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 tech company Zelros, younger people across Canada, the U.S. and Europe are less likely to have life insurance compared with older generations, with just more than half of those aged 18-34 covered.
But certified financial planner Jackie Porter says the decision about whether to get life insurance isn’t about how old you are, it’s about what life stage you’re at.
If you have dependants, such as children, or you owe a large sum of money, such as a mortgage, you should look into life insurance, said Porter. You could be 25 or 35 – it’s all about whether someone else is depending on you, and would be in trouble financially if you were to pass away.
Porter added that dependants could also be your aging parents, or your spouse if you have a mortgage together or you make significantly more money than they do.
Andrew Ostro, co-founder and CEO of digital life insurance provider PolicyMe, said his company sees the most uptake between the ages of 35 and 45.
“As you start to have a family, as you start to get a mortgage, that’s when it really begins.”
If you’re 25 years old, single and with no children, PolicyMe’s algorithm would tell you not to get life insurance, said Ostro; at that life stage, he’d rather see your money put in a savings vehicle than in life insurance.
The big question to ask is whether someone is relying on your future income, said Ostro.
If you don’t have dependants or major debt, Porter suggests looking at “living insurance” instead, such as critical illness insurance, for coverage that will help you if something happens that will impact your income.
According to the Canadian Life & Health Insurance Association (CLHIA), 22 million Canadians have life insurance, with 83 per cent of life insurance sold to individuals and the rest as group plans.
There are two broad kinds of life insurance, according to CLHIA. Term insurance covers a specified stretch of time, such as five or 10 years, and premiums normally increase every term. Term insurance can usually be converted to permanent insurance, which is for lifelong protection and can also be used to cover financial emergencies or to supplement retirement income. Meanwhile, whole and universal are two different kinds of permanent life insurance.
Term life insurance is for people who have time-limited expenses, like a mortgage, while permanent is for the full lifetime, said Sarah Hobbs, director of policy at CLHIA. Premiumsfor permanent life insurance are usually higher, and there are add-ons that can cover costs during your life such as long-term care.
Most younger people who are good candidates for life insurance should get term insurance, said Porter. The term should align with the length your mortgage will take to pay 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 your mortgage, plus whatever would be needed to keep your dependants financially stable.
Term life insurance isn’t that expensive for most people, said Ostro. For example, someone in their mid-30s might only pay between $30 and $40 a month, he said – though if you smoke, you’re looking at double the premiums no matter your age.
Your premiums may get more expensive when you renew, so even though the premiums on a longer term might cost a little more monthly, they’re worth it in the long run, said Ostro.
Aside from mortgages with more than one person on them, debt isn’t passed directly on to your dependants but is paid out by your estate, meaning there would be less of your assets and savings to be divided among your family, said Ostro. So you should include all debt in your coverage calculation.
There are some people who should get life insurance before becoming parents, said Porter. Because you can lock in lower premiums when your health is good, anyone concerned about health based on their family history who’s planning to start a family within a few years should lock in those premiums now before future illness drives up the cost of insurance.
Many people have life insurance through their workplace benefits, known as group insurance, but might not know what that insurance actually includes.
Group life insurance usually covers less, said Hobbs. For many younger people it may be enough, but you shouldn’t assume it is – she suggests getting to know your policy and deciding for yourself whether to supplement it with an individual policy, as many people do.
Most group life insurance covers between $50,000 and $100,000, said Ostro. It might sound like a lot of money, but it’s definitely not enough to cover, say, two children until they’re financially independent.
You should consider your work policy secondary, not primary, Porter said, especially as you may not be at that workplace forever. The policy may be enough during your current life stage, but if you have dependants she recommends getting an individual policy.
“It’s a good idea to read what exactly you’re covered for,” she said.