Do I Need Insurance?
Insurance. Every time this word is heard, we frown; we get sceptical. We all know someone who has a “story about an insurance salesman. Since it is a commission based environment (if they don’t sell, they don’t get paid), many clowns become desperate and turn into i-want-to-make-a-quick-sale insurance agents. They hijack your emotions (look your wife and kids in the eyes and tell them how much you love them”¦ don’t you think they deserve financial security when you pass away?).
That having been said, it is a fact that most people need life insurance. Of course, reps are going to tell me that everybody needs it, I would tend to say it’s a case by case scenario. Many people are wondering if they need insurance and they don’t really know how to ask to get a clear an unbiased answer. Fundamentally, I think there are 4 reasons to get life insurance:
#1 Get life insurance to pay off your debts
If you have outstanding debts, you surely need life insurance. Why? Because you will surely leave people behind when you pass away. Since you can’t bring your debt to the other side, you will leave those you love with grief”¦ and debt!
A mortgage, a car loan, a line of credit. They are all linked to one’s estate. Therefore, if you accept the estate of someone, you get the right to their assets AND liabilities. A decent life insurance policy will cover the debt and relieve your family from an additional burden.
In order to get coverage, you can ask for credit life insurance (provided by the creditor) or through an independent broker (which can be a regular life insurance contract, not linked to the debt). While the creditor may push pretty hard to sell you their life insurance product, the latter will usually be way cheaper (unless you have a pre-existing condition or take more than one type of insurance with the creditor such as critical illness or disability). If you are looking for a life insurance only, go with a broker.
#2 Get life insurance for your financial dependants
You are debt free and your mortgage is already covered? Congratulations! But you may still need additional coverage. The second reason why you should get life insurance is to make sure that your financial dependants don’t suffer from your economic loss (it will be enough grief to be left alone, it would be worse to have to start work the next morning on top of it!). Financial dependants could be your spouse, children and any other individual benefiting from your income.
When you pass away, some expenses are reduced. You don’t need to eat or buy clothes ;-). However, there are a great part of your income that was used by your family to pay common expenses (heating, utility bills, mortgage, etc.) and if you are the main bread winner in your household, the lack of revenue will deeply impact your family’s lifestyle after your death.
There is an easy way to calculate how much you would require to cover for this lack of revenue but this will be discussed in another post alone. For now, just remember that if you are making good money right now, a part of it needs to be replaced by a life insurance policy so your spouse and children can maintain their lifestyle even if you are gone.
#3 Get life insurance for estate planning purposes
This third reason why you want life insurance concerns the wealthiest of us. If you have rental properties or an important investment portfolio, your death may trigger important capital gains. If you want your estate to keep its assets, life insurance can be put in place to pay off the taxes generated upon your death. This amount is usually pretty small for the rest of us so I wouldn’t be too concerned about my last cheque sent to Uncle Sam.
#4 Play Santa
I have met some people who want to make sure so and so gets enough to live the good life if they ever pass away sooner. Then, you can purchase life insurance to “give” to someone who doesn’t really need this money but would make their life much easier. For example, you can decide to increase your coverage in order for your children to receive 1M$ each. They surely need money if you pass away tomorrow, but they surely don’t need that much. This is why I call it “playing Santa”.
Final Thought on Why Do I Need Insurance:
I’d say that everybody needs life insurance. Some require more than others and some need it for a limited time while others will always need substantial coverage. This is why there are so many types of life insurance and costs to go with them. However, regardless of your situation, what is important is to know that you need insurance. In the upcoming weeks, I’ll share more thoughts about life insurance products and insurance needs calculations. In the meantime, I would be curious to know your experience about getting life insurance. What did you choose? How did it go? Did you shop around?
Image source: Sava the Aggie