I’m Going to Die One Day! Better Plan Now

November 19, 2014
rainbow-valley

Sorry, I don’t usually use that tone of voice here, because death is obviously a serious subject – one that not many people like to talk about. Seriously, who wants to even think about the fact that their time is limited, let alone actually talk about it? Not you? Yea, me neither! Unfortunately, it’s a fact of life. I’ve said many times that I’ll be lucky if I get 85 years on this planet, so I want to make the most of them. With nearly 30 down, that means I’ve probably lived at least one-third of my life already (whoa). And while I may be healthy today, there’s nothing saying I won’t get sick or die at a young (or younger than I’d like) age. (The rainbow picture is meant to brighten up this morbid post… is it working? lol) To prepare for what may come, I decided to finally research and get the right insurance policies in place. Here’s what I bought:

Life Insurance 

The decision to buy life insurance wasn’t an easy one to make. For starters, let me tell you: everyone has an opinion about this type of insurance – and I can see why. You really only need life insurance if you have people (or property) who rely on your income. I have no property and no debt, and also no partner or kids, so if I died today, no one would be affected by the loss of my income. I also have an Emergency Fund that could probably pay for my funeral and any taxes on my investments. So yea… technically, I don’t need life insurance right now!

Why did I buy it then? Two reasons: 1) I’m young, so premiums are much cheaper now than they would be if I waited another 10 or 20 years to get it. 2) To prepare for the “what ifs”. Some of the “what ifs” I factored in: What if I got sick in 10-20 years and my premiums skyrocketed? What if I happened to get married and/or have a kid in a couple years and wanted that extra bit of security for my family? What if I bought a home in a couple more years? (Mortgage protection insurance does not interest me!) I have no idea where life will take me, but I’m comfortable paying a little bit each month now to help whoever I leave behind.

Once I made the decision to buy, I was then faced with more decisions. For starters, did I want term or permanent? With term life insurance, you’re only covered for a limited period of time (5-30 years), and when the policy runs up you need to decide if you want to renew or not. The bonus with term is monthly premiums are cheap. With permanent life insurance, you only pay premiums (expensive ones) for 15-20 years, then you’re covered for the rest of your life (or age 100). Then, on top of your death benefit, some of your money goes into a sort of savings account (cash value) which you could pull from in the future.

If you decide to get permanent life insurance, you then need to decide if you want to get whole life insurance or universal life insurance. I won’t bother explaining the differences between the two, but if you’re interested there’s a good post on Investopedia. I sat through 3 lengthy appointments (90+ mins) with 3 different insurance brokers, and each of them almost sold me on the idea of whole and universal. If you look at it as another investment, it could be ok. And the quotes I got were all reasonable. However, Dan Bortolotti came to my rescue with this story he wrote for MoneySense, and I realized it wasn’t right for me.

In the end, I chose a term life insurance policy of $250,000 that’s good for the next 30 years (age 59). Why did I decide on $250,000? I tried to still think in terms of what single Cait would need, because getting anything more would just feel weird (especially if I never had kids lol). If I bought a condo on my own, it would probably be in the $250-275,000 price range, so the bank would want the amount of my mortgage to be backed by either life or mortgage protection insurance. (Man, the things I learn working at RateHub.ca!) I’d rather have life insurance on my side, so a $250,000 term policy felt right.

The beauty of any term life insurance policy is that you can always buy more when you need it. So if I got married and we bought a house for $500,000, I could buy a second policy for $250,000, for a total of $500,000. But $250,000 is more than enough for now. (And at $24.30/month, I can’t complain.)

Critical Illness Insurance

Critical illness insurance was a lot easier to research, understand and make a decision on, because it serves one purpose: to help you financially, if you get sick. For example, if I found out I had cancer, or I had a heart attack or a stroke (the list goes on), and I had to take time off, my critical illness insurance policy would give me a lump sum of cash to help support me while I couldn’t work (up to age 70). I opted for a $100,000 policy. I chose this amount because I can only hope my annual salary will continue to increase with my age, and I wanted enough to cover at least one year off work.

The difference between life and critical illness insurance is that one helps other people (life) while the other helps you (critical illness). I, personally, am never going to get the $250,000 I’m insured for. If I get sick, however, I can cash in on my $100,000 critical illness insurance policy. And if I never get sick? Well, I decided to pay a couple extra bucks each month so I can get all my money back (after my 70th birthday). Critical illness insurance isn’t cheap (I’m paying $74.07/month until age 70) but I like knowing that I’ll get every penny back one day ($36,000+) – as long as I don’t get sick, that is.

If you don’t currently have either of these insurance policies, but are considering getting one or both, my one piece of advice is this: shop around! Like I said above, I met with 3 different insurance brokers, before finally finding one I liked. And it wasn’t just about trying to find the cheapest premiums (I went with ones that were mid-range!). I researched the insurance companies they represented, the products they were selling me, and then I took how I felt about them into account. The broker I ended up choosing was friendly, not pushy, showed a genuine interest… and he even told me products I should skip altogether!

After doing lots of research on my own, and going to 3 appointments with 3 brokers, I finally made 1 final appointment with my broker on Monday and applied for both policies. While I was there, I remembered my tenant insurance was about to expire, so I renewed that with him too – and my monthly rate went from $38 down to just $24! I paid $288 for the year, so I don’t even have to think about that now.

And with that, I’ve crossed off all my financial goals for the month! The final step in all of this “what if” planning I’m doing is to finally get a Will / Power of Attorney drawn up with a lawyer. But my budget has kindly asked that I wait until January, to do that…

Do you have life insurance and/or critical illness insurance?

Flickr: rwangsa

  • Taylor Lee November 19, 2014 at 4:36 am

    I don’t have any sort of insurance right now (well, other than health insurance) since I don’t have any dependents. Once I get married, I figure I’ll probably get life and disability insurance, at least until my assets accumulate to the point my family would no longer need the extra money to get by.

    • Cait Flanders November 20, 2014 at 7:30 pm

      Good thinking, Taylor!

  • Strandedrocks November 19, 2014 at 4:39 am

    Great post. I have heard about life insurance and because I don’t own property or have children I always dismissed it as not for me, you have seriously made me rethink that. Even though individually the premiums may seem small they do add up though. I have to really look in to what I have covered at work (which I know I lose the moment I stop working there). It’s tedious work though, :)

    • Cait Flanders November 19, 2014 at 10:04 am

      Yea, it’s interesting… you really don’t need life insurance, but if there’s someone you’d like to leave money to, you could get it anytime. If I was single/had no kids when I died, my younger siblings would split my life insurance 50/50. Since they’re so much younger than I am, I’ve always known I’d want my money to go to them (unless I was married/had kids).

  • Catherine November 19, 2014 at 4:52 am

    I’m ashamed to say no. We have all individual debts insured and i have 2 million malpractice insurance and some critical illness through my professional association but no life insurance. I really just need to make the appointments! I have so little time i think that’s whats making me put it off….

    Curious, did you require a medical exam?

    • Cait Flanders November 19, 2014 at 5:36 am

      Not for the life insurance, but I will need one for the critical illness insurance! A nurse will just come to my place, which is pretty cool. And oddly enough, I’m almost looking forward to it. Two of the brokers told stories about how the exam had found early stages of certain diseases, etc. Since I know nothing about my biological dad’s side of the family, I feel like it’ll be the best medical exam I could ever get… for free, that is! Plus it’s with someone who will genuinely be looking for problems vs. a doctor who is rushing through a physical. I think I’m healthy, but if I’m not, I’d like to know now!

  • Kristen November 19, 2014 at 4:52 am

    I have both. I have a whole life insurance that will pay me dividends when I turn 65. I am self-employed and to save tax money now, I am not paying CPP. My life insurance dividends will cover what CPP will in the future. I also have critical life for about the same value as you, except at 60, I get my premiums back. Because I am self-employed I also have disability insurance. I have a job where a broken leg could prevent me from working for 6 weeks, so I have that protection. Sometimes I feel over insured, especially when I hope to never need it, but better to be safe than sorry!

    • Cait Flanders November 20, 2014 at 7:32 pm

      Hey, and if you can afford the premiums, why not?

  • Bette November 19, 2014 at 4:54 am

    Great post! Yes, I have life insurance. Because I have a husband and three children, I carry enough to pay off my mortgage and replace my income. My husband does the same. Term life insurance is very cheap for the peace of mind it buys!

    • Cait Flanders November 20, 2014 at 7:32 pm

      Absolutely, Bette!

  • Dayle November 19, 2014 at 7:01 am

    I do have both… but both are through my work, so it’s a bit of a risk if I ever stopped working here, though I don’t plan on it!

