Do you need coverage?
To figure out whether you need to spend money on a policy at all, start by asking yourself these questions:
Are you single?
If you die, a life insurance policy could help your partner pay off the mortgage so they don’t need to sell the house. And it could make sure your child can afford to go to school one day. Whatever they happen to need.
But if you’re single, it’s much more likely that no one is depending on you and the money you make. At least, not yet.
You might still consider picking up a policy to lock in a low rate while you’re young and healthy or to cover the cost of your funeral.
Would your loved ones be fine without your income?
Even if you are married, you might not need life insurance. If your partner makes enough money, they could be capable of paying off the mortgage, maintaining the car, looking after the dogs and buying groceries all on their own.
It’s harder to make the case once children get involved.
Not only do you have to add years of child care expenses into the mix — don’t forget extra daycare, since you won’t be there to watch the kids anymore — but the cost of higher education keeps growing. Average undergraduate tuition rose to $6,838 for the 2018-2019 school year.
That’s tough to save up for, even with two salaries.
What kind of policies should you avoid?
If you think you might need life insurance, you’ll need to decide what kind — and there’s a lot to choose from.
The good news is that no matter what policy you buy, it’s going to be way cheaper to start when you’re young. But you could still end up paying much more than you need to.
First off, don’t get pressured into buying whole life insurance or universal life insurance.
The nice things about these policies is that they’re permanent: They don’t expire until, well, you do. They’re also much more expensive. Sometimes 10 times as expensive as other kinds of life insurance.
Part of the extra cost comes from the fact that these policies will pay out one day. And some allow you to get part of your money back if you cancel. But they also demand more cash each month so they can invest on your behalf.
Unfortunately, they get to make all the investment decisions for you — and will charge you hefty management fees for the privilege.
Whole and universal life insurance policies can be useful for wealthy people who have maxed out other investment options, like TFSAs and RRSPs, and want to dodge taxes on their inheritance.
If that doesn’t sound like you, there are probably better options.
What kind of policies should you consider?
If you’re only interested in life insurance to make sure your young family can pay the bills, you’re better off buying a term policy.
These policies are temporary. Your term can be as little as five years or as long as 30, depending on what you need. If you happen to die within that time frame, your family will get a payout.
With a term policy, you’re only paying for what you need. If you just had a kid and started a 25-year mortgage, you can buy a 25-year policy so you’re covered until the home is paid off and your child finishes school. After that point, you probably won’t need the policy anymore.
And since you aren’t guaranteed to die during the term, and there’s no investment angle, term policies are cheap. A 30-year-old man could buy $500,000 in coverage for 10 years from an online provider like PolicyMe, and it would cost him less than a buck a day.
How do you find the best rate?
The younger you are when you buy your policy, the cheaper your premiums will be — and they’re locked in till the end of your term. So it makes sense to buy a policy sooner rather than later.
You might not be enthused about applying for life insurance, since the process traditionally has taken weeks and involved confusing paperwork and unpleasant medical appointments with strangers. But thanks to a new generation of providers, things have gotten better.
Online life insurance companies like PolicyMe use automated-underwriting technology to make the formerly invasive and lengthy application process painless and quick.
Getting a legit quote takes only a few short minutes and involves a handful of basic questions. And after fully applying for a term life policy through PolicyMe’s website, which for most people will take about 15 minutes, you’ll immediately find out whether you’re approved. No more weeks-long waiting periods, and most healthy applicants won’t need a follow-up medical exam.