We often hear that the idea of buying life insurance is overwhelming. It’s not enjoyable to think about your own mortality and even less so to contemplate the impact your unexpected death might have on your loved ones, which makes it an easy task to put off until an indefinite ‘later’. Moreover, even when someone is actively seeking out life insurance, the process can feel complicated. You don’t know what you don’t know, and it feels like it will take a lot of time to figure it all out, and you don’t have time now but maybe next week… Lather, rinse, repeat.
The ‘important-but-later’ attitude towards life insurance is in part the result of some common misconceptions that people have about it. We’re going to address some of the more common myths related to life insurance in this post, and we’ll keep updating it as we come across new ones.
Myth: “It’s too stressful to buy life insurance.”
Reality: While it might be stressful to contemplate your own death, life insurance is actually intended be stress-reducing because it gives you the peace of mind that your loved ones will be taken care of in the event of your passing. It’s important to think about your future self and consider that the stress of dealing with setting up a policy is minor compared to a) the stress of trying to find affordable life insurance if you become sick (hint: you might not be able to), and b) the financial stress your family might face in the event of your passing. Think about it this way – if you’re out on a boat, does knowing that there’s a life jacket onboard increase your stress?
Myth: “I’ll pay a lot of premiums and not get anything for it…life insurance is a scam.”
Reality: This usually is an argument made by people who bought life insurance and never had to make a claim. It’s easy for those people to think that they didn’t get any value for the premiums they paid, which is absolutely untrue. Like all insurance, life insurance mitigates the financial hardship that can arise when something bad and unpredictable happens. Statistically, most people don’t die during the term of their policy, but it’s impossible to know ahead of time whether an individual (i.e., you) will fall into the majority that outlives their policy or the minority that unfortunately doesn’t. If outlive your policy, it doesn’t mean you didn’t get value from it…your beneficiaries would have received a large payout relative to the premiums paid in the event you did pass away.
Myth: “I don’t need coverage because I’m single and don’t have children.”
Reality: A spouse and kids are just two of the many factors to consider when deciding whether you need life insurance. Other common ones include parental obligations (i.e., having to take care of your parents in their twilight years), having outstanding debts with a co-signor, and end-of-life costs such as a funeral. You should also consider expected future obligations…for example, while you might not have kids now, do you expect to in the future? Planning for the future pays off the most when you start early, particularly with respect to life insurance where coverage is usually cheaper to buy the younger you are.
Myth: “Only breadwinners need life insurance.”
Reality: Take the following example – Jamie and Pat are parents to two young children. Jamie works as an accountant and Pat takes care of the kids at home. A life insurance policy on Jamie would certainly provide income replacement and lifestyle protection for Pat and the kids in the event of Jamie’s death. However, it is also important for them to consider what would happen in the event Pat passes away. Jamie may incur additional child-care costs (e.g., daycare or nanny fees), be forced to find a more flexible but lower-paying job, or reduce hours, all of which might negatively impact the financial well-being of the household. Hence, life insurance isn’t just for breadwinners – it’s for anyone who would leave behind financial obligations upon his or her passing.
Myth: “I’m better off putting my money in a savings account instead of investing in life insurance.”
Reality: Putting money away is always a good idea – no myths there. But unlike assets, which generally grow over time, the types of obligations that life insurance covers tend to be incurred in full up front and paid down over time. A basic example of this is having a child – the average cost of raising a child to age 18 is around $250K, and that obligation exists on the day the child is born. It may take quite a few years to save up enough to cover that amount, and if you pass away unexpectedly, your assets might be insufficient and will likely stop growing, but the financial obligation will persist. Life insurance covers the gap between your current assets and your future obligations.
Myth: “I have enough life insurance through work.”
Reality: Many working Canadians have life insurance coverage through their employer as a benefit. If you’re one of them, it’s important to look at how much coverage you actually have through your employer and whether it covers your needs. In most instances we’ve seen, coverage through work is not sufficient to cover an individual’s financial obligations (and top up programs though employers are often more expensive over time than a standalone term policy). Also, life insurance through an employee benefits program isn’t portable – generally speaking, if you leave your job, your coverage on that policy will end (you may have the option of converting it to an individual policy, but premiums on converted coverage will typically be higher and the amount that can be converted is often capped). An individual term policy on the other hand is not tied to your employer, which means if you switch jobs or quit working, you will still have coverage.
Myth: “Life insurance is really expensive!”
Reality: Term life insurance is actually quite affordable, particularly when obtained directly from the insurance company (as is the case with Mosaic Life) instead of through a broker. This is best illustrated with an example – a 30-year-old female who doesn’t use tobacco can get a 20-year, $500K Mosaic Life policy for only $24.50 per month, or about 80 cents per day. Also keep in mind that life insurance isn’t all-or-nothing…some coverage is better than none and with Mosaic Life, it’s easy to scale up or down your coverage depending on your budget.
Myth: “I’m too young / healthy for life insurance.”
Reality: Age and health are two of the biggest drivers of how much a life insurance policy costs. The best time to buy life insurance is when you’re young and healthy because that’s when you’re able to lock in the lowest premiums. Planning ahead can save you money (and stress) in the long run. Additionally, your loved ones probably most need downside protection early in your earning years since at that point your potential for future savings hasn’t yet translated to actual savings.
Myth: “I can only buy insurance through a broker.”
Reality: While this has historically been the case, Mosaic Life is modernizing life insurance in Canada. With Mosaic Life, you can buy coverage direct from the carrier and entirely online. It takes as little as 10 minutes to get covered. And because we skip the brokers, we’re able to offer some of the best rates in the industry.
