By Lisa Ng
It wasn’t until my husband and I took out a mortgage to buy the first home that we realized we needed life insurance.
When my boyfriend and I moved into our first apartment together, we never thought about life insurance. We both had reasonably well-paid jobs and split rent and expenses. Our only worries were whether we had to go grocery shopping and whose turn it was to clean the bathroom.
Fast forward three years.
It wasn’t until my boyfriend became my husband and we bought the first house that we thought about life insurance. Suddenly I was 27, with a fluctuating income and a mortgage to pay off. If something were to happen to one of us, did we want the other to have to pay off the mortgage on their own, risking losing the house?
Not at all.
That’s why we finally bought life insurance for newly married and new owners. We rely on two incomes to cover our usual living expenses and this brand new thing called “mortgage”. We opted for an insurance policy that would pay the survivor enough tax-free to pay off our mortgage balance if something were to happen to one of us. It’s not easy to talk about these kinds of things, but it’s a decision that has to be made at this stage of our lives.
Over the years, we’ve changed careers, started new businesses, and relied on each other for emotional and financial support during times of professional transition. Put it down to youth, but I had to rely on my husband’s income at times and vice versa. Having life insurance during these uncertain times in our lives was reassuring because I knew my spouse would not have material hardship no matter what. The house, our debts and our mortgage were the last things we would have to think about if tragedy struck.
Maybe you have group life insurance at work. But this benefit ends if you quit your job. For my part, I see this group insurance as an additional benefit and not as the primary insurance contract on which I rely.
So, what type of life insurance should you buy?
We have three types to choose from in Canada: term insurance, permanent insurance, and universal life. Here is an overview of the characteristics of each of them:
Temporary. It is a quick and inexpensive option when money is tight, and your financial obligations (such as a mortgage or young children) are burdensome. You buy the contract for a fixed term, such as your mortgage repayment period. You can have it automatically renewed at the end of the chosen period if you wish. You decide how much insurance you need, and that amount doesn’t change. However, your premiums will increase every five, 10 or 20 years as you age. This type of contract does not have a surrender value.
Permed. This type of contract protects you for life and generally represents, in the long term, a more economical financial choice than a term insurance contract. You do not have to renew it, unlike a temporary arrangement. However, as with the latter, the amount of insurance you choose does not change. However, premiums for permanent insurance are higher than for term when you’re young and lower when you get older. Typically, a permanent life insurance policy has a cash surrender value, which you can pay if you cancel the policy.
Universal life. A universal life insurance policy generally protects life and offers more flexibility than traditional permanent policies. Depending on the contract, premiums can increase from year to year or remain level for your lifetime. The real benefit of universal life is this: if you pay higher premiums than the cost of insurance, the difference can be invested and grow tax-deferred.
There is another type of coverage: mortgage insurance, which combines term life insurance and critical illness insurance to protect your family from financial difficulties in the event of your death or detection of a severe illness.
When I started thinking about life insurance, I was overwhelmed with everything that needed to be sorted out to buy a home and negotiate a mortgage. It can be a lot of work. I, therefore, advise you to inquire.
