September is deemed insurance awareness month. The key there is awareness. There are two truths and a lie, in that order, with respect to life insurance. Life insurance can be hard to talk about. Imagining worst-case scenarios is kind of a downer. It’s better to sidestep an awkward conversation now and figure it out later.
Don’t put it off. Find time to read up on how life insurance works and the different types of policies you can consider. Then get the facts on the most common myths about term life insurance that you need to know today.
What is life insurance?
A life insurance policy pays your chosen beneficiaries when you pass away. Typically, that comes in the form of one lump sum from the insurance company, and its usually income tax-free. Insurance companies tend to make these payments within 14 to 60 days without the delays often associated with settling a will or estate. Generally, life insurance plans are split into two: term and permanent. We’ll cover term life insurance here.
Term insurance
Term life insurance means that the policy covers you over a set “term” or defined number of years, such as 10, 15, or 20 years. These policies have a fixed premium during their term period, making them easy to budget around. After the term period ends, you can choose to continue the coverage, but the premiums increase significantly and may change every year.
People often choose term insurance because it provides a specific payout and it’s much less expensive than permanent life insurance. For instance, you might select $500,000 worth of coverage to make sure your spouse has enough to pay off the mortgage if something were to happen to you. You can also time your coverage to match a particular need, such as a 20-year coverage for a child’s upbringing. Once your child is no longer financially dependent, you may find you don’t need as much coverage. Keep in mind, though, that after the policy term ends, you can continue your coverage, but your premiums might rise substantially.
You can purchase individual term life on your own or a group policy through your employer. Individual policies let you fine-tune the amount of coverage and the length of term, but usually require a medical checkup. That’s because insurance companies want to assess your risk factors and likelihood that they’ll need to make a payment to your loved ones. Group policies, on the other hand, are more cookie cutter and are generally set for a predetermined coverage and premium. Unless you opt for additional coverage, they rarely require a health assessment. And group policies rarely go with you if you change your job. It can be a good idea to take advantage of any group policies your employer may have, and supplement that coverage with an individual policy.
Myths about term life insurance
True or false? Many common beliefs about term life insurance aren’t totally accurate. If you guessed true, you got it. The industry has been changing rapidly, and what might have been a fact 10 or even 5 years ago isn’t necessarily the case today.
Life insurance is too expensive – it may be more affordable than you think. In a recent survey, 80% of people between ages 25 and 40 overestimated the cost of life insurance with more than 50% overestimating the actual cost by 3 times. Policy prices vary from person to person, so it’s smart to shop around and see what your costs may be. The estimated yearly cost of a $500,000, 20-year term insurance policy for a healthy, non-smoking 30-year-old female is $204.
I don’t need life insurance – Some people think they do not need life insurance until they are older or become a parent. You also don’t have to wait to apply for term life insurance until you’re a parent. Your beneficiary doesn’t have to be a child—it could be your partner or anyone else who relies on you. You can easily change your beneficiary if your family situation changes, and you can always list other family members. Applying for life insurance sooner than later could save you money in premiums. That’s because one factor in how much you pay, or qualifying for coverage at all, is your health. As you age, your risk for developing certain conditions increases. About 40% of those who hold life insurance policies wish they’d bought it at a younger age.
It’s a chore to apply for term life insurance – Not anymore, it’s actually easy to apply online. Online accessibility was accelerated by the pandemic, which created change by trying to eliminate or reduce the human interactions required to apply for a policy, like requiring a medical exam. In the past, you may have needed to see a doctor for a thorough health assessment and then meet with an insurance representative to sign a term life application. But now many, and sometimes all, of those steps are no longer necessary. These days, applying for term life insurance can be as easy as answering questions on your phone.
Life insurance offered by my employer is enough – Many employers offer a life insurance policy, but the coverage may not be enough for your family. The median workplace life insurance coverage is either just a flat sum of $20,000- or one-year’s salary. Of Canadian households that rely upon workplace life insurance coverage, 44% say their families would struggle financially in less than 6 months should a wage earner die unexpectedly. This isn’t to mention that if your employment situation changes you could lose your group coverage altogether. Instead of relying solely on workplace life insurance, consider it as a supplement to other coverage to help make sure your family is protected. It’s important to calculate how much coverage your family may need. One simple guideline is to aim for 10 to 12 times your annual salary and bonus, but individuals further from retirement may need more, while those closer to retirement may need less.
I only need life insurance if I’m working – If you’re not employed outside the home, it’s still important to consider life insurance. Although life insurance is typically thought of as a replacement for lost income, it could also be necessary to pay for childcare and household work in your absence. If you have a partner or spouse, plan your coverage together with your family in mind to make sure you’re both in the best position possible.
The bottom line
Term life insurance may be more affordable than you think and offer peace of mind for your loved ones in the long term. It is wise to always do due diligence on all your major life decisions. Start by considering getting a term insurance quote or read more about navigating life milestones.
If you’re ready to dig into how term life insurance might fit into your bigger financial picture, reach out and contact your financial advisor. You can then engage in a meaningful and informed conversation on what works for your personal or family situation. The effort is a step forward in Keeping Life Current.
No Comments - be the first.