Dollars, Cents and Common Sense: The Need for Life Insurance

When I call to talk to Kennedy Campbell, a Winnipeg-based life insurance licensed agent, rather than jumping into the definitions of term and permanent life insurance, he tells me about growing up in South Africa with his parents and sister His mother was a stay-at-home parent and his dad owned a thriving veterinary practice that supported the family. Campbell's dad was a healthy and vibrant man, a non-smoker who hiked and played sports with his teenage children.

Campbell’s father died from liver cancer when he was only 48 years old.

“The first years were hard. My mother was depressed and she wouldn’t have been able to work. But because my dad had life insurance, we were able to pay off the mortgage on the house and the insurance provided an income for our family. My mother was able to grieve, my sister and I were able to go to university,” Campbell says.

“If it wasn’t for insurance, I don’t know how things would have been.”

Beyond the policy payout
Talking about life insurance feels grisly and morbid—and it’s likely the last thing young parents want to do, because it asks them to consider their mortality. Campbell tells clients that life insurance isn’t there because they want to make money after someone dies, but to help them maintain their standard of living.

While the type of life insurance policy is important, it is more important that you have enough insurance. In most cases, a death of a parent means a family would be reduced to a single income. For families with a stay-at-home parent, the financial impact of the death of the sole income earner would be devastating.

Of course, death of a spouse is more than about how much they earn.

“You can analyze the numbers, but then there are the feelings,” Campbell says. When you have the right amount of life insurance, not only are the financial aspects of a death covered (such as paying off debt or investing in a child’s future education), but the emotional side, too. Campbell asks me: If my husband were to die, how much would my life change? Would I be able to immediately find a full-time job to support myself and my two young children? Of course, the answer is no. Life insurance takes care of your family’s finances so you can focus your own emotional well-being.

Choosing the type of policy
Insurance policies are more affordable than you think. And if you are in good health and a non-smoker, your policy will be even more affordable.

“You will never be as young as you are today and likely as healthy,” Campbell tells his clients, with the advice that buying a policy sooner is better than later, noting that premiums go up with age.

Term and permanent, the two main types of life-insurance products, both have their own advantages.

Term, which offers less expensive premiums, is suited to meet high, short-term protection needs. Permanent insurance policy premiums are more expensive, but can protect you for your lifetime. Depending on the company you buy your policy from, you can change to a different type of policy—from term to permanent, for example. Permanent insurance is costly in the short term, and if cost is an issue, term insurance can provide you with the immediate coverage you need at a more affordable premium (rather than settling for less insurance).

While there are general guidelines and online calculators that may help determine the type of policy and how much life insurance you need, Campbell says it is best to do an analysis with a financial planner who will help you see the big picture of how much money would be needed after a death.

Because not all companies sell all types of insurance, it is worth interviewing a few advisers before choosing one to work with. This is especially important for people who may have a difficult time qualifying for insurance, such as those with high-risk hobbies or occupations, or pre-existing medical conditions.

Campbell cautions against relying solely on the life insurance offered through a creditor, such as mortgage lenders or credit card companies. Payouts from creditor policies only pay off the debt attached to them, often leaving survivors surprised there isn’t more money left over. And because policies are underwritten after death, they may not be paid out at all.

Ultimately, the conversation about life insurance—how much, what type and whom to buy a policy for—is one that needs to happen today, with everyone in your family, and then with a licensed insurance agent, because as Campbell stresses, there is no one-size-fits all product. “Every family situation is unique, so there is not a quick answer. That is why it is important to have a family discussion about insurance, and the need to take care of each other.”

Sample policy premium
Source: Term4Sale (term4sale.ca)

Female. No health issues, regular health, non-smoker:
Term 10 years for $500,000
30 years old: $18-$22 per month
35 years old: $19-$26 per month
40 years old: $22 – $30 per month
45 years old: $32 – $40 per month
(Amounts are estimates and will depend on age, health, weight, lifestyle.)

Jennifer Pinarski is the community manager of momstown Kingston, a regular blogger for Today's Parent, the mother of two small children, and a person who has done the grownup thing, confronted her own mortality, and secured her family's future.