The Facts About Life (Insurance)

According to a poll conducted by TD Insurance and Environics Research Group, which surveyed 1,500 Canadian adults, 3 in 10, or almost one-third of Canadians don’t have any life insurance. That means that they may be leaving their loved ones in a financial lurch once they’re gone. Here are 5 common myths and facts about life insurance.

1. MYTH: My employer’s life insurance program is adequate

FACT: Generally, employers may provide employees with life insurance that could be equal to one or two times their annual salary; sometimes you have an option to purchase up to six or seven times your salary. But, in today’s work environment, commissions, bonuses and second jobs often mean that your actual salary is a small part of your big income picture. An employer’s life insurance or group insurance is a good start, but it probably shouldn’t paint the whole picture. There may be limitations on how much and what type of coverage you can keep if you leave your job.

You may need additional individual insurance. Individual insurance is a contract between the client and the insurance company and not tied to an employer. It is portable if your employment changes and includes contractually guaranteed coverage, definitions and premiums. Experts suggest that you probably need somewhere between five to twelve times your salary to replace your income for dependents. And even if you can convert your employer policy to an individual policy down the road, it might be more expensive than purchasing that individual policy today, particularly if you are young and healthy. With these factors at play, you can view employer-offered insurance as a bonus.

2. MYTH: I’m not the main breadwinner, so I don’t need life insurance

FACT: People assume that if the person who brings home the proverbial bacon has insurance, then the household can function financially when that might mean hired help needs to be brought in to replace that person’s contribution to the household. Ensuring a breadwinner’s income is replaced through the use of life insurance is important but many members of the family make a contribution to the family enterprise. Even a stay-at-home spouse provides important services that would need to be replaced at his or her death, like child-care, in order for the income earning spouse to remain in the workplace. Having an insurance policy on the lower income spouse will also give the main breadwinner a chance to take time off with children, and help the family deal with their loss, should they lose that loved one.

3. MYTH: Life insurance is too expensive

FACT: According to industry research by LIMRA (Life Insurance and Market Research Association, now LIMRA International), almost 80% of consumers overestimate the cost of life insurance.2 But, life insurance can actually be very affordable. For example, if you are a healthy 35-year-old woman who doesn’t smoke, you could have $250,000 in potential life insurance coverage for 10 years for about $13 per month. The most expensive form of life insurance can be not having any insurance at all. A 30-year-old making $100,000 per year can expect to earn an indexed $6.3 million to age 65. The cost for a policy that would protect the family for the next 20 years would be a tiny fraction of the income that would be lost without insurance.

4. MYTH: I’m too young to worry about life insurance

FACT: Life insurance actually makes the most sense when you’re young since premiums will be much less expensive and you will have fewer assets to take care of your family when you’re gone. When you are older, and potentially have medical conditions, it may be difficult to buy insurance and if you can, it will likely be expensive. Generally speaking you should start thinking about insurance when there is an obligation to provide for someone else after your death. For example, an obligation to provide/care for a spouse, a young family, elderly parents or an obligation to fund a mortgage on the home so that the debt doesn’t outlive the person.

5. MYTH: Term life insurance is all I need

FACT: Term policies usually provide coverage to age 75 or 80, but premiums increase after a certain period of time — most commonly ten years — so when the policy renews and you’re ten years older, it is more expensive than the first time around. A permanent policy is designed to pay off whenever death occurs, and you always pay the same premium despite your age and medical history. The ideal situation might be a mix of temporary and permanent insurance.

There are many options for life insurance. To find out if life insurance is right for you, and how to address your unique needs, talk to your advisor. Life insurance allows us to keep together what we’ve put together. For a family, the loss of a spouse or parent can have a devastating financial impact on the remaining members. Life insurance can replace the income lost due to the death of a breadwinner and allow the family to maintain the standard of living they are accustomed to.

One reason that many don’t have life insurance is because death is hard to talk about and come to terms with. No one wants to think about their death and its consequences for loved ones. Canadians believe that life insurance is important but they put off the buying decision and so it’s not usually top of people’s priorities but it should be.

When people avoid discussing difficult topics,

that’s when myths propagate.

At TD Wealth Private Investment Advice, we take a holistic approach to wealth management. Meghan MacDonald would be pleased to offer a free, no obligation review of your family's wealth plan to ensure you have carefully considered all of your planning needs.

About Meghan MacDonald, CIM

Meghan is an Investment Advisor with the MacDonald Wealth Group, who serves retirees, business owners, professionals and their families throughout the Okanagan.

Meghan specializes in building relationships with, and meeting the unique wealth management needs of women investors.

1. TD Insurance. Canadians aren’t risk-takers, but they are taking risks. Accessed October 3, 2016 newswire.ca/news-releases/canadians-arent-risk-takers-but-they-are-taking-risks-546384852.html

2. LIMRA. 2015 Insurance Barometer Study Finds Americans Continue to Overestimate Cost of Life Insurance. Accessed October 3, 2016.

limra.com/Posts/PR/News_Releases/2015_Insurance_Barometer_Study_Finds_Americans_Continue_to_ Overestimate__Cost_of_Life_Insurance.aspx

This document was prepared by Meghan MacDonald, Investment Advisor for informational purposes only and is subject to change. The contents of this document are not endorsed by TD Wealth Private Investment Advice, a division of TD Waterhouse Canada Inc.