Ask Yourself These Two Questions before Buying Insurance
We’re all bombarded with insurance on everything that we buy, everything that we do and even on our own lives. If you went through your bank statement and added up all the premiums you pay every month for insurance you’d be surprised at how much insurance costs you. Is it all really worth it?
I think most Canadians spend far too much money on their insurance. That’s all their insurance combined. You can buy insurance on just about anything, like your big-screen TV, cars, motorbikes, boats, your house, your income, your health and even your life. But next time somebody offers you insurance and need you to ask yourself two simple questions; 1) what is the likelihood of the event occurring, and 2) what is the financial impact to you and your family.
What is the Likelihood?
If somebody is selling your insurance on a $1,000 big-screen TV and a three-year warranty would cost an additional $300 that’s a 30% premium to protect your investment in a television. So let’s apply our test. What is the likelihood of the TV will break within three years? Probably fairly high. There is a pretty good chance that a complex electronic device like a large flatscreen TV could have a defect or get damaged in the next three years.
What is the Financial Impact?
Now, what is the financial impact to you or your family? The maximum you’ll be out for the TV is $1,000. In reality the price for that TV will probably go down over the next three years so you’ll only be out $700 or $800. In this case the financial impact to the family is very limited and the cost of the insurance is very high. This is not the type of insurance to buy.
Apply the test personal insurance products
What about your income? What if you got injured or sick and could not go to work and your income stopped? Again, let’s apply the same test. What is the likelihood of becoming disabled over your working career? Actually it’s very high. There is about a 45% chance that every worker in Canada will experience at least one period of long-term disability in his/her lifetime. And if your disability lasts more than 90 days the average time off work is 2.9 years. So, our first test shows a high likelihood of the event occurring. Let’s look at the impact. If you were off work for three months, six months, a year or longer would you be able to pay your bills? Would you be able to pay your mortgage, put food on the table, pay for utilities and just maintain your lifestyle? For most Canadians with no disability income protection insurance this would be impossible. The financial impact would be huge. Families could lose their home, their retirement savings, and possibly even go bankrupt. So our second test, financial impact, shows there is a lot to lose if the event occurred. Therefore, ensuring your income with proper disability insurance makes a lot of sense and this is a type of insurance to buy.
Life insurance is also another expensive insurance product. If we apply the same test we have the following results: likelihood – there is about a 10% chance a Canadian would have a premature death before the age of 65; financial impact – the costs associated with premature death plus the permanent loss of all future financial contributions of an income earner or parent can be devastating to a family. Even though the chances of death are much lower than disability the financial impact is far greater. So when weighing up if you should have life insurance, this too is a must-have type of insurance policy.
There are some things we’re forced to have insurance on. He can’t drive a car without it being insured. You can’t get a mortgage from the bank without your property being insured. This makes sense because the government and the bank knows the financial impact and the chances of it happening are both high, and therefore they want insurance to protect the public or the loan they have given you. But no one is forcing you to ensure your life, to protect your loved ones, or ensure your income to guarantee your lifestyle. These insurances are optional and you have the choice, either insure the risk and have somebody else pay if you get sick, hurt or die prematurely; or take the risk on yourself and pay out-of-pocket and face the financial consequences should any of these events happened to you.
Life, disability, and health insurance makes sense. You should be protected. We can help you at Life Guard Insurance find the right policy to protect your family and your lifestyle, and fit into your budget, and we would like to help. Please contact us for free no obligation quote an assessment of your insurance needs.
Whether you are on short term or long term disability, adjusting to a new lifestyle can be difficult and oftentimes emotionally taxing on individuals. Life on disability can be a huge adjustment; not only does that mean that your ailments have left you unable to work but you are suddenly forced to live a more sedentary based lifestyle. Whether you are on disability insurance for physical or psychological disabilities, understanding your value is one of the most important ways to adjust to your new lifestyle.
Understanding Your Value
Because your workplace has consistently been your form of identity, it can be a challenge for people who are newly on disability to adapt to a different lifestyle. Just because you are no longer working, doesn’t mean that you don’t have an identity that is valuable to the community around you. Try finding a passion in a hobby, physical activity, or through volunteering; not only will you be able to contribute to your community but to your personal goals as well.
