The decision to buy life insurance is an important one. It can ensure that those who rely on you for financial support – like your spouse or children – will receive money when you die. Your family can also choose to use the life insurance benefit to pay off debt, like a mortgage.
There are two main types of life insurance. Each has features to meet different needs:
Sun Life advisor Raj Daryanani shares 7 common mistakes to avoid when it comes to life insurance:
- Waiting to buy life insurance
- Choosing the least expensive life insurance option, instead of the best option
- Relying only on group insurance
- Not telling anyone that you bought life insurance
- Not updating your beneficiaries
- Not reviewing your policy and your needs
- Underestimating the amount of life insurance you need
1. Waiting to buy life insurance
Delaying the purchase of life is insurance is very common, says Raj. “Many people think they have to wait until they get married or have kids or buy a home. But buying a policy when you’re younger is generally less expensive. You’re also less likely to have a health condition that could make insurance expensive or make you ineligible for coverage. So, the sooner you buy life insurance, the better.”
2. Choosing the least expensive life insurance option, instead of the best option
“Term life insurance is generally less expensive in the beginning than permanent life insurance,” shares Raj. “However, term life insurance covers you only for a limited time – for example 10 or 20 years. The cost of term life insurance increases every 10 or 20 years if you renew. An insurance company pays the benefit if the policyholder dies during the term. Whereas permanent life insurance will cover you until death, as long as you pay your premiums and the cost, though higher in the beginning than term life insurance, does not change.” Raj says term could be a good option if you have short-term needs. For example, you have debt to pay off like a mortgage, and a young family relying on your income. “But if lifetime coverage appeals to you, whole life insurance is likely the better option if you can afford it. This will ensure your estate fees are covered and that you can leave money for your loved ones.”
3. Relying only on group insurance
Having life insurance through your employee benefits package at work is great, says Raj. “But most employer plans offer only a basic amount and type of life insurance. And it’s available only as long as you work there. So, if you change jobs, quit or get laid off, you’ll no longer have that coverage. That’s why it’s important to have your own life insurance that you control. You can still have your group insurance. Just consider it icing on the cake.”
4. Not telling anyone that you bought life insurance
“If you don’t tell anyone you have an insurance policy, there will be no one to come forward to make the claim. So, keep a record of your policy and make sure your family knows where it is,” says Raj.
5. Not updating your beneficiaries
Raj says it’s important to name your primary beneficiary and to have a contingent beneficiary. “You’ll also want to review your beneficiaries with your advisor when you have a major life change. This includes marriage, divorce, birth of a child, or the death of a beneficiary. This will ensure the funds will go to the loved ones you want when the time comes.”
6. Not reviewing your policy and your needs
It’s critical to review your life insurance policy periodically, says Raj. Especially when you have a major life event like those mentioned earlier. “Your life insurance needs will no doubt change over the lifetime of your policy. All these events play a role in determining how much life insurance coverage you need. So be sure to review your policy with your advisor once a year. And if needed, you may purchase additional coverage.” If you need an advisor, you can find a Sun Life advisor to help.
7. Underestimating the amount of life insurance you need
“It’s important to be realistic about the amount of coverage you need,” says Raj. “An advisor can work with you to calculate how much money your family will need to cover expenses.” This includes:
- funeral expenses,
- legal fees,
- outstanding debts including mortgage debt,
- how much money your family will need to maintain their standard of living, and
- helping your church, university, hospital or any charitable organisation that you supported in your lifetime.
This article is meant to provide general information only. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation.