Life insurance through my workplace group benefits
By john@panago.info 2024/09/10
During our fact gathering stage we ask about your life insurance coverage and many people have responded over the years with “I am covered through work” thinking that this amount is sufficient for the family needs. Is this coverage enough?
Employee life insurance is a common part of employee benefit packages. Other benefits include health and dental coverage, a company pension, group RRSP and company share ownership options. Workplace life insurance is known as group life insurance.
With group life insurance:
- It’s usually low cost.
- You’re typically covered as soon as you join the company or after a specified waiting period.
- You’re guaranteed to be accepted (up to the maximum amount allowed without completing a medical questionnaire).
- It’s easy to apply for.
Workplace life insurance coverage is typically the equivalent of a fixed amount ($25,000 or $50,000). It can also be based on one year’s salary or two year’s salary so if you earn $50,000 per year, then that is the amount of your company life insurance.
Is your group life insurance adequate?
Even if you’re single and living in rented accommodation, there are still plenty of expenses that this amount might have to cover, including:
- Your funeral: Canadian funerals cost around $9,000, on average.
- Your debts: you’ll need to have enough to pay off your debts to avoid your family members from having to cover them. These include credit card balances, car payments and other loans.
- Housing costs: you may be on the hook for one or two months in rent as well as removal costs to empty your home belongings.
- If you own a home and/or have a partner and children, your life insurance needs would be considerably higher. When choosing life insurance, many people want to ensure that their insurance payout will be enough to:
- Pay off their mortgage and other debts.
- Replace their income for a set number of years.
- Cover ongoing costs for home repairs and maintenance.
- Pay for their kids’ education.
Another concern is that company life insurance isn’t as stable as privately held life insurance. If you lose your job or leave your workplace, your life insurance coverage could cease almost immediately. Also, if your health has deteriorated over recent years, you might not be able to buy the coverage that you need. Many times, I have discussions with individuals who have worked for the same employer for 20 – 30 years and now retiring at 65. They have had group life insurance their entire careers but now risk losing this coverage during retirement and for final expenses. Purchasing life insurance at 65 can have challenges due to pricing and health
So, how much life insurance do you need?
This very much depends on your and your family’s personal financial circumstances. There are some general rules that are often suggested, such as having coverage that’s equal to 10-20 times your annual salary, depending on interest rates. Another rule suggests that you need a multiple of your salary, plus $100,000 per child (to help cover their education costs).
You can get a more accurate idea of how much you should have in life insurance coverage by examining your family’s future financial needs and potential lost revenue. Here’s how you can start calculating a more accurate sum of money you’ll need from your life insurance coverage:
- Your mortgage: many people want their life insurance to completely pay off their mortgage, so their family have a secure home and don’t need to worry about making mortgage payments.
- Your debts: you may want to pay off any large credit card balances, car loans, personal lines of credit and other large loans with your life insurance coverage, so these should also be included.
- Your children’s education: if you have kids, you may want to make sure they have enough to cover their tuition fees and/or living expenses. Remember to subtract any savings already in RESPs from the amount you’ll need.
- Your salary: calculate how much net (after-tax) salary you’ll need to replace, and for how many years. From this amount you can deduct mortgage and debt payments, as well as your kids’ education costs, as calculated above.
- Your final tax bill: when you die, your estate will have to pay any outstanding taxes you may owe at the end of the tax year.
- Your funeral costs: while the average cost across Canada is around $9,000, a local funeral home can give you a more accurate quote for your city.
- Savings: factor in any savings and investments you may have and deduct them from the total life insurance coverage needed (this should include TFSAs, RRSPs and any non-registered savings and investments).
Life insurance solutions can include:
- Term life insurance: this lasts for a specific amount of time, for example 10 or 20 years, and is designed to provide substantial coverage, at a relatively low cost, at a time when your family needs it the most (for example, while you still have a mortgage and growing kids).
- It provides your loved ones or chosen charities (your beneficiaries) with a tax-free payout if you die during the term period. Your payments are fixed for the whole term. At the end of the term, you can convert it to a longer term or switch to permanent life insurance.
- Permanent life insurance: this covers you for the rest of your life. While it’s usually more expensive than term life insurance, it is cheaper if you start it when you’re young.
- A combibation of both term and permanent life
- The cost of life insurance depends on your age, health, gender, occupation/hobbies and if you’re a smoker.
- Life insurance is usually calculated per $100,000 of coverage. Age has a big impact on the cost of life insurance: for example, a healthy, non-smoking 50-year-old would probably pay around twice as much in premiums for term life insurance as a healthy, non-smoking 30-year-old.
Next steps on choosing the best non-company life insurance:
- Reach out to me and we will be able to look at your life insurance needs from the perspective of your whole financial plan.,We will complete a needs analysis with you, use specialized software to work out how much life insurance coverage you should ideally have, on top of what you currently get from your company life insurance.
- Make recommendations that make the most sense for your unique situation, fits into your financial plan, that it’s affordable and that it will keep your family financially secure in the event of your death
- Resources:
For more information, please feel free to contact me, john@panago.info.
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