Get Into a Routine
Coming from a consistent career where you are accustomed to a daily routine, it can be a huge adjustment to suddenly be on disability and not have anywhere to be. However, getting into a consistent routine will help brighten your spirits and give you the motivation to get things accomplished every day. Whether you’re routine consists of getting up early to go to physical therapy or to go swim a few laps, make sure to include some sort of physical activity in order to get your heart rate up. Make sure to always consult your physician on what type of physical activity you can work on.
Work Towards a Goal
Working towards a goal is a great way to stay motivated, feel valuable, and boost your self-esteem. Just because you are collecting disability insurance and are unable to work, doesn’t mean that you can’t set small personal goals for yourself. Working towards a goal is a great way to stay motivated and feel important. After all, nobody wants to feel like they have failed themselves or their family because they are no longer able to work.
- Setting Goals: Set Small Goals that are easy to attain at first and then slowly work up to larger goals. Such as setting up a physical fitness goal or a goal to volunteer at your church or some sort of community organization.
- Celebrate: Celebrate your accomplishments as soon as you finish a goal by doing something nice for yourself. This will help maintain a strong self-esteem and is a great way to get excited about celebrating new goals.
Annie Babbitt Annie Babbitt writes about her interest in current events, political science, and philosophy. She has worked for a US immigration lawyer for the past 5 years and loves being an advocate for those in need.
Is a Return of Premium (ROP) Rider Worth It?
Disability is expensive enough – why add return of premium?
For many people who are self-employed or who don’t have employer sponsored group disability coverage, buying a personal disability insurance policy is a must. This seems like a no-brainer, but most people are surprised at the cost of disability insurance when they purchase it privately.
Yes, disability insurance is more expensive than life insurance. Significantly more! Simply put, the chances of claiming a disability insurance policy for at least one period of long term disability in your working career are about 50%. That means one in two working Canadians will experience at least one period of disability, due to injury or illness, which keeps them off work for 90 days or more. And, if you’re off work for more than 90 days the average amount of time spent on disability claim is 2.9 years! Wow!
The #1 need is income protection
In this article we will discuss the cost/benefit analysis of having a return of premium rider on your disability insurance policy. That being said, the most important thing when buying disability insurance is to have enough income protection in place to ensure that your lifestyle and monthly bills are covered. After that we can look towards building value into a plan with pseudo-equity component which is the ROP rider.
You should never decide not to get disability insurance based on the cost of the ROP rider. This should always be considered an extra feature for those with more than enough disposable income to afford the option. Get income protection first – add value features after.
Is a Return of Premium Rider worth the cost?
There are two main insurance companies that offer a good return of premium rider on their disability insurance policies – Canada Life and Manulife. These riders are very similar. With Canada Life you can get back 50% of all your premiums once every 7 years. With Manulife you can get back 50% or 60% of your premiums once every 8 years.
The rules are simple. You must pay all your premiums over the time period. Secondly, if you have had any claims, the amount of your claim will be deducted from your return of premium amount before payout. So, if you have had a period of long-term claim it is most likely you will no longer qualify for a return of premium payment.
ROP rider on disability insurance is like having “insurance on your insurance”. In case you never get sick and never have a claim a portion of your total premiums will be returned to you, tax free. So, if you never get sick or hurt, and never make a claim, your actual cost for insurance goes down – by a lot!
If you do have a claim then the reality is you paid more for your disability insurance than another person with exactly the same coverage and no ROP rider. So, is it worth it?
ROP Rider Analysis
With just over 50% of Canadian workers NEVER having a long-term disability, then chances are slightly in your favour you will not make a claim (but still the risk is too high not to have disability insurance protection). Let’s take a look at two examples from Manulife’s 60% ROP option (the most expensive rider).
If our client is a 40 year old man, non-smoker with $6,000 of disability insurance, and assuming he is in an office job (class 3A occupation to determine disability insurance costs), his basic premium for a top of the line, professional insurance policy (Proguard from Manulife) would cost $238.41 per month.
