When it comes to financial planning, insurance is often an afterthought for many Canadians.
It’s not the most exciting topic, and for some, it feels like an unnecessary expense. However, life, disability, and critical illness insