You know what they say about assumptions…
Purchasing life insurance is a big, important step in your life. If you are contemplating buying some, we caught you at the perfect moment.
People make assumptions about pricing, coverage amounts, types, and more when purchasing life insurance for the first time. Thankfully, we’re here to help. Here are the top 7 not-so-smart things people do or assume when they purchase life insurance.
1. They don’t buy early enough
As our grandfathers would oft say, do not put off to tomorrow that which you can do today. Nowhere is this saying truer than in the world of life insurance. It’s much cheaper to buy life insurance early in your life. By purchasing life insurance in your younger years, when you are less susceptible to serious illnesses and health scares, you bring down the price considerably. Purchasing early also gives you the opportunity to renew or convert into longer-term or permanent insurance, at lower prices down the road.
Procrastination can cost you dearly by driving up the cost of premiums later in life. Get a kidney infection in your mid-thirties? Well, there goes your life-time preferred rate discount you could have secured in your 20s. A medical condition in your immediate family can also cost you; including through a surge in your insurance pricing! Covering your future debts or starting to provide for your planned family additions in your younger years saves you thousands in premiums over time.
2. They don’t insure enough
So you get insurance coverage for 1, 2, even 3 times your current income or whatever rule of thumb your advisor told you about. That number seems like a jackpot at the moment, but do you think you could live the next 20 years on 3 years salary? Then it’s an even bigger stretch to think your loved ones could do it, in your absence.
Your coverage should cover all of your outstanding debts (mortgage, loans, credit cards) while leaving the necessary funds to provide for your loved ones until they are in a position to provide for themselves. Use our calculator to identify all your insurance needs. It assesses your current debts and financial dependencies and makes sure you consider all the necessary coverage you might need. That rule of thumb? 👎.
3. They assume their employee-benefits insurance has them covered
Employee benefits, and the insurance products that accompany them, are often limited. In the case of life insurance, the potential payout is a maximum of 2 times your salary before it needs underwriting.
What’s more, this benefit disappears with job loss, and exercising the option to take over the plan on your own usually gets more expensive. Lastly, your life insurance is most likely gone when you need it most: post-retirement. You can potentially convert your employee plan when it ends, but it’s rarely worth the price. If you are healthy and insurable, it may be better to just buy a personal plan.
What this is all getting to: employer-provided life insurance plans are owned by the employer, and the employer can change the plan or benefits at any time – and the benefits are taxable if the employer pays part or all of the premiums. At the end of the day, employers worry about their bottom line; you need to worry about your own.
4. They think their mortgage insurance covers them
So you’ve purchased your dream home, and your mortgage provider convinced you to add on their mortgage insurance. While your motives are commendable, your lender’s are less so. We’ve covered this topic to death, with one clear conclusion each time: mortgage insurance mostly protects the lender.
Mortgage insurance is not guaranteed, in the event of your passing, your estate’s claim for your insurance will be underwritten and investigated. You pay a fixed fee with your mortgage payment while your coverage shrinks. Need we go on? Why pay your hard earned cash for a product with limited, inflexible coverage, when term life insurance suits your needs and offers you more protection.
5. They don’t compare prices
People comparison shop for everything. Well, almost everything. Insurance companies have made the process hard for consumers to drill down and find pricing and information to compare plans – and that’s if they present it online at all.
That kind of stinks. Not only can comparing plans across companies save you some money, but different providers have significantly different products, terms, and features. It would take you forever to gather the information from all of Canada’s leading insurers and get quotes relevant to your needs. If only someone put in all that work already.
6. They buy whole life insurance when their needs are temporary
Chances are you are contemplating life insurance to cover some big life changes. Marriage, new house, kids – these are all things that need protection should something happen to you. That said, you’re saving money, paying off your mortgage, and raising your children to one day leave the nest.
Thus, it’s tempting to purchase whole or permanent life insurance. You assume purchasing insurance that has the longest coverage is the best way to protect your family. Well, you’re dead wrong (no pun intended). Term life insurance covers you for a set period of time where you are most vulnerable, is less expensive than whole life insurance, and offers an umbrella of protection for your loved ones. Whole life insurance has its benefits as an investment and tax planning strategy but is rarely the right fit for many of the termporary needs of a typical Canadian family. If you later decide to pursue whole life or permanent insurance, you can convert some or all of your term policy without the need for a medical.
7. They just didn’t think about life insurance until it was too late
Ahhhhh insurance … Nobody wants it until they need it, and then they wish they had it the whole time. You can eventually contemplate how it may have been a waste of money if you didn’t utilize your plan, but what’s worse? Paying monthly premiums and never taking ill or passing away? Or instead, you get sick, disabled or pass away and have no funds for yourself or to leave to your family.
Don’t put it in your head that planning for the worst is a chore or negative thinking, and give yourself that excuse for procrastination. Look at it instead as setting your and your loved one’s minds at ease. It’s one less thing to worry about as you build a life for yourself, your partner, and your family. At the risk of a double negative, that’s NOT not-so-smart. Dare we even say, its brilliant.
We will give you the 8th one for free
It’s for those that read the first seven and still didn’t try out the tool that makes life insurance buying simple, easy and fun.