If this same man was to take the ROP rider as an option, his premium would increase to $369.54 per month. The rider costs an additional $131.13 per month. No, let’s assume he never has a disability claim during his working career. In this case he would get back $20,530 after every 8 years. His premiums would therefore be reduced by 60%. His actual net premium payable is $155.69 per month. This is a significant decrease over the base premium of $238.41.
Now, let’s assume he did have one period of long term disability, wiping out one of his $20,530 premium returns over the course of him owning this policy. He will still receive back a total of $43,626. His total premium expenditure would be $106,428 (assuming a 2 year disability period where premiums were waived). His net premiums payable are $201.29 per month over a 24 year period. Still a discount!
ROP on Disability Insurance Worthwhile – If you can afford it
For those who have the financial resources to afford this rider, if can be a strong return on investment and protection for your long-term premiums in case you never get sick. I do suggest you invest your money firstly into RRSPs and a TFSA, as these long-term investments allow for tax-sheltered growth of funds and retirement income. Once you are maximizing these investments, you can build in a ROP rider onto your disability insurance policy to create some real value out of disability insurance – which has traditionally been a pure cost insurance policy.
Contact Life Guard Insurance today for a free, no obligation quote and analysis of your disability insurance needs and see whether or not a return of premium rider would be a wise invest for you.
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Make 1.55%1 on your cash savings with the online bank you can count on
Over the past six months, some online banks have changed ownership and dropped interest rates on their personal savings accounts. If this has happened with your bank, it’s an ideal time to review your options to see if there is something better for you. One option is Advantage Account, offered by Manulife Bank.
About Manulife Bank
Manulife Bank is a Schedule 1 bank owned by Manulife Financial. An online bank, it’s been in business for 20 years and is Canada’s eighth-largest domestic bank. Manulife Bank works closely with financial advisors, like our team here at Life Guard Insurance, to help Canadians integrate premium banking products into their financial portfolios.
About Advantage Account – 1.55%
Are you looking for a savings account with a proven history of strong rate performance? Look no further. You can count on Manulife Bank to provide you with market-leading rates on your personal savings.
Here’s how Advantage Account compares to some other online banks:
- Manulife Bank Advantage Account 1.55%1
- Ally High Interest Savings Account 1.20%2
- ING Investment Savings Account 1.35%3
What about fees?
With Advantage Account, you can transfer your money online or over the phone and make deposits with no fees. Plus, a number of other transaction types are available for a small fee. Visit manulifebank.ca for a full fee schedule.
How do I make the switch?
Whether your have your savings with another bank or just want to start saving, I can help you get market-leading rates with an Advantage Account. Simply contact us and we can help you get started.
1 As of March 12, 2013, the variable interest rate of 1.55% is applied to all funds in Advantage Account. Interest is calculated daily on the total daily balance and paid monthly. Rates are subject to change. Advantage Account is offered through Manulife Bank of Canada. Manulife, Manulife Bank, the Manulife Bank For Your Future logo and the Block Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates, under license.
2 As at March 12, 2013, the interest rate for the Ally High interest savings account is 1.20%. Source: www.ally.ca/en/high-interest-savings/rates
3 As at March 12, 2013, the interest rate for the ING Investment Savings Account is 1.35%. Source: www.ingdirect.ca/en/accounts-rates/ourrates
What Does Your Mortgage Mean To You?
What are you protecting when you insure your mortgage?
When a family or individual borrows money from the bank to finance a home, be it a traditional mortgage or home line of credit, they are going into significant debt for their home ownership. It would be nice if we could all save up the $300,000 to $500,000 to buy a home in Canada, but that would take too long. We Canadians want it all right now – the big house, nice cars, all our electronic toys, etc. This has led to a culture of debt – we borrow to have the things we want today.
