Is life insurance worth it?

The prospect of paying for insurance you may never use can lead to some reflection on whether the coverage is worth it. These thoughts might be amplified with life insurance, not only may it never pay out (depending on if you have term or permanent coverage), but even it does, you are not around to see it work.

While this thought exercise seems a little morbid, have to think about your death to truly gauge whether life insurance is worth it to you. Coverage can be expensive but worthwhile in a variety of circumstances.

Solid end-of-life planning (including life insurance) will have a significant and positive effect on your loved ones in the case of your premature death. But life insurance isn’t a priority for everyone at every stage of their life. It can even be a costly mistake for those that miscalculate the amount or type of coverage they need.

Read on to learn more about when and why life insurance is a worthwhile expense.

When you shouldn’t purchase life insurance

Life insurance is not a priority purchase at every age or price. When determining your life insurance needs and whether to purchase coverage, you should keep things like your age, financial risk level, and future plans in mind.

Too young for term life insurance

If you are young and without debt, you don’t have to worry about your loved ones covering loans or credit card bills if you were to pass away prematurely.

Additionally, if you have no dependents at this time, you also don’t have to worry about their potential needs should something happen to you.

Purchasing a term life insurance policy in your younger years doesn’t always make sense. You are not coupling the coverage with any significant financial risks (like a mortgage or family) and the coverage term may run out by the time you do find yourself taking on such risks.

In these circumstances, if you are still keen to purchase life insurance coverage, it’s a good time to explore a whole life insurance policy. The premiums are generally lower in your younger years, your money is going towards lifelong protection, and it provides opportunities for future guaranteed insurability.

The policy is too expensive

While this may seem like a given, life insurance is not worth it if you purchase a policy you cannot afford. Depending on your circumstances and health profile, life insurance premiums can be expensive and that cost rises with the size of the death benefit.

You need to maintain your premium payments to keep your life insurance coverage, and if you lapse in your payments, you lose that coverage. A large life insurance policy (and associated premium) is not worth it if you end up losing the coverage because it is prohibitively expensive.

While bigger is better may be a prevailing attitude among consumers, the best life insurance policy is the one you can afford.

Alternatives to a life insurance policy

While you may not receive the same benefits from a life insurance policy if you have no dependents or outstanding debts to cover, there are other future-minded steps you can take in the meantime. While we mentioned whole life insurance above, other alternatives include:

• Directing your money into an RRSP, TFSA, or another type of savings account
• Contributing to an RESP or children’s insurance for a grandchild
• Ensuring your will and estate planning is up to date

When is life insurance worth it?

If you have dependents, life insurance premiums are much more likely to be worth the cost. Life insurance provides peace of mind knowing that your family will be taken care of financially if you die prematurely.

If you don’t have dependents, there could be other circumstances where life insurance is not a  waste of money.

You are at right age to buy coverage

Many put life insurance decisions on the back burner because they’re young and healthy. While we brought up buying insurance too young earlier, buying coverage in your younger years can be advantageous.

Premium prices are lower when you are younger, healthier, and less likely to have any diagnosed medical problems: the likelihood of your death is lower and thus less risky for an insurance provider to insure your life. Finding that balance is tough, but usually big events (like homeownership, marriage, and children) trigger one’s need for financial protection.

Providing for your loved ones

The most important thing to consider when examining life insurance options is the impact your premature death would have on your family. Do your dependents have enough money to maintain their current lifestyle should something happen to you? It would be best to determine how much your dependents would need for the foreseeable future when deciding on the amount of coverage you should purchase.

Taking care of children’s future needs

If you’re a parent, having life insurance is essential. Even if you have significant savings, life insurance is still a good idea as your estate may take time to settle.

Kids are costly and that responsibility doubles for single parents.

Picture your children’s lives over the next 5, 10, or 20 years and how opportunities could be altered without the security you provide as a family breadwinner;  not just a roof over one’s head or food in the fridge, but extra-curricular activities and summer vacations. These extra experiences you envisioned for your children can be covered by a life insurance death benefit.

Providing a financial cushion for your co-parent

It’s essential to purchase life insurance for both parents, even if one parent stays at home. If you are a stay-at-home parent, your partner will have a new set of expenses to make up for if you pass away, such as childcare. With the costs of childcare rising, that monthly price can be comparable to a full-time salary in some Canadian cities.

Life insurance is worth it for couples looking to replace their income or emotional labour when they die, so their partner or dependents aren’t left to struggle finding a way to cope with the financial and emotional loss.

Covering a mortgage

Generally, it is recommended to buy term life insurance whether you share a mortgage with another person or carry the mortgage debt by yourself. It can be tough to sell a house quickly if your estate or dependents need access to money immediately to pay off any debt. 

A life insurance policy will help your loved one make mortgage payments if they decide to stay in the home, or at the very least afford them the time to make the right decision about the property instead of forcing a rushed sale. Life insurance protects your family and their assets, so you don’t have to change your lifestyle drastically if tragedy strikes. 

If you have a family that depends on you for childcare, income, or both, you should seriously consider life insurance as a way to protect their future in case you prematurely pass away.