Recently, one of my longtime friends, Alexandre, and I went to a small village in Ontario to buy a Salisbury steak from a local restaurant. Alexandre and I often have different perspectives on personal finance. However, I enjoy our discussions as they challenge my viewpoints and push me beyond my comfort zone.
During our journey to this village of 500 residents, much of our conversation revolved around life insurance. Alexandre asked me several important questions: Is life insurance necessary? If so, what coverage is required? Should one opt for universal or term life insurance?
This article shares the answers I provided to Alexandre.
Disclaimer
While I try to ensure the accuracy of the information contained on this blog, I do not guarantee it. I’m not a licensed financial adviser nor a lawyer, so take this blog only as an educational resource and my personal thoughts and opinions. No liability is assumed for losses or disappointments due to the information provided. It is important that you always exercise your own judgement when making decisions that can impact your wallet, and your life!
Is Life Insurance Necessary?
Life insurance is one of the most complex areas of personal finance, and I admit it is not my area of expertise. However, my short answer to Alexandre was yes, especially since we belong to the same generation. As I previously explained in my article Comprehensive Guide to Life, Mortgage, and Disability Insurance, life insurance provides a financial safety net for you, your partner, and your children. This is why, when drafting a will, lawyers typically ask whether you have life insurance among your personal assets.
What Coverage is Required?
Personally, I have a 25-year term life insurance policy. This covers me during the period in my life when my financial obligations are at their peak—mortgage payments, young children at home, and income replacement in the event of premature death. Additionally, I benefit from the term life insurance provided by my employer.
I chose a 25-year term because I believe it is sufficient. Given my disciplined financial habits, I expect that as I age, my financial assets—along with those of Ms. Finance Faded—will grow to cover our insurance needs.
However, if Ms. Finance Faded and I were not financially disciplined, had not accumulated sufficient assets in our younger years, and had not paid off our mortgage within 25 years, then we might need a longer-term life insurance policy or even a universal life insurance policy.
In summary, I selected my term life insurance period with the assumption that by the end of the policy, I will have accumulated enough financial assets (fully paid real estate, TFSA, RRSP, savings, etc.). If something were to happen to me, my heirs could sell these assets to absorb the financial impact.
Universal Life Insurance
To be honest, I am not a fan of universal life insurance. I have always viewed it as a product for the wealthy individuals who have already maximized their registered accounts (TFSA, FHSA, RRSP, RESP, etc.). While universal life insurance can be an excellent investment vehicle once registered accounts are fully utilized, I personally see it as unnecessary for most people. That said, this is just my opinion. I am open to different viewpoints and welcome counterarguments. Feel free to share your thoughts in the comments section below!