There is Good Debt and Bad Debt
When borrowing money, we’ve all heard the term good debt and bad debt. This basically means that the purpose of our borrowing will either create value or create additional cost. For instance, if you borrow money to buy a car, and that car allows you to accept a higher paying job further away from home because you can now commute to work, this is good debt. If you borrow money to buy a very expensive sports car or big truck which has no practical purpose (just for fun or show) this is bad debt, because the interest on the loan has no real purpose. It just adds cost.
Generally home buying and mortgages are good debt. So long as you can afford the mortgage payments now and in the long-term, a home not only retains its value, it increases its value over time. The interest you are paying on the mortgage can be very costly, but you are also paying off the principle in the home, and building value. Considering that you would need a place to live anyway, you have three choices: 1) Rent; 2) Buy with a Mortgage; 3) Buy with all Cash Down. Since most people can’t afford to buy a house for cash, they really have only two choices. Renting is a pure cost and brings no long-term value. It only provides the home and shelter you need. A mortgage gives you the home and shelter PLUS builds value, in exchange for paying an interest rate on the money loaned to buy the house.
Are you Insuring your Mortgage?
When taking out a mortgage with a bank or other lender, they will invariably offer you a mortgage life insurance policy. Firstly, insuring the very large debt of a mortgage is a good idea, and everyone should have their debts covered in case a bread-winner or caregiver in the family dies prematurely. That being said, there is good life insurance and bad life insurance! The bank’s mortgage life insurance policy falls into the Bad Life Insurance category. And here’s why:
- The bank owns the policy.
- The bank controls the policy and will cancel coverage if you leave them for another lender.
- The bank is the 100% beneficiary of the policy – your family gets $0 cash.
- It’s the bank’s risk that needs to be insured – they lent you the money.
- The policy is a declining benefit with a constant premium – as you pay off your mortgage you have less and less life insurance but your payments remain the same.
- You’re paying the premium for the bank’s life insurance plan!
There is a far better option to having the bank’s mortgage life insurance policy – personal life insurance. Owning a personal life insurance policy is far better for the following reasons:
- The cost of term life insurance is usually cheaper than the bank’s premium rates.
- You can cover off more than just your mortgage – you can protect your family’s lifestyle too.
- You can lock in premiums for a long time, like 20 or 30 years or even for life.
- The life insurance benefit does not decrease as you pay off your mortgage.
- Your family receives 100% of the death benefit as a tax free cash payout, which gives them options.
- You can take your personal life insurance with you where-ever you go, even if you leave Canada.
- You can choose to have a policy that is similar to buying a home, with a cash value and eventual ownership of the full life insurance benefit.
Are you insuring a debt or protecting your family’s lifestyle?
The question to me is what are you protecting? If you’re only focused on a debt, and making sure the debt is paid off, then I guess you can stick with the bank’s mortgage life insurance policy. It might be a little more expensive than personal life insurance, but it is convenient to buy. But, if your home represents more than just a debt; if it represents your family’s life, a place of love, a place to build a future and fulfill your dreams, then you are protecting far more than the bank’s debt. You should be focused on protecting the future hopes, dreams and lifestyle that your family has, and that requires proper life insurance planning with a qualified and licensed life insurance professional.
If you would like to discuss your family’s life insurance needs, and compare personal life insurance to the bank’s mortgage life insurance policy, please contact us today. We would be happy to provide you with a free, no obligation quote and financial needs assessment to make sure your family is properly insured.
Procrastination Can Kill Your Chances of Buying Life Insurance
Life Insurance is here today, gone tomorrow
If you’re like most people, the idea of buying life insurance seems like a chore – something that is easily put off until tomorrow. Well, for the procrastinator in all of us we know that tomorrow never comes. It’s a funny thing that we all put off important things for “another day”, especially when they seem uncomfortable or costly. Buying life insurance can be both – a discussion about what will happen to your family should you die prematurely and having to pay an ongoing monthly premium. There’s two good reasons to procrastinate when buying life insurance.
Unfortunately, this type of procrastination can lead to some very unfortunate outcomes. Let’s examine the two big ones.
Life Insurance gets more expensive as you age
Some people put off buying life insurance for years and years. I am presently going back and phoning some of the people who contacted Life Guard Insurance over 2 years ago requesting quotes and information. For those whom I never connected with or who never bought insurance, almost 50% never bought anything and are still “thinking about it”.
