, among other factors.

Though circumstances may not have changed, it probably makes sense to spend an hour with your insurance advisor to go through options and assess the strategy. If circumstances haven’t materially changed and your earlier plan is still suited for you, your advisor may well tell you to stay the course. They will make sure the death-benefit face value is suitable to cover your financial responsibilities.

Many people start businesses in their 20s and 30s and there are insurance considerations that need to take place to ensure your business continues to be a going concern. General Liability and Commercial Insurance can be provided to you by a Property & Casualty Broker but, a Life Insurance Advisor can be useful as well.

When it comes to Key Person Insurance or facilitating buy/sell agreements, a good relationship with your advisor can spare you a lot of unnecessary heartaches. Ask your advisor how they can support you in your business, keeping in mind the number of parties involved in such agreements.

Life insurance for 40 and beyond

Is buying life insurance worth it for 40 and beyond?

The 40+ stretch is the time when people tend to start planning for retirement from a long-term perspective.

That’s not to say that people don’t plan decades later, but for people who plan in advance, more options will be available. Generally speaking, between the ages of 60-85, insurance options are not only drastically reduced but also drastically more expensive. It makes sense to plan for the future well in advance.

In the latter years of life people are much more susceptible to illness and disability, and insuring the last few income-generating years prior to retirement may end up being a godsend.

Disability insurance is a complicated topic, but if there is a probability that one might not be able to fulfill the tasks of the job or get disabled in your 50s, income safeguards should be introduced.

Having the right combination of term insurance, critical illness, and disability that jives well with your retirement and estate plan can save someone from unforeseen and significant expenses. An advisor should be able to outline all of the potential challenges to their clients in simple terms that anyone can understand.

Next Steps

So, is life insurance work and worth it? By now we've answered that question based on your life stage.

Considering the variety of life insurance companies and the life insurance rates they offer, it's essential to gather all the necessary information before making a decision.

To get started, fill out our online calculator to get a better idea of what type and how much life insurance might make sense for you. Keep in mind how much life insurance cost in different factors like between a man and a woman can affect your decision.

Our calculator can give you a sense of the price range and we ensure that every recommendation is reviewed by an insurance professional.

Booking a consultation - don’t know where to start? Book a time here and one of Dundas Life’s insurance professionals will provide you with the right insurance plan to ensure your risk is covered.

Check out our blog section around more best practices. There is a lot of material to cover, but if you have questions about anything insurance, we’d be happy to help you here.