Do you consider yourself well-versed in all matters life insurance, or have you avoided the topic altogether? If so, you're not alone. In fact, just 16 per cent of surveyed Canadians feel like they have a strong understanding of how life insurance works1. What's worse, there are several myths floating out there that people believe to be true.
We're setting the record straight by debunking six key myths.
"Just 16 per cent of surveyed Canadians feel like they have a strong understanding of how life insurance works."1 — BMO Wealth Institute
Myth No. 1: Life insurance is too complicated.
Thinking of the future ― in particular your own death ― can be depressing. On top of that, the various types of life insurance may seem confusing. Again, you're not alone in this: A whopping 88 per cent of surveyed Canadians aren't familiar with their life insurance options.2
But this is an important decision that impacts the future financial security of you and your loved ones. Better not to push it under the rug.
How does life insurance work? Let's start with the basics. There are two common types:
Term life insurance provides coverage for a set period of time — typically for 10, 20 or 30 years. Just enough time to repay your student loans, pay off your mortgage or until your kids have flown the nest. It's usually a good option if you're on the younger side, because the premiums are lower. Even better, it's flexible and allows you to choose the amount of coverage you need.
Permanent life insurance provides life-long protection, so long as you continue to pay your premiums. Depending on the product you choose, your premium rates may even stay the same as you age. You may prefer the comfort of knowing you'll have coverage for life.
With both types of life insurance, your beneficiaries may receive a cash benefit if you die. So if you signed up for a 10-year, $100,000 term life insurance policy, your beneficiary (like your spouse) may receive that amount if you were to pass away within the 10-year term.
Tip: Contrary to popular belief, the process for getting life insurance isn't that tricky or time-consuming. You can simply determine how much life insurance you need with our handy calculator and apply today online.
"88 per cent of surveyed Canadians aren't familiar with their life insurance options."2 – BMO Wealth Institute
Myth No. 2: Life insurance is too expensive.
A BMO Wealth Institute Report found that 38 per cent of surveyed Canadians believe life insurance is too expensive. The reality is, depending on your age, health and needs, life insurance could be cheaper than a dinner out.
For example: A $100,000, 10-year EasyTerm life insurance policy for a 30-year-old, female non-smoker could cost approximately $10 per month. So skip two of your favourite lattes or a meal with friends, and put those funds toward life insurance. It may be worth the comfort of knowing you're covered.
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Myth No. 3: I'm young and healthy ... I don't need life insurance.
Think about it like this: Your need for life insurance isn't so much related to your age as it is how much financial responsibility you have. If you're married, imagine if something happened to you, and your family had to go on without you or your income. Your spouse could be on the hook for debt incurred during the marriage, not to mention that they'll suddenly have to manage the mortgage payments and other expenses on their own. Life insurance can help ensure your spouse and children are financially taken care of, even after your death.
And even if you've recently graduated and have no partner or kids, should something happen to you, the cost of medical treatments not covered by government insurance, or the cost of a funeral could leave your loved ones, like your parents, with debt that they can't afford. If you have life insurance, the payout your beneficiaries receive upon your death can be used to help with these expenses.
Myth No. 4: The life and health insurance I have through work is enough.
You may have a life insurance policy through your employer and think you're good to go. But said insurance policy could fall short of your needs in case of a true emergency. You may want to check your benefits plan or ask your employer about what options are available to you. Is the amount sufficient to cover any potential funeral costs, loss of income, debt, etc.?
Tip: Even if your employer provides top-of-the-line life insurance coverage, the fact is that you may go on to bigger and brighter things at some point and no longer have life insurance coverage. When you buy individual life insurance, your coverage will go with you.
Myth No. 5: Only one of you needs life insurance.
You may think that only the primary income earner should get life insurance.But any time a family dynamic suddenly changes, there may be a sudden influx of expenses. Let's say you're a stay-at-home parent and your partner is working. If something happened to you, suddenly your partner is looking at funeral costs, childcare costs, and figuring out how to juggle work and family obligations while being a single parent.
We can all agree this doesn't paint a pretty picture. Life insurance can ensure a really terrible situation isn't made worse by significant financial consequences.
Myth No. 6: All I need are life and health insurance.
While both of these types of insurance are important, something else you may want to consider is critical illness insurance. If you're diagnosed with a critical illness, you and your family may face large, unexpected costs at a time when you (and possibly a loved one who is supporting you) may be unable to continue working. Critical illness insurance can help you avoid financial hardship as you work to beat your illness.
Some life insurance policies offer riders, which allow you to add critical illness or accidental disability insurance for an additional cost. Another option is to purchase critical illness cover separately.
It's true that we can't control everything that happens to us in life, but we can be better prepared for whatever it throws our way.
Are you thinking about getting a life insurance policy? Get a quote today!
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1Survey commissioned by BMO Life Assurance Company completed by Pollara between October 22–24, 2014, with an online sample of 1,002 Canadians 18 years of age and older.
2Survey commissioned by BMO Life Assurance Company completed by Pollara between July 2–4, 2014, with an online sample of 1,005 Canadians 18 years of age and older.
These comments are general in nature and should not be construed to be legal or tax advice, as each client’s situation is different.
Please consult your own legal and tax advisor.