Every year you age life insurance gets more expensive. This is usually about a 4 – 5% increase of premium each year. When you’re young, and life insurance is relatively cheap, this doesn’t seem to make much difference. But, as you age these annual premium increases can far exceed your income growth and make life insurance unaffordable. Many people who wait too long to buy the life insurance they need often have to settle for a smaller amount of coverage because they just can’t afford the premium for the insurance they should have.
Let’s look at a 5 year delay in buying life insurance, and how big a difference it makes on premiums. For our example we will have two people, both male, both non-smokers, aged 30 and 60. The 30 year old needs $500,000 of coverage, and procrastinates in buying it for 5 years, while the 60 year old needs only $200,000 coverage and he too procrastinates for 5 years. They are both buying 20 year term policies.
30 Year Old – Premium today is $37.68 per month. At age 35 the same policy will cost $40.24. That is a percentage increase of only 6.8% over 5 years. Very low!
60 Year Old – Premium today is $209.88 per month. At age 65 the same policy will cost $314.28. That is a percentage increase of 49.7% over 5 years. The cost of waiting is Very High!
As you can see, the cost of procrastinating when buying your life insurance increases dramatically as you get older.
Life Insurance is bought with health, not dollars
The one thing most Canadians don’t realize is that life insurance can only be bought when you are health enough to qualify for coverage. If your health changes for the worse, like a diagnosis of cancer, there is not way you will qualify for life insurance coverage. It would be like trying to buy home owner’s insurance while you’re watching your house burn down. It’s just too late.
So many times I have been contacted here at Life Guard Insurance by a person who is desperately trying to find coverage after they received bad news from their doctor. And in every case like this the person has told me they always meant to buy life insurance, it’s just that they never got around to it.
There are two outcomes when you are diagnosed with a health condition:
- 1. You will receive a rated policy, meaning you are no longer healthy enough for standard rates and must pay extra for your life insurance. This extra amount could be as low as 50% more and as high as 250% above standard rates.
- 2. You could be postponed, meaning the diagnosis is too recent and the life insurance company wants to wait and see how treatment and/or recovery will look like in a year or two. The insurance company is not saying no, just not right now. They might still decline coverage in the future, but if things look good then they will likely offer a rated policy.
- 3. You are declined for coverage, meaning you are now too high a risk for life insurance and the life insurance company will not take you. Most declines are permanent in nature, so the insurance company doesn’t want to ever see an application from you again.
This is why you should not procrastinate when buying life insurance. Firstly, the cost of life insurance automatically goes up every year you get older. Secondly, you might become uninsurable or be a rated risk and have to pay a lot more for coverage. Both scenarios are less favourable to buying life insurance NOW, while you are healthy (hopefully) and as young as you’re ever going to get.
If you would like to get a free, no obligation quote for life insurance, please contact us today. We would be happy to show you the different options for life insurance in Canada and find the most competitive premiums to meet your needs.
Proper Health Insurance Plans Can Keep Your Investments on Track
Don’t risk your savings and assets for lack of proper health insurance plans
Health insurance in Canada is so much more than just a prescription drug and dental plan. Have you ever heard the saying, “Your health is your wealth.” Simpy put, we all need to remain healthy to be able to work and provide for our families. When your health goes, your retirement savings, equity in your house and emergency savings plan can quickly follow. With health risks being the #1 financial risk every Canadian faces (much higher risk than passing away prematurely) we need to make sure our investments are secure while we pay the high costs of recovering from an illness.
Critical Illness Insurance to Protect Your Assets
The first line of defence against health risks is to purchase a critical illness insurance policy. This type of insurance pays out a tax free, lump sum, living benefit to YOU, 30 days after diagnosis of a life altering illness or injury. The Big 4 critical illnesses (making up over 80% of all claims) are Cancer, Heart Attack, Stroke and Bypass Surgery. Most policies cover 24 major illnesses and injuries, including the Big 4, and have partial payouts for non-life threatening diagnoses too.
