Buying Life insurance makes sense at any age

Page 11

Planning for retirement, for the time you cannot work because of injury or illness, or developing a contingency plan in the event of the death of your principal breadwinner makes sense, and so does starting early rather than late to save for the future. Many people, however, put off financial planning, sometimes until it is too late.

Stuart McLellan of First Nations Insurance Services Ltd., which provides group insurance and pension benefits to companies with Indian ownership, says it is a real challenge to persuade many young people to consider insurance.

"We have to convince people they require some sort of retirement savings," he said.

Company manager Helen Burgess adds, "As Indian people we really didn't give much consideration to our future at all with respect to putting money aside and planning financially for our retirement years. I think that was because traditionally we didn't have to worry about that because we had our extended family who would help us when we reached that age. But I think that slowly our lifestyle is changing, and in order to remain realistic, we do now have to plan."

McLellan says, "There's a lot of different service providers out there. There's financial planners, there's chartered financial analysts . . . but generally the first place to start would be with a life insurance broker. Explain to them what your current situation is, whether or not you're married, whether you've got children, what your plans for the future are," he said.

McLellan points out that insurance premiums increase markedly for even five or10 extra years in age. If you purchase insurance early, you can obtain a locked-in rate for life, whereas, if you wait until you are older and certain health problems develop, you may never be able to buy insurance.

Burgess says her company's view is that although everyone should have life insurance, the need is greater when there is one principal breadwinner and several small children in a family.

"For example, if it were the husband that were the breadwinner in the family and something were to happen to him, if the wife had no skills and no experience in the workforce it would mean that she would have to then go out and pick up those skills in the event her husband passed away," Burgess said.

She explains this would drastically affect the homelife and there would be new expenses.

For instance, the children would have to be in some kind of daycare while the mother attended school. "I think most individuals don't realize what an all-encompassing situation it is if (something were to happen to) the major breadwinner in the family."

"It's one less mouth to feed, but the bills are all the same," is the way McLellan sums up losing a breadwinner.

Burgess says if you buy life insurance as an individual, the cost of your premiums will depend upon your health, age, occupation and other factors-and you will have to provide certification of your health status, even if you are young. Group insurance rates handled through your employer, on the other hand, may be set without you having to provide medical evidence you are healthy.

"The degree of danger in your occupation and whether or not you smoke are key factors in determining life insurance rates for individual policies," said Burgess.

"An accountant would pay less for the same amount of insurance than, say, a firefighter would. . . . A younger person, a smoker, 30 years old could buy $100,000 worth of life insurance for probably $30 a month, and have those rates guaranteed for 20 years," said McLellan.

"They'd get it for substantially less than that if they were a non-smoker," he added.

A lot of people participate in a group insurance plan while they are employed, but they have no other insurance. Burgess and McLellan want them to know that usually they can continue their insurance coverage if they leave their job.

"Most group insurance plans have a conversion privilege," McLellan said. Apart from maintaining the peace of mind that insuance provides, another advantage in not letting your coverage lapse is that you won't face drastic rate hikes or be excluded from coverage later on. "So," says McLellan, "if when they're employed they become diagnosed with a terminal illness or with some sort of disease that may prevent them from buying insurance other than from the conversion privilege, they've got that option there that they always can purchase life insurance."

"The one stipulation," Burgess says, "is that they do it within a particular time frame." She says usually when you leave a group insurance plan you have 30 days in which to exercise your option to convert to an individual policy.

Mclellan says term life insurance is not an expensive benefit to purchase, but if you have a "whole life" policy with retirement or savings riders, it will naturally cost more.

"There's so many different options available to you . . . it's limitless just what you can buy with your insurance policy, " he said.

To find the right kind of insurance, Burgess and McLellan recommend that people sit down with an insurance professional to discuss their personal circumstances, including finances.

"We would start with your annual income, we'd look at your spending habits, we'd determine the type of money you could set aside each month. The first thing we'd recommend is to build up a reserve, not necessarily insurance, but just savings-money put aside in case of an emergency," McLellan said.

Often, financial advisors tell people to set aside two or three months' salary in an account or in a low-risk investment. "I would think a couple thousand dollars for the average family, if set aside, would in most cases be sufficient," says McLellan.

After that, he agrees with Burgess that "insuring the breadwinner is probably number one." Starting a policy for a newborn is another good idea. The rates are very low, and you have something to turn over to the young person when they come of age.