Finance

When do you need life insurance? We talked to an expert to find out

By: Dominic Licorish on July 3, 2017

When you get a car, you need to get car insurance. If you buy a house, you’re going to want to get home insurance. Everyone reading this has a life (I hope), so everyone should have a life insurance policy, right?

Wrong.

Life insurance is a tricky product, especially for young people. Should a 29-year-old who just bought their first home be covered? How about if that same person was still at home living with their parents?

We got in touch with Lorne Marr, the director of new business development at LSM Insurance, to get a clearer sense of when you should get life insurance. We presented him with a few different scenarios, and asked which of our fictional young people should get covered.

The new parent

Yes in most instances, the parent of a dependent child is going to want life insurance. According to Marr, parents “have the most need for life insurance,” because should anything happen to them, they’ll be leaving behind someone who can’t fend for themselves and raising a child isn’t cheap.

“It becomes crucially important that anyone with dependents, assuming they’re not independently wealthy, has some type of life insurance policy to protect their income if they were to pass away.”

The married couple with no kids

If you’re in a long-term relationship or you’re married, life insurance could be a good choice to protect your significant other from the financial burden of your death, even if you don’t have dependent children. Getting used to two incomes can leave someone in trouble if one of those incomes is suddenly lost, especially if one partner earns more than the other.

“You know, if one spouse is a lawyer and the other is a stay-at-home parent, they’re most likely not going to be able to earn the same income as the lawyer. So even if they didn’t have a child, it could still be an issue,” says Marr.

The twenty-something whose parents helped them buy a condo

More young people are getting help from Mom and Dad when buying their first property, whether it’s just co-signing on the mortgage or helping with a down payment. For people in that position, life insurance might be a good idea. “If [their parents] expect the money back, [that person] should have a life insurance policy that can cover the amount that they owe [to their parents],” Marr told me.

And for co-signed mortgages, your death would mean your parents would either need to sell the property or keep paying for it. A life insurance policy could help cover the mortgage while they figure out what they’re going to do.

The single young professional

You’re out on your own, making your own money and spending it mostly on yourself. Young, single people with no kids and no property definitely have the least need for life insurance. It certainly shouldn’t be at the top of the priority list.

The one benefit of life insurance in this scenario is that a young person can lock into a permanent policy at a lower rate. This could save money on insurance in the long run, while giving family a bit of relief by covering end-of-life expenses if anything happens.

However, Marr only recommends it if a person has already taken care of all their other financial obligations, “like putting money into their RRSP, TFSA, not having any debt,” he says.

Other considerations

It might be better to take out a life insurance policy when you’re younger, but you’re never too old to think about it. Marr says even middle-aged and senior parents with independent children may need life insurance to cover end-of-life expenses, as well as to plan their estate.

The main factors when it comes to deciding whether to get life insurance are having debt, and having people who rely on your income to maintain their lifestyle.

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