In the case of a critical illness, like cancer, you might have to take years off work to full recover. You might need expensive medications, assistance with daily living activities because you are too sick to cook, clean and take care of the kids. Your spouse might take a leave of absence from work to be at your side through the worst of times – meaning no income to the family and living off savings. This is where a critical illness insurance policy kicks in, providing you and your family with much need cash to take care of financial concerns while you are recovering and undergoing treatment.
Disability Insurance to Maintain Your Income
For those who do not have a group benefits plan because you are self-employed or working for a smaller company without benefits, you need to protect your cash flow. Almost 50% of Canadians will experience at least 1 period of long-term disability! You don’t want to become a statistic. It might not be cheap, but disability insurance is a must for all workers without coverage.
If you are disabled, and can’t go to work, your disability insurance policy will pay you a tax free,monthly income benefit. This will replace your lost income to pay the mortgage, utilities, put food on the table, etc. How long would you be able to keep up your lifestyle and provide for your family if income suddenly stopped? What if you were off work for 2 or 3 years in recovery from a major injury or illness? It happens everyday to Canadian workers, and unfortunately about half of the time they have no disability insurance.
Long Term Care Insurance to Secure Your Retirement
When going into your retirement years, you are probably planning on living on a fixed income. There is often only a certain amount of money available for monthly living expenses, and no more. What if you suddenly had to add an additional $3,000 to $5,000 per month on top of your monthly bills to provide long-term care as you become elderly and frail? This can mean your retirement nest egg might suddenly disappear in a few years, leaving you reliant on adult children to care for you.
What if you had an insurance policy that paid out a weekly or month benefit, tax free, to help with the high cost of long-term care? This is what Long Term Care Insurance does. When you really need help with things like feeding yourself, dressing, bathing, or you are suffering from dementia and can no longer be left alone, your Long Term Care Insurance policy start paying out tax free benefits to help pay the costs of this care. This protects your retirement nest-egg from being quickly depleted and gives you the financial resources to age with dignity.
If you’ve never looked into health insurance plans like these before, we can help. At Life Guard Insurance we are experts in providing individuals, families and small business owners with the health insurance plans they need in Canada. Contact us today for a free, no obligation quote and a complimentary needs analysis.
I’m Excited to Sell Insurance. Are You Excited to Buy It?
Life Insurance: Probably not the most exciting purchase you’ll ever make
I don’t think I’ve ever met anyone who rolled out of bed saying, “This is a wonderful day – the day I buy Life Insurance!” I know that your insurance broker (counting myself among the group of life insurance brokers) is probably a lot more excited about selling you a policy than you are about buying one. And not just because of the commissions he/she will earn on the sale. Your broker understands how proper financial risk protection can benefit a family, how permanent life insurance can offer “investors” a rich and tax sheltered cash value, and how a person’s and family’s future can go on, no matter what life throws at them. We brokers have internal rewards and motivation to sell life insurance policies – not just commissions.
Does buying life insurance make you feel good?
When you purchase life insurance it should make you feel safe, secure and confident you have protected the one’s you love. That should make you feel good. Also, setting aside financial worries, like worrying about what would happen to your family if you died, is also a relief. Once your life insurance is in place you can have peace of mind and those worries are resolved.
Still, getting life insurance isn’t an exciting purchase. It’s not like shopping for a new sports car, or booking that exotic vacation you’ve always dreamed of. Those things are exciting purchases – and they can bring real joy to your life. Unfortunately, life insurance just feels like another bill you’re paying for each month. Something that could be avoided if you turned a blind eye to the possible risks to your life and the financial reality your family would face without your support or income. You can choose to be without life insurance. Sure! I’m not saying it’s a wise thing to do – but you can go without it.
When your family claims on your life insurance policy, that bill suddenly become the wisest investment you ever made!
