When my boyfriend and I moved into our first apartment together, life insurance never crossed our minds. We both had decent-paying jobs and we were splitting the rent and expenses. Our only cares were whether we needed to go grocery shopping and whose turn it was to clean the bathroom.
Fast-forward three years.
It was only when that boyfriend became my husband and we bought our very first home in Toronto that we thought about life insurance again. All of a sudden I was 27 years old with a fluctuating income and a mortgage over my head. If anything were to happen to either of us, would we want the other person to be stuck paying the entire mortgage alone and risk losing the house?
Not a chance.
This is why as young newlyweds and new homeowners we finally bought life insurance. We depend on two incomes to cover our living expenses and this brand-new thing called a mortgage. We decided on an insurance policy that, if anything were to happen to one of us, would pay the survivor a tax-free lump sum sufficient to pay off the balance of our mortgage. It’s a tough conversation to have, but a necessary decision that’s all part of growing up.
Over the years, we have switched careers, started new businesses and leaned on each other for emotional and financial support during times of career transition. Chalk it up to being in your 20s, but there were times when I relied on my husband’s income and vice-versa. Having life insurance during these uncertain periods of our lives was reassuring because I knew that my significant other would be taken care of no matter what. The house, our debts and our mortgage would be the last thing we would have to worry about if tragedy were ever to strike.
Now, you may have some sort of group life insurance through your employer as part of your benefits package. But this benefit ends if you leave the company. For myself, I see it as an added bonus – but not the main insurance policy that I personally rely on.
So what type of life insurance should you get?
In Canada, there are three types to choose from: term, permanent and universal. Here’s a quick overview of each:
- Term. A low-cost, temporary option when money is tight and your financial obligations (such as a mortgage or young children) are heavy. You buy the policy for a certain term, such as the length of your mortgage. If you choose, you can arrange to have it automatically renew at the end of the term. Once you decide on the amount of insurance you need, it does not change. However, your premium will increase every five, 10 or 20 years, as you get older. This policy accumulates no cash value.
- Permanent. This type of policy covers you for life and is generally a more cost-effective financial choice in the long run than term insurance. It does not need to be renewed the way a term policy does. Like term, once you’ve chosen the insurance amount, it does not change. However, permanent life insurance premiums are higher than term insurance when you’re younger, but lower when you get older. Permanent life insurance policies usually accumulate a cash value, which can be paid out to you if you cancel the policy.
- Universal. A universal life insurance policy typically provides lifetime protection and offers much more flexibility than conventional permanent plans. Premiums may increase from year to year or stay level throughout your life, depending on your policy. The real benefit is this: If you make payments greater than the required cost of your policy, the extra can be invested and grow tax-deferred.
Another type of coverage is mortgage protection insurance, which combines term life insurance and critical illness insurance to protect your family from the financial impact of your death or serious illness.
When I first began to think of life insurance, I was already overwhelmed with all the details involved in dealing with a new house and mortgage. It can be a lot to take in. I recommend learning more about the three different types of insurance and then discussing your options with an insurance advisor. Use this calculator to estimate your life insurance coverage requirements.