Finance

Experts weigh in on whether younger generations need life insurance

Life insurance may not be top of mind for many young Canadians, but experts say age shouldn’t be the deciding factor in getting such coverage.

According to insurance technology company Zelros, younger people across Canada, the US and Europe are less likely to have life insurance compared to older generations, with just over half of those aged 18 to 34 covered.

But certified financial planner Jackie Porter says the decision on whether to get life insurance isn’t how old you are, but where you’re at in life.

If you have dependents, such as children, or owe a large sum of money, such as a mortgage, you should look into life insurance, Porter said. You could be 25 or 35 – it’s all about whether someone else is dependent on you and would be in financial trouble if you died.

Porter added that dependents can also be your elderly parents or your spouse if you have a joint mortgage or make significantly more money than them.

Andrew Ostro, co-founder and CEO of digital life insurance company PolicyMe, said his company sees the most users between the ages of 35 and 45.

“When you start having a family, when you start getting a mortgage, that’s when it really starts.”

If you’re 25, single and no kids, the PoliciMe algorithm would tell you that you don’t get life insurance, Ostro said; at that stage in life, he’d rather see your money put into a savings vehicle than life insurance.

The big question to ask is whether someone is relying on your future income, Ostro said.

If you don’t have dependents or a lot of debt, Porter suggests looking at “life insurance” instead, such as critical illness insurance, for coverage that will help if something happens that affects your income.

According to the Canadian Life and Health Insurance Association (CLHIA), 22 million Canadians have life insurance, with 83 percent of life insurance sold to individuals and the remainder as group plans.

There are two broad types of life insurance, according to CLHIA. Term insurance covers a specific period of time, such as five or 10 years, and premiums usually increase with each term. Term insurance can usually be converted into permanent insurance, which is for lifetime protection and can also be used to cover financial emergencies or to supplement retirement income. Meanwhile, whole and universal are two different types of permanent life insurance.

Term life insurance is for people who have time-limited expenses, such as a mortgage, while permanent insurance is for whole life, said Sarah Hobbs, director of policy at CLHIA. Premiums for permanent life insurance are usually higher, and there are add-ons that can cover expenses during your lifetime, such as long-term care.

Most younger people who are good candidates for life insurance should get term insurance, Porter said. The term should be consistent with the length of time your mortgage will take to be paid off, for example, or the approximate length of time your children will be financially dependent on you.

When it comes to how much coverage to get, Ostro recommends getting enough to pay off the mortgage, plus whatever it would take to keep your dependents financially stable.

For most people, life insurance isn’t that expensive, Ostro said. For example, someone in their mid-30s might only pay between $30 and $40 a month, he said — although if you smoke, you’re looking at double the premiums regardless of age.

Your premiums can become more expensive when you renew, so while long-term premiums may cost a little more per month, they’re worth it in the long run, Ostro said.

Except for mortgages with more than one person, the debt doesn’t go directly to your dependents, but is paid off with your assets, meaning there would be less of your assets and savings to split between your family, Ostro said. So you should include all debt in your coverage calculation.

There are people who should get life insurance before they become parents, Porter said. Because you can lock in lower premiums when your health is good, anyone with health concerns based on family history who plans to start a family within a few years should lock in those premiums now before a future illness drives up insurance costs.

Many people have life insurance through workplace benefits, known as group insurance, but they may not know what that insurance actually includes.

Group life insurance typically covers less, Hobbs said. For many younger people, that may be enough, but you shouldn’t assume it is — she suggests reading your policy and deciding whether to supplement it with an individual policy, as many people do.

Most group life insurance covers between $50,000 and $100,000, Ostro said. It may sound like a lot of money, but it’s definitely not enough to cover, say, two kids until they’re financially independent.

You should consider your work politics secondary, not primary, Porter said, especially since you may not be in that workplace forever. The policy may be sufficient for your current lifetime, but if you have dependents, she recommends you get an individual policy.

“It’s a good idea to read up on exactly what you’re covered for,” she said.

This Canadian Press report was first published on January 17, 2023.

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