More than half of Canadians with group life insurance have no other coverage: survey

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Sixty-two per cent of Canadians who have life insurance get it through their group benefits plan at work and a majority of them have no other coverage, a recent national survey shows.

The poll, conducted through the Angus Reid Forum for digital life insurance platform PolicyMe, also found that 53 per cent of those without additional life insurance coverage are between the ages of 30 and 50, “a group most likely to have dependents and large liabilities, such as a mortgage.”

If you’re like most people, life insurance is meant to help your family cover the bills without your income, should you die prematurely, says personal finance expert Barry Choi.

But if you’re only relying on whatever life insurance comes with your job, chances are your coverage falls short, he adds.

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It’s one of those money lessons Choi says he learned first-hand. While working as a TV producer for Canadian media, Choi said he had employer-sponsored life insurance that would have paid out an amount equal to twice his salary. When he started out, that worked out to around $100,000, which Choi says seemed a lot of money at the time.

Life insurance provided as an employer-sponsored benefit is usually worth between one and two times an individual’s income, with the average between around $55,000 and $110,000, according to the PolicyMe report.

But Choi says he realized his workplace coverage was woefully inadequate when he got married, bought a condo and had a daughter.

“I realized quickly that I needed an outside policy,” he says.

At the time, he and his wife each took out a policy worth $500,000, which they figured would bridge the income shortfall left if one of them were to pass away, cover mortgage payments, and pay for their daughter’s education until she’d be financially independent.

And with properties so much more expensive in today’s real estate market, Choi muses he’d a bigger policy if he were to upgrade to a bigger home.

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Where your job goes, so does your workplace coverage

Another reason for buying your own life insurance: “your coverage at work is only with you so long,” says Lorne Marr, director of new business development at HUB Financial.

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If you quit, retired or got the pink slip, you’d lose your life insurance. Your next job may not include life insurance. And even if you stayed put for the rest of your career, your employer may decide to reduce or nix your workplace life insurance coverage, Marr warns.

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“A lot of companies are trimming back on their group plans,” he says.

And the trouble with buying life insurance on your own is that, in general, the older you get, the more it’s going to cost you.

“I saw a lot of my older coworkers who were in their 50s and 60s who all of a sudden got laid off and they couldn’t get (affordable) life insurance,” Choi says.For healthy individuals, the average cost of a term life insurance worth $500,000 available through PolicyMe is less than $26 a month per men and less than $20 a month for women at age 30. But that cost rises to nearly $95 a month for men and more than $65 a month for women at age 50, according to the insurance platform.Term life insurance guarantees a certain payout for set premium for a limited coverage period, such as 10 years, 20 years or until age 65. When the term ends, you can let the policy expire or get more insurance, typically at a higher premium.
Permanent life insurance — which includes whole and universal life insurance — provides life-long coverage at a set premium, with your beneficiaries getting a tax-free payout after you die.

With both term and permanent life insurance, the older you are and the poorer your health when you take out the policy, the higher your insurance rate, Marr says.

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Consider your workplace life insurance 'a bonus'

There are plenty of online calculators that will help you decide how much life insurance you need. But should you include the payout you’d get from your workplace policy in the calculation?

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Choi says the more prudent course of action is to pay for enough life insurance out of your own pocket.

Just get a policy that protects you and your family and don’t even think about your (work) insurance,” he says.

Treating your individual policy as a top-up of your group benefits is risky, he argues, because you may lose the latter at any time.

If that happens, you wouldn’t be able to boost your existing individual coverage — you’d have to take out a whole new policy, Marr says.

Some policies have a rider that guarantees you’ll be able to buy additional coverage in the future without a medical exam, he notes. But you’d still have to sign up for a new policy based o an older age, he adds.

Bottom line: you should treat your employer-sponsored life insurance as a nice top-up of your own individual policy — not the other way around, Choi says.

“Consider it a bonus.”

About the survey: The poll was conducted by PolicyMe from August 12 to August 16, 2020 with a representative sample of 1,001 online Canadians with life insurance who are members of the Angus Reid Forum. The survey was conducted in English and French.


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