With endless options to consider, life insurance can be a complicated product to understand. Is term life or whole life the right option for you? Should you use your life insurance policy to invest? And what about disability and critical illness insurance?
That’s why Tyler invited Matt Hands, Ratehub’s Director of Insurance, and Lorne Marr, founder of LSM Insurance, to answer all your questions about life (and its insurance) on this episode of Real Money Talk Podcast.
Becoming a life insurance broker
Although becoming an insurance broker can be a great career, Lorne emphasizes that it really comes down to whether you’re the right person for the job. Commission roles, such as selling insurance, are almost like being self-employed – you need to have the right mindset and be a self-starter.
The importance of valuing your work
As the founder of LSM Insurance, Lorne shares how valuing your work can translate into success, especially in the sales industry. Because life insurance can essentially be bought for the same price from any broker, showing clients that you’re excited about what you do can help you stand out from others.
“Sales is an equation for what you're offering of more value than the premium you’re charging. Are you delivering more than the cost? Just being optimistic and believing in what you’re offering adds value.”
Life insurance myths and misconceptions
With his extensive experience in the industry, Lorne also breaks down a few popular life insurance myths and explains why they really are misconceptions for many Canadians.
- You don’t need life insurance if your work provides it – “The reason it’s a myth is because, one, your life insurance will only stay with you when you’re working, and two, your work may not give you enough life insurance to cover your overall need.”
- Young people don’t need life insurance – “That can be a myth because if you have dependents, you will definitely need life insurance. And if you're young, you may want to get life insurance while it’s very affordable. If you're young and healthy, that's the least expensive it’s ever going to be.”
- Term life is always better than whole life – “That is a myth. It depends on the person's needs. Term life insurance is for temporary need. Permanent insurance is for permanent need. If you want life insurance for estate planning, final expenses, or charitable giving, you need a permanent life insurance policy.”
Term life vs. whole life
Lorne explains that term life insurance isn’t necessarily better than permanent life insurance for all Canadians but rather a more popular option simply because of cost. When it comes to buying insurance, it’s important to make sure you’re getting the correct amount of coverage – and if you can only afford a term policy for the amount you need, temporary coverage is better than no coverage at all.
When to buy life insurance (and how much you need)
Lorne explains that the critical stage to buy life insurance is whenever you have kids.
Most people don't have enough wealth to continue providing for their children in the event of their death, so life insurance acts as a form of income protection. On the other hand, you may also want to purchase coverage while you’re young because rates tend to increase as you age. And another critical stage in life to consider insurance is when you take on a mortgage – you don't want to leave your family an enormous pile of debt.
Lorne also says to simply deduct your liabilities (e.g. debt, loans) from your assets (e.g. house, investments) to figure out exactly how much life insurance coverage you need.
The remainder is roughly the amount of life insurance you should purchase. And if there’s no remainder, you might not need to purchase any coverage at all.
Compare life insurance quotes with us.
Disability and critical illness insurance
According to Lorne, disability insurance is extremely undersold in Canada. “In a lot of ways, it’s more important than life insurance because if you die, you no longer have yourself to pay for. Whereas if a family member becomes disabled, not only are they not earning any income, but they still have themselves to pay for. And there may be costs related with the disability.”
Lorne shares that critical illness insurance is also an important product, but not necessarily as important as disability insurance. Instead, it can be a great compliment because it pays out a lump sum in the event you get sick, allowing you to focus on getting better,
Life insurance for investments
Life insurance can be a great investment vehicle if you’ve already maxed out your TFSA and RRSP. Depending on the type of plan you purchase (e.g. universal life, whole life), the extra money can grow on a tax-sheltered basis and payout tax-free when it’s withdrawn.
“It can be very tax efficient for the right person in the right situation. It can offer a lot of benefits, but you want to understand what you're buying, and you want to make sure it's appropriate for your situation.”
The need for life insurance brokers
For instance, whole life and universal life policies both have investment options, and if these aren’t explained properly, customers may purchase the wrong package for their needs. And even with simpler options like term life insurance, you can still benefit with an advisor explaining why you need the policy (and how much you need in coverage) to begin with.
To hear the entire conversation with Tyler, Matt, and Lorne on life and its insurance, tune in to your favourite personal finance podcast, Real Money Talk, available on Spotify, Apple, and Youtube. And if you’re currently shopping for life insurance, be sure to compare life insurance quotes with us to ensure you’re getting the best rate possible.