    I have 2x my salary that everyone gets. Then I had to purchase an additional 1x my salary to gain access to purchase additional. Strangely, the premium for the extra 1x my salary is about $11 a month, and then I have an extra $100K for which the premium is only $2.27 a month! It’s just how our group plan is set up for some reason. So anyway between all that I’m covered for $310K and pay under $14 per month out of pocket.

    I looked into critical illness insurance but decided the short term and long term disability policies at work are sufficient. They end at age 65. I’m hoping that within the next 10 years I will have enough assets that I won’t need life insurance. It will all depend if and when I have kids!

    Great post!

    • Cait Flanders November 20, 2014 at 7:33 pm

      Whoa, that is cheap! I’m a little jealous, haha.

  • Emily @ Simple Cheap Mom November 19, 2014 at 7:15 am

    We just got our wills done, so this is a topic in our house. He has both types of insurance through work and we top up his life insurance a little. I am a SAHM, so we figure we have enough to self-insure me.

    • Cait Flanders November 20, 2014 at 7:33 pm

      That’s great, Emily!

  • Alicia November 19, 2014 at 8:23 am

    I have a 250k policy for life insurance – actually, my father is the owner of that still, which needs to be shifted over, which is on my to do list. That’d cover the mortgage plus a years salary (and growing as the mortgage gets smaller). I also have work policies for 2x my salary, but I’ll change jobs before I die so that’d just be gravy for my beneficiary if that did happen.

    I didn’t read the article for/against permanent insurance, but I know my father used it as an opportunity to decrease tax liabilities, or shelter tax, or something. But I think that only really comes into play when you have a significant income and you’ve maxed RRSP, and other avenues, as part of a full tax planning strategy. Maybe one day I’ll be so lucky to have that ‘problem’ :)

    As for critical illness, I don’t have that. And that’s something that definitely very helpful and more necessary when you are young and might not have huge layers of savings and safety nets. I really should look into that.

    • Cait Flanders November 20, 2014 at 7:19 pm

      Yea, it basically just said that you shouldn’t bother unless you’re also maxing out your RRSPs (which I’m clearly not). And do look into critical illness! Even if I hadn’t bought life insurance, I would’ve bought critical no matter what.

  • Michelle November 19, 2014 at 9:19 am

    I don’t have either of these. Both are something I definitely need to look into though, especially before we start a family. We both used to have life insurance (just a small amount) but they were cancelled when we quit our day jobs.

    • Cait Flanders November 20, 2014 at 7:34 pm

      Yea, I’d definitely make a couple appointments, ask questions and shop quotes!

  • Kayleigh November 19, 2014 at 10:34 am

    I’m young, healthy, and single, but my job offers great life insurance coverage for about $4/month. That’s less than a cup of fancy coffee. You never know what will happen, and it’s nice to know that if something happens to me my parents or other relatives won’t have to worry about expenses. It also includes AD&D insurance, which ends up being a lot cheaper than purchasing that separately. I think if you’re lucky enough to have a job that offers it cheaply, you may as well take advantage of it.

    • Cait Flanders November 20, 2014 at 7:20 pm

      Absolutely! I also have a tiny amount through work ($25K for both) but can’t rely on that because I won’t be there for the rest of my career.

  • Jacquie November 19, 2014 at 10:57 am

    Thanks for posting this Cait!! I’m in the same boat, no property or dependents…but I like the idea of joining when you’re younger and it’s cheap.

    But then I suddenly thought, wait, I think I’m paying for this through work?? Just checked…and I am! My insured amount is $45,000 and it’s costing me $117.72 per year. $9.81 a month. Not too bad.

    I think I have mine set to my brother as my beneficiary. I remember reading that it’s better to put a sibling than parents since you’re closer in age and if your parents pass away and you forget to change it then it’s not good. I guess I could switch it to my partner since we are common-law. We still file our taxes as “single” though, so I’m not sure if that would have anything to do with it…

    • Cait Flanders November 20, 2014 at 7:21 pm

      Hmm, well I guess you just need to decide who you would really want the money to go to. I’m quite happy for mine to go to Baby Sis/Baby Bro, and think I’d leave it at that until I was married or had kids.

