Insurance more important in tough economy
In order to cut back, some Canadians are not adequately insuring themselves against things like death, disability and critical illness. But scrimping this way can be costly.
More than 20 million Canadians are protected by life insurance, with the average amounts owned being approximately $156,000 for individuals and twice that for households, according to Canadian Life and Health Insurance Association estimates.
That's the good news.
Unfortunately, that still leaves roughly three out of ten Canadians without important insurance, particularly when it comes to disability and critical illness, two areas where employer-sponsored group plans are less common.
What's more, worried about losing jobs and the perks that go with them, some beleaguered employees are wondering how they'd ever replace the benefits they currently enjoy at work.
Most employer-sponsored group policies end quickly once you're no longer working for the company - a good reason to have some sort of backup plan.
Terry, who recently lost his job in communications, left behind a generous drug plan and a life policy that would have paid his beneficiaries almost three years salary upon his death. Although his benefits will last for a few more weeks, he hasn't done anything on his own yet.
"I know it's a bit irresponsible, but, right now, it's more a question of paying premiums or buying groceries for the family," he admits. "It's just temporary," he adds, too mortified to have his last name attached to such an admission.
But a lack of coverage like this isn't something to be ignored, particularly as you generally have a limited window during which you can roll over certain group policies into private coverage.
Be sure to check with your employer to find out exactly when your coverage ceases and what the time limit is to apply for conversion.
Although the costs of private health plans vary widely according to age, family size, level of coverage and deductibles, annual premiums may not be as high as you think.
Most plans are usually available in varying tiers, depending on what you're looking for, so it pays to look at several options.
A family with two children, for example, could spend monthly amounts ranging from $175 to $215 for basic coverage, and $245 to $300 monthly for enhanced coverage that includes extended health care, dental and drugs.
If possible, try to do some research before you actually have to replace any lost benefits. You may find you don't require as much life coverage as you initially thought.
Since they're so general, some online calculators can actually overestimate insurance needs, which can cause people to incorrectly conclude they can't afford the coverage suggested or prevent them from buying any coverage at all.
Buying coverage equal to eight to ten times your annual income is one useful rule of thumb. But that's just a guideline.
If money is tight, consider a term policy to protect your family.
There are two kinds of life insurance: term and permanent. Term insurance provides a set amount of life insurance at a fixed rate for a certain period - often 10 years or more.
Permanent insurance continues as long as you pay premiums. At the same time, it builds cash value that you can eventually withdraw or borrow.
The cost of permanent insurance tends to be a lot more than for term insurance, particularly in the early years. Consequently, some people end up buying less coverage than they may need because that's all they can afford.
Where cash flow is an issue, opting for a term policy can provide inexpensive protection when you need it most. However, this budget-driven choice may not be the right one for you as term insurance doesn't accumulate any cash value. That's why you're better off talking directly with someone who can gauge your particular situation and how your needs might change. Again though, the dollar amounts may surprise you.
A 32-year-old man in good health can buy a $300,000 term insurance policy for something like $227 per year and lock in that annual rate for 20 years, according to recent estimates. A woman could expect to pay approximately $173 for similar coverage.
Even though rates are certainly higher if you buy a policy when you're older, they may still be quite affordable. A healthy 50-year-old man could get a 20-year, $300,000 policy for roughly $979 per year ($683 for a woman), according to various estimates.
Specific options and prices vary significantly by company, however, so shop around for the policy that suits your budget.
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