Being financially responsible has its own rewards
While the process of buying life insurance is not the most fun, the rewards of having a policy that protects your family are great. You know that the tax free money paid from your life insurance policy will be a HUGE relief to your spouse and kids if anything were to happen to you. You’ve set up a plan that will look after their daily needs for years to come, when you are no longer there to provide for them. Making sure the mortgage is paid off, bills are paid, food is on the table, money is set aside for emergency expenses, that children can go to college or university, and your spouse won’t have to sell the house to make ends meet is why we buy life insurance. It’s a good feeling! It’s your way of saying, “I love you and I will protect you.” even beyond the grave.
Now, let’s be prepared. Buying life insurance is actually a slow and sometimes annoying process. Here are the steps to go through before you have a policy:
- Meet with an insurance advisor/broker and discuss the “what ifs” around your death and mortality
- Have a paramedical exam – with needles, urine specimens, height and weight measurements, etc.
- Wait about 6 weeks for the underwriter to make a final decision
- Meet your insurance advisor again to accept your life insurance policy
Not fast, and not what most people would call A Good Time, but necessary. At Life Guard Insurance our advisors help take the stress out of this process. We can discover exactly how much life insurance you should have, find the most competitive premiums in Canada for you, keep you informed all throughout the underwriting process, and finally be your trusted insurance advisor for years to come.
Contact us today for a free, no obligation quote and/or financial needs analysis to see how much life insurance you need. We would love to help you and become your trusted insurance advisor.
Are You Relying 100% on Group Life Insurance?
Your employee benefits plan was never meant to be your only source of financial protection
Many people who have an employee benefits plan rely 100% on the group employee life insurance and forgo buying personal life insurance. Is this wise? Will a group life insurance benefit be enough for your family? For many Canadians who have never completed a full financial needs analysis, and are ignorant about their real risk exposure, they think this is enough life insurance.
Well, it does sound like a lot. Most group life insurance plans offer about 2 times your gross salary in the form of a life insurance benefit. If you are earning $80,000 per year, this is a $160,000 life insurance policy. Let’s assume that is all a person has for life insurance when they pass on. Their family would lose all their future earning potential plus have to pay the bills and make ends meet. Even if we factored taxes and other payroll deduction into the picture (minus 25%), and discounted the amount of money required by surviving family at 25% because the one parent/spouse is gone, this still leaves an annual income need of $40,000. With $160,000 of capital, spending $40,000 per year, the family will be out of money in 4 short years. Then What!
Factoring group life insurance into your life insurance plan
The fact that you have group employee life insurance is a good thing. Having it should not be dismissed. When completing a full life insurance needs analysis, you should include the amount of life insurance you have through your group plan into the calculations. This will reduce your need to buy such a large personal life insurance policy.
You will be surprise, however, at how much life insurance a person actually needs. I’m not going to go into all the details of a life insurance needs calculation, as it is always specific to each person’s/family’s unique situation. I will tell you that on average, using a rough rule of thumb, the average person needs 8 – 10 times their gross annual income in life insurance to properly protect their family and loved ones. A life insurance company will readily offer Canadians 20 – 25 times their gross annual income in total life insurance protection, so long as they can afford the premiums, as this amount is reasonably justified in the eyes of an insurance company.
If all you have is 2 times your gross annual earnings in group life insurance, you are drastically under-insured.
Your group life insurance policy is only good while you’re an employee
Another thing to realize is that group life insurance, provided as an employee benefit, is only good while you are an active employee. The moment you retire or terminate your employment, this coverage stops and you have nothing. Far too often I am trying to help people who have taken retirement and are now without any life insurance. They have become accustomed to having financial protection, and feel naked without it. Very often they still have debts and financial obligations that need to be insured.
It can be very difficult and expensive for an older person to qualify for life insurance. The older you are, the greater the chances of having a health condition that would make getting life insurance difficult. Also, premiums rise each year so that by the time you’re 65 it is no longer a cheap proposition to buy life insurance.
Taking control of your personal and family risk management when you are younger, earning an income and still in good health is the best time to buy life insurance. Contact Life Guard Insurance today for a free, no-obligation life insurance quote and a free life insurance needs analysis and report. We would love to help you get the right amount of life insurance you need, take control of your insurance plans, and design a plan that is affordable.