Life insurance is imperative if you have loved ones or dependents. The coverage helps to provide them financial security in the worse case scenario, your death. It is often easy to forget about your life insurance once it is in place, but it is important to review it regularly to ensure it still covers your needs.
A 2024 study by LIMRA and Life Happens showed that one third of Canadians have gaps in their life insurance coverage.[1] So it is safe to say if you have to ask if you are underinsured, there is a good chance you are. Being underinsured leaves your loved ones financially vulnerable if something were to happen to you.
If any of the following situations apply to you, you may want to speak with a licensed insurance advisor about reviewing and increasing your life insurance coverage.
- You only have life insurance through your employer. It is important to know that life insurance provided by employers is often only 1-2xs your annual salary and that may not be sufficient enough to cover all your financial needs. Especially, if you have significant debt or want to cover your kids’ education. Another downfall of employer-sponsored life insurance plans is that they are tied to your job. If you leave your job, you no longer have that coverage. Individual life insurance policies provide many more options for coverage with respect to the length of coverage and amount. They can be tailored to suit your needs, and they stay with you no matter whether you change jobs or not.
- Your income has increased since you purchased your life insurance policy. With an increase in income come increases in financial responsibilities (such as larger mortgages/loans) and an elevated lifestyle. Bringing your life insurance policy in line with your current income helps to ensure that upon your death, your family can continue to live without having to make drastic sacrifices or changes.
- You incurred additional debt or bought a home. Purchasing a home typically means a new mortgage and increased monthly financial responsibilities. Ideally, your life insurance coverage should be enough to pay off your outstanding debts including your mortgage balance. The last thing your family needs after your death is the financial stress of mortgage/debt payments or the possibility of losing the family home.
- You have a spouse/partner that is not insured. Stay-at-home parents have more than a full-time job that does not come with a pay cheque. They provide invaluable services that would be costly to replace (childcare, household duties, home management). Losing that person would not only cause enormous emotional stress on the family but also financial stress. When addressing your family’s insurance needs you need to cover all the angles and consider a life insurance policy for your stay-at-home spouse. This will help give you the funds to hire the help needed to maintain your family’s quality of life if they were to pass away.
- Your family has grown. Kids cost a lot of money! In addition to the costs of food and shelter, there are expenses for daycare, sports, orthodontics, education, weddings and more. The financial responsibilities of raising children grow with each child. Review your life insurance policy to make sure the expenses for all of your children will be covered.
As life changes, so does your need for life insurance. Addressing underinsurance can help avoid financial hardship for your loved ones if something were to happen to you. You should regularly review your situation. Annual follow-ups with your insurance advisor are recommended but at a minimum you should touch base with them after any major life milestone (i.e. marriage, purchasing a house, having a baby, changing jobs).
Don’t put your family’s future at risk, don’t be underinsured.
[1] https://www.limra.com/en/newsroom/industry-trends/2024/nearly-one-third-of-canadian-adults-report-living-with-a-life-insurance-coverage-gap/