When should you buy life insurance?

By Farhana Uddin - SUN LIFE

Is it ever too soon or too late to buy life insurance? Here’s what life insurance can do for you at different times of your life.

Whether you’re a recent grad in your 20s, married with a mortgage in your 30s or planning your estate in your 50s, you’re likely to have two things in common with people in every age group:

There are people in your life whom you love.

You can’t predict the future.

That’s where life insurance comes in. While you can’t tell exactly when or how your life will end, you can prepare for the possibility and help protect the people you love in the process. Having the right life insurance can give you the peace of mind that comes with knowing the people you care about can have financial support after you die.

Here’s how life insurance can help you at any age:

Life insurance in your 20s

Why you need life insurance in your 20s. You’re young and healthy, but chances are you already have some serious financial responsibilities. “Maybe you have student loans to pay off, you’ve got some credit card debt or you’re thinking of getting married,” says Paula MacMillan, a Sun Life Financial advisor in Winnipeg. “In any of these situations, it helps to have some coverage in the event of your death.”

This is what could happen if you die in debt: If your parents have co-signed any of your credit cards or loans, it’s on them to pay them off. And, if you owned or rented a place with your partner or spouse, he or she will have to find a way to cover all of the rent or mortgage on just one salary. With a life insurance policy, your family can use the money from the death benefit – that’s the money paid or due to be paid when you die – to help cover any debts or expenses they had relied on you to pay.

“A lot of people don’t begin to think about life insurance until they’re in their 30s,” notes MacMillan. “But if you have someone who depends on you, it’s best to start considering it earlier on, so you don’t leave them in a financially challenging situation later.”

What type of life insurance should you consider in your 20s? Along with protecting your family financially, there’s another reason to consider buying life insurance at such a young age: It’s more affordable.

“Your life insurance premium – which is your monthly or annual fee – depends on your age, sex, lifestyle habits, medical history and current state of health,” MacMillan explains. “If you’re a healthy individual in your 20s, you would fall under a low health-risk category, which means you’ll be charged a lower premium.”

Two of the most common kinds of life insurance are term life insurance and permanent life insurance. For 20-somethings who have recently graduated or just started their careers, MacMillan recommends starting out with term life, which – as the name suggests – provides temporary coverage and can be renewable.  This could be every 10, 15, 20 or even 30 years, depending on the policy. “Term life is much more affordable [than permanent] for young people who are just starting out,” she says. “You’ll be able to buy a large amount of coverage at the lowest price.”

Alternatively, you could also secure a small amount of permanent life insurance to go with your term policy for a reasonable price. This is where your youth pays off. While having some permanent coverage will cost you more, the younger you are when you purchase it, the lower your premium will be. Permanent life insurance offers more protection than term alone (more on this later) and having some of it can be a great way to establish a financial foundation while you’re in your 20s.

What is term life insurance?

Life insurance in your 30s

What type of life insurance should you consider in your 30s? Your financial situation will most likely change as you get older. When you reach your 30s, you may have children to look after, a mortgage to carry or additional living expenses. “The advice is more or less the same, though,” MacMillan says. “You still want to purchase as much as life insurance coverage as you can afford.”

However, if you already have term life insurance, MacMillan points out that this is the time to consider changing your policy. “Most term life policies allow you to convert to permanent life insurance,” she says. “It’s more expensive, but permanent life offers lifelong protection from the financial impact of death.”

It also pays off in the long run. “A permanent life policy is usually set in its ways in terms of cost, whereas with term life, your premium increases – sometimes drastically – every time you renew it,” MacMillan adds. The younger you are when you buy permanent life insurance, the lower the premium you will pay. Permanent life insurance is more expensive than term when you first buy it, but because the premium cost doesn’t typically increase as you get older, after a few term renewals, permanent insurance will end up costing you less.

Term life vs. permanent life insurance

What about your workplace life insurance? Many people in their 30s have settled into a job with benefits, which may include life insurance. “I often encourage people to max out the insurance they have at work,” MacMillan advises. “Because up to a certain point there are no medical questions or requirements and it’s less expensive because it’s in a group.”

Does this mean you don’t need your own individual life insurance? “Having workplace insurance is great, but I always caution about how there’s less job security nowadays,” MacMillan says. “When you move from an employer, you leave behind the insurance they gave you and hope the next one will have equal, similar or better coverage.”

Plus, there’s no law stating an employer must give you life insurance. “That’s why you should think of your workplace insurance as a top-up to your own policy,” MacMillan suggests. “So no matter what happens at work – if your employer makes any cutbacks or you lose your job – you’ll have your own insurance to fall back on.”

How do employee benefit plans work?

Life insurance in your 40s, 50s, 60s and beyond

Is it too late to get life insurance at this point? This depends on your insurance company and the policy you intend to purchase. Some insurers have policies with age limits that can range from 60 to 85. “The pricing won’t always be in your favour, but as long as your health doesn’t impede your ability to buy life insurance, it may still be available if you need it,” MacMillan says.  

What type of life insurance do you need when you’re middle-aged? At this stage of your life, if you’re not still carrying a mortgage or other debt (as increasing numbers of Canadians are doing) you may be paying more attention to retirement or estate planning. So, you most likely need more financial stability and protection. MacMillan recommends looking into permanent life insurance for the following reasons: 

Depending on your policy, your insurance costs may not rise.

The plan might let you pay for a limited time and then never again.

It gives your family or other beneficiaries a tax-free payment after you die.

Some permanent policies generate dividends, which you can use to increase the death benefit or cover your premium payments, or take out in cash.

But what if you’re thinking about purchasing term life or renewing your current term policy? “Term life insurance is great when you’re just starting out because of the low cost, but it can become pricey as you move through different stages of your life,” MacMillan says. Every time you renew your term, the price goes up, because you are that much older. As you move into your 50s and 60s, those price increases are significant.

“I knew a gentleman who was paying $130/month on his term life policy,” MacMillan recalls. “He’ll be in his 60s when he reaches his next renewal, at which point his premium will be more than $300/month.”

It’s not financially ideal to be paying more than necessary in your retirement years, she adds.   

How much retirement income will you need?

How to choose the right kind of life insurance for you

So, insuring your life is a good idea at any age, and leaving your family with financial protection may be the most generous thing you could do for them. But how do you get started? “When purchasing a policy, you need to look at your current situation, your personal goals and what you can afford,” says MacMillan. “Along with term and permanent, there are other types of life insurance that might be better suited for your short-term or long-term goals.”

Compare the four main types of life insurance — term, permanent, participating and universal (the last two of which are actually forms of permanent life insurance).

To get an idea of how much protection you may need, check out our life insurance calculator.

Another option to explore is to combine term and permanent life insurance. For example, you could buy a 30-year term policy to help protect your family over the life of your mortgage. As well, you could buy permanent insurance to keep you covered when the term policy expires. Because death benefits from life insurance policies aren’t taxed as income and don’t form part of your estate (as long as you name a beneficiary rather than letting the death benefit default to your estate), this could help reduce the tax burden on your heirs.

Uncertain about how to get the most out of life insurance? Consider getting some advice. An advisor can explain all your options, answer your questions and even help you build life insurance into your overall financial plan.

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