A comprehensive insurance guide

Insurance can get tricky fast. Not only are you looking into the future without a crystal ball, you’re trying to do it across a variety of assets and abilities that make up your life. 

Of course, you don’t want to get too much insurance and end up paying for services you’ll never need, but you don’t want to go too low and find your life knocked off balance by some unforeseen accident.

Finding that balance is hard, especially when you’re dealing with so many options – each with its own small print.

So of course, we always get asked “how much insurance is enough?” The answer is different for everyone, depending on your risk tolerance, earning potential and living situation. So while we can’t give you an easy, pat answer, we can guide you through the best practices of buying insurance so you can make sure you and your family are properly covered.

Life insurance

Life insurance is essential if you have a family that depends on your income.

There are two main types of life insurance, term and permanent. For the majority of people, term life insurance, which covers you for a fixed period (usually 10 to 20 years) is the most useful. The cost to maintain it is low and your family is still covered if they lose you.

Permanent life insurance, on the other hand, provides coverage for your lifetime. Most permanent insurance policies have a cash value component to them, which is similar to an investment account. By depositing extra cash in your policy, it gets invested and the growth is tax sheltered. It can then be used later on to pass onto your beneficiaries tax free, borrow from it, withdraw from it, or use it to pay the premiums for the policy.How much coverage do I need?

The first step in answering this question is finding out what your family would need if they couldn’t depend on you. Would your spouse have to get child care? Would they have to quit or decrease hours at their job?

While we can’t answer those questions for you, we can give you a rule of thumb. In general, your life insurance should: 

• cover your mortgage and personal debts
• Provide for surviving loved ones that are dependent on your income
• Provide for education costs of children
• Pay for tax liabilities on death if you wish your assets to pass to loved ones who are not your spouse
• Leave a legacy to your children, grandchildren or favourite charity

A tip from the professionals

If you have a mortgage, you were probably offered mortgage insurance that pays off the balance owing if you die. We recommend avoiding this as it is more costly than life insurance and your coverage decreases as you pay off your home.

Instead, we recommend getting enough life insurance to take your mortgage into account.

Disability insurance

Disability insurance pays out if you are in an accident or suffer from an illness that takes away your ability to work.

One in six Canadians will suffer some disability for three months or more before the age of 50. So, for most people, whether single or with dependents, young or old, this is the most important coverage to get. 

Typically, there are two types of disability insurance:

• Long-term disability (LTD) insurance gives you replacement income if you can’t work because of an illness or injury.
• Critical illness insurance offers a tax-free, lump sum payment if you are diagnosed with an illness it covers.

For people who have to choose one of the above, we recommend getting LTD insurance. It is the most useful, and ensures your family will always have money coming in. That doesn’t mean critical illness insurance isn’t useful. If you aren’t on a fixed budget, buying both is also an option.

The good news is, if you work for a bigger company, you may already have LTD insurance, so make sure to check your benefits before investing in disability insurance.

How much coverage do I need?

We recommend covering 66% of your pay if you have a family depending on you. This is standard coverage and pays out tax-free with personally owned coverage. If you’re single, you can probably get by with 50%.

A tip from the professionals

A couple things to note, LTD comes in two types “any occupation” or “own occupation.” ‘Any occupation’ covers you if your disability stops you from working in any occupation, even less demanding or lower paying work, while ‘own occupation’ covers you if you’re unable to continue working in your own industry.

Travel insurance

Travel is inherently a vacation into the unknown, which can be lots of fun. But when something goes wrong, having insurance will save your holiday, your savings and maybe even your life.

For that reason, travel insurance is an absolute must.

But, before you go out and purchase insurance for your trip, look through your employee benefits plan (if you have one) to see if you’re already covered. Make sure you know exactly what you’re covered for and for how long. Often, the travel insurance included in benefits plans is restricted to short trips, often less than 10 days.

If you travel more than twice a year, it may be worth it for you to get annual coverage. This way, you can go on trips without worrying about purchasing insurance, and it’s often cheaper. Just be aware of the type and length of trips you are covered for.