  • Rob November 19, 2014 at 4:19 pm

    When first married, in my early 20’s, I purchased term life policies and then later, as the kids hit their teens, I switched them over to 20-paid life policies, meaning that I paid regular premiums for only 20 years and then the policies were fully paid up, with no further premiums required and the policies were then in effect for life. I first bought term because it was the best way to purchase the most amount of insurance coverage at the lowest cost and it was in effect for as long as I regularly paid the premiums. I switched over to 20-paid life later because by then I could afford the slightly higher premiums but wanted to limit how long that I wanted to continue paying these premiums and still have insurance for the rest of my life. So by my 50’s I had an appropriate amount of fully paid up life insurance for life.

    I didn’t personally purchase critical illness insurance, relying instead on my employer’s group coverage, which was the cheapest way for me to obtain it through regular payroll deduction.

    • Cait Flanders November 20, 2014 at 7:27 pm

      Yea, that’s where I struggled w/ the term vs. permanent debate: it’s kind of nice to think that one day I’d be done paying premiums but the insurance would always be there. However, my hope is I’ll have enough in investments for my family to live off for a while. Of course, that’s just a hope, right now… but a girl can dream! (And if not, the term policy I chose can be converted into a permanent insurance policy.)

  • Bridget November 19, 2014 at 5:53 pm

    That’s a nice option with your critical illness insurance that you can get it all back by just paying a bit extra.. I didn’t realize that sort of thing was available!

    My fiance has a solid insurance plan from his employer, but like you, I didn’t feel I needed one for myself because I have no dependents and my savings is more than enough to pay for any funeral costs etc.

    • Cait Flanders November 20, 2014 at 7:37 pm

      Yea, it’s a return of premium rider. Worth it, in my opinion! That’ll be a nice little sum of money to get at 71. :)

      • Brian So November 23, 2014 at 11:02 am

        Cait, have you calculated the amount you would have at age 70 if you invested the premium for the ROP rider instead? ROP seems like a good idea (win if you get a critical illness, win if you don’t), but hopefully you’ve done a comparison to see it was worth it. Plus, you also have to consider that you won’t receive the ROP if you do actually suffer a critical illness, whereas it’s guaranteed that your investment will be available at age 70.

        Just some food for thought. Either way, you’re a role model for every uninsured, young, and single person :)

  • NZ Muse November 19, 2014 at 9:46 pm

    74$ a month is pretty frickin’ cheap IMO! I don’t really think anything feels expensive to me unless it cracks the triple digits.

    Life insurance through work, but I don’t really need it. I definitely want to get some sort of protective insurance for T as he is much more likely to get injured and be unable to work.

    • Cait Flanders November 20, 2014 at 7:38 pm

      Yea, I’m not complaining about the premium! I was quoted a little less by another broker, but they didn’t have the option to give me back my money, so… nope! And that sounds like a good idea, E.

  • Mikhaila November 20, 2014 at 7:21 am

    I think I thought more about my mortality when I went to get my will/power of attorney/personal directive done last year. I’ve had life insurance and critical illness insurance for awhile, but I viewed them both as something to check off the list, and other than cost, didn’t think too much about it! My will made me highly aware of the fact that I will die, and what will happen to my “estate” when I do. Kind of tough to think about at 28, but a necessary evil to go through.

    You’ve got some great rates on insurance, it really pays off to shop around!

    • Cait Flanders November 20, 2014 at 7:29 pm

      Yea, I can’t wait to get the Will / PoA off my plate next year… I can act nonchalant about this stuff, but I’m sure it won’t be easy to go through!

  • Potato November 20, 2014 at 9:49 pm

    Thanks for sharing the amounts, always good to know the ballpark (even if everyone’s precise policy will be individual).

  • Financial Underdog November 22, 2014 at 9:09 am

    I’m glad you brought up Critical Illness insurance. People are way more likely to get sick (critically!) than to die. A year of battling cancer even in Canada can financially destroy you if you’re forced to take time off work and don’t have a fallback plan like cooking crystal meth.

    I’m surprised you’ve extended your policy so far into the future though – we’ve decided to keep it shorter until time comes when we’re self insured.

    Good blog! Holla from Okanagan.

  • Rachel November 24, 2014 at 8:39 am

    Good post! I got married in 2013, and we just bought a home this past August. Luckily for both of us, we both have a (small) life insurance policy through our jobs. Granted, those policies are small (total $100,000) and once we are no longer at these jobs, it does nothing for us, but with me being in school and all the expenses of our new home, we couldn’t afford to get additional policies at this time. BUT we do plan on both taking out an additional policy before we’re both 30!