Many young Canadians often overlook the importance of life and disability insurance, believing they are invincible and not at risk of becoming injured or ill. However, there are several compelling reasons to start thinking about these types of insurance when you’re young and feeling on top of the world. In this blog, we’ll discuss the benefits of buying insurance before medical conditions arise and debunk common misconceptions about group benefits coverage.
Get Insured Before the Storm Hits
One of the key reasons to purchase life and disability insurance when you’re young is to secure coverage before any pre-existing conditions develop. Pre-existing conditions can cause concerns during the underwriting process, potentially leading to higher premiums, exclusions, or denial of coverage altogether.
For example, a young individual seeking care from a psychologist might face a mental health exclusion if they applied for individual disability coverage later in life. Another example is a how simple chiropractor visit may result in an exclusion for back related claims. By purchasing insurance while they are young and healthy, they can avoid such exclusions and secure comprehensive coverage.
Group Benefits Coverage: Are You Really Covered?
Many young Canadians mistakenly believe that their group benefits, typically offered through their employer, provide all the life and disability insurance coverage they need. However, relying solely on group benefits can leave them exposed to gaps in coverage.
For instance, group life insurance policies often provide a benefit equal to a multiple of the employee’s salary, which may be insufficient for higher income earners with significant financial obligations. Additionally, group disability insurance typically covers only a percentage of an individual’s salary, which could leave higher income earners underinsured in the event of a disability.
Closing the Gaps: Life and Disability Insurance Examples
Let’s consider two examples to illustrate the potential gaps in group benefits coverage for higher income earners:
- a) Life Insurance Gap: A young professional with a $100,000 annual salary has a group life insurance policy providing a benefit equal to two times their salary. In the event of their death, the policy would pay out $200,000. However, if they have a mortgage, dependents, and other financial obligations, this amount may be insufficient to provide long-term financial security for their loved ones.
- b) Disability Insurance Gap: A young individual with an annual salary of $120,000 has group disability insurance that covers 60% of their income. In the event of a disability, they would receive $6,000 per month in benefits. Because the employer is paying the premium in this example, this amount is taxable, and the employee will receive approximately $3,600 after-tax. However, their financial obligations, such as mortgage payments, car loans, and living expenses, may require more than what’s provided by the group policy, leaving them underinsured.
Insurance Costs Less When You Are Younger
Another reason why you may want to purchase when you are younger is to take advantage of lower rates. The below examples will show you what the cost would be until Age 65.
For example, $500k of Term to Age 65 for a 30-Year-Old Male would cost around $55 per month. A 40-Year-Old would need to pay roughly $68 per month. This is a 24% increase in cost difference between these two ages. A 50-Year-Old Male would need to pay around $98. This represents a cost increase of 78% compared to purchasing at Age 30.
$2,500 of Individual Disability for a 30-Year-Old Professional Male would cost around $55 per month. A 40-Year-Old would need to pay roughly $84 per month and a 50-Year-Old Male would need to pay around $131.10 for the same coverage. Once the policy is purchased, the rates are locked-in and guaranteed not to increase, even if you claim.
It’s time to stop overlooking the importance of life and disability insurance. Purchasing coverage while you’re young and healthy can help you avoid potential exclusions or higher premiums due to pre-existing conditions. Additionally, don’t fall for the myth that group benefits provide adequate coverage, particularly for higher income earners with significant financial obligations. By being proactive and considering individual life and disability insurance policies, you can protect your financial future and ensure you are well-covered in the event of unexpected illness or injury.
If you are on a tight budget, you may want to at least consider purchasing a small, inexpensive policy that will allow you to at least lock-in your insurability today.