No one ever looks forward to going through the catalogue of insurance products, happily saying “I’ll pick this one, please!” Insurance means we are looking at what we can leave behind as our legacy; it’s a direct indication that we recognize our mortality.
Insurance doesn’t have to be difficult. Let’s take a quick look at some of the biggest myths that are important to recognise in finding insurance that is right for you.
- The stay-at-home partner doesn’t bring economic value to a family. This is the biggest myth! Think about it: if the family’s primary caregiver is suddenly no longer there, the remaining parent has to take time off for grieving, find a daycare provider, cook, clean, act as a taxi service, and so on. When you add all this up, you realize the contributions did indeed, bring a rather large economic value.
- Buying insurance online is cheaper than going through a broker. This is a myth simply because the price of insurance doesn’t change regardless of how you buy it. The bonus of using a broker is the individual attention you get and how they can custom tailor your insurance to fit your needs.
- Buy term and invest the rest. Here’s an interesting statistic that no one tells you: only 1% of all term policies are paid out. This is not because the insurance company doesn’t want to, but rather because most outlive the 10 or 20 years they are covered for. Purchasing a whole life or permanent policy allows you to be covered until 100 years of age, and has an investment component to it that generates a cash value that you can use for anything.
- The insurance you get as part of your group benefits is enough. Sadly, the flat amount or the multiple of your salary really doesn’t cover your family for their needs should something happen to you. A simple rule to calculate the amount of insurance you need is to multiply your annual income by five, then add your mortgage and debt. This gives your family the ability to continue living the life they know without having to change their lifestyle.
- “I’m young, and I don’t have a family, so I don’t need insurance.” Taking a policy out while you are young is the best time to do so – you are presumably healthier, and while you’re younger, the rates will be less. Why not be ready for your future by starting right now?
Insurance doesn’t have to be complicated. When I sit with clients, I like explaining insurance in 60 seconds or less – a lot of them will actually bring a stopwatch! Here is the simplest way to remember how insurance in Canada works:
Term Insurance is like renting an apartment. You rent it for 10 or 20 years, and when it’s time to renew, the premiums can go up five to eight times in price.
Universal Life is like a rent to own; simply put, you rent a block of insurance, and if you are still alive at 100-years-old, congratulations, you now own your policy.
Whole Life is like buying a home: you own it from the moment you pay your first premium. You pay for 20 years, just like a mortgage, and it’s yours. It is the most valuable policy, as you participate in the profits of the insurance company, which is paid to you as a tax-free dividend every year for life.
When you make the decision to purchase an insurance policy, make sure you reach out to an independent insurance broker. They will make sure you get exactly what you need.
Jane Cotnam | Independent insurance broker
4211 Yonge Street, Suite 245, Toronto, ON M2P 2A9