Life insurance can help provide for your loved ones’ financial future. Despite this benefit, younger Canadians may be reluctant to spend on life insurance because they feel it’s too expensive or don’t need it until later in life.
Although premiums are often lower at younger ages, this does not necessarily mean it’s less expensive to buy coverage before you have an insurance need.
Using information from the Financial Consumer Agency of Canada’s life insurance guide, FCAC’s insurance-application guide and FSRA’s explanation of life insurance policy types, our team put together this guide.
Life Insurance for Young Adults at a Glance
Even if you’re young and healthy now, life insurance can provide a safety net if someone relies on your income or unpaid care.
Young adults on a tight budget should also consider employer-sponsored group life insurance. These plans may have lower premiums and a simplified application process. However, coverage commonly ends when you leave your job. Some plans allow you to convert the coverage to an individual policy.
If nobody relies on you and your assets are enough to cover your debts and final expenses, you may be able to consider coverage later in life.
What Are the Financial Benefits of Getting Life Insurance Early?
Young adults who are starting their careers may not consider getting life insurance. Many are still in entry-level jobs, may be on a tight budget and have other priorities.
Lower Premiums
One reason for buying life insurance while you’re young is the potential for lower premiums. Life insurance companies consider age and health when assessing an application, and younger applicants are generally considered less likely to develop serious health issues.
This can result in a lower initial premium than the same applicant might receive at age 40 or 50.
However, a lower monthly rate does not necessarily mean a lower total cost. Buying early also means paying premiums for more years.
Read More: See What Waiting to Buy Life Insurance Can Cost
More Favourable Underwriting
If you wait until later in life to get insurance, you may face higher premiums because of changes in your health, such as hypertension or diabetes. Depending on the condition, an insurer may charge more, postpone its decision or decline the application.
Starting a policy while you’re younger can help you secure coverage before any of these issues develop.
Read More: See How Life Insurance Rates Change by Age
When Does Buying Life Insurance Young Make Sense?
Coverage may be useful if your death would create a financial loss that is not already covered by your assets or existing insurance. This could include:
- lost household income for financially dependent people;
- the loss of unpaid care provided to dependants;
- a shared mortgage;
- co-signed financial obligations; or
- business obligations.
If you expect a future need but do not have one now, compare the cost of buying early with the cost and uncertainty of waiting. Future health and insurance prices cannot be predicted.
Incorporating Life Insurance Into Financial Planning
Life insurance should not overshadow other financial priorities. Consider it alongside emergency savings, high-interest debt and registered savings accounts.
Future Security for Dependants
You may not have dependants now, but if you plan to start a family, buying life insurance early may help protect your future insurability.
Before purchasing coverage, consider when the financial need is likely to begin, how much protection would be required and when that need would end.
Protection From Shared Debt
A death benefit may help a surviving partner pay a shared mortgage or co-signed debt.
Life insurance is paid to the beneficiary or estate named in the contract. This does not determine who is legally responsible for a debt. Individual, shared and co-signed debts should be considered separately.
Read More: Review Reasons Not to Buy Life Insurance
Workplace Coverage vs Individual Coverage
Group insurance through an employer is usually based on a flat amount or multiple of earnings. It may provide useful basic coverage, but the amount may not be enough for your needs.
Coverage commonly ends when employment ends. A conversion option may exist, but it will have its own deadline and conditions.
An individual policy is controlled by the policy owner and can continue after a job change if its premiums are paid and the contract remains in force.
Before relying on workplace insurance, check:
- the benefit amount;
- who is named as beneficiary;
- when coverage ends;
- whether conversion is available; and
- the deadline for exercising that option.
Read More: Learn Whether Group Life Insurance Is Enough
Long-Term Implications of Different Policy Types
Term Life Insurance
Term life insurance provides a death benefit if the insured person dies during the policy term. This temporary coverage is typically more affordable, making it easier for young adults to fit into a budget.
It also offers flexibility because you can choose a term that matches a temporary need, such as a mortgage or the period during which your dependants require support.
Term insurance has no cash value. Premiums may increase at renewal, and coverage expires at the end of the policy term.
Check whether the policy includes an option to convert it to qualifying permanent coverage without new evidence of insurability and when that option expires.
Permanent Life Insurance
Permanent life insurance offers lifelong coverage and is generally more expensive. It may suit someone with a continuing need involving an estate, dependant or business.
Some permanent policies build cash value, but their guarantees, fees and investment risks differ. If you cannot commit to the premiums for many years, permanent insurance may not be suitable.
Read More: Compare Term and Whole Life Insurance
Should You Buy Now or Wait?
Buying earlier may give you access to a lower rate and allow you to secure coverage before your health changes. The disadvantage is paying premiums during years when the policy may not be needed.
Do not compare a 30-year term bought at age 25 with a 30-year term bought at age 40 without considering that the policies end at different ages. Determine when you expect the need for insurance to end, then compare coverage over the same period.