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Life Insurance: Is It Worth It and Why Do I Need It?

Clock5 min. read
byVexxit Staff onMarch 19, 2021

Maybe you have a life insurance policy through your workplace, one that you signed up for long ago, or maybe you don’t have one yet. In this article learn about the different types, why it may be worth it, and how much life insurance you should have.

When you’re focused on growing your career or business—and maybe growing your family, too—it can be hard to see beyond the path you’re on. No one wants to think of the what-ifs that could play out should they experience an untimely death. Unfortunately, ignoring those what-ifs can make a tough situation even tougher for your loved ones.

There’s the immense grief that is a force to deal with all on its own. Add to that the many tasks that next-of-kin are responsible for in the days, weeks and months to come, from filing paperwork to handling bills and debts that have to be paid even after you’ve passed. If you have a partner, they’ll be left grappling with how to manage without you. If you have kids, they’ll still need to be supported as they grow. 

While there is no way to avoid the harsh reality of death, a life insurance policy can ease the financial strain that so many families have to deal with. It’s one less thing for them to stress about when they’re already overloaded, emotionally and financially. 

Maybe you have a policy through your workplace or one that you signed up for long ago. That’s a great first step, but it’s worth revisiting to ensure you have enough coverage to help your family get on stable ground. Most Canadians with dependents are actually underinsured, if they’re insured at all.

Okay, you might think, but I don’t have a partner or kids. Or, my kids are grown and I’ve paid off my debts. Is life insurance worth it? 

Your age, lifestyle and financial needs are certainly considerations when determining if life insurance is right for you. Life insurance is going to be more beneficial in your younger years, if you have dependents and higher debts (hello, student loans). That doesn’t mean it won’t be beneficial in the latter part of your life. You might choose to leave something behind for your loved ones or to cover any costs they might encounter in the event of your death.

Types of life insurance

There’s no one-size-fits-all life insurance solution. Here’s an overview of the options that might be available to you.

Term life insurance offers short-term coverage, usually 25 years or less. If you die within the fixed term of your contract, the life insurance company will pay a death benefit to your beneficiaries. Premiums are generally lower for this type of insurance, making it a cost-effective option if you carry debt or have a young family. Your premium depends on factors such as your age and health at the time you apply for life insurance, so you’ll likely be looking at a higher premium if you choose to renew after your term.

Term-100 (T-100) life insurance covers you for your lifetime, with a level premium throughout—or at least until your 100th birthday. After that, you’ll still have the same coverage, but you’ll be premium-free.

Whole life insurance is similar in that it covers you for your lifetime and usually comes with a level premium. The major difference is that whole life insurance is also an investment. Over time, it builds up a cash surrender value (CSV). So, if you’re nearing retirement, your debts are paid down and you want to pad your retirement income, you can surrender your policy and get part or all of your premiums back. You can also borrow from your CSV without having to surrender your policy, which is a nice perk should you ever need to use it.

Universal life insurance is another solution that provides coverage for the rest of your life, with a tax-free savings benefit. How does it work? You voluntarily pay above and beyond your premium, and that extra money is held as tax-free savings. If you want to withdraw those funds during your lifetime, you’ll be taxed on them at that point, or your beneficiaries will receive them as a tax-free bonus upon your death. 

How much life insurance do I need?

Most experts recommend 10 to 15 times your annual income, but it could be more or less depending on your situation. You can find life insurance calculators online or, better yet, speak to a financial advisor.  

There is an almost-overwhelming amount of information out there about life insurance. A financial advisor can explain the fine print and help you decide if, or what kind of, life insurance will work for you. Find a financial advisor to guide you through this process on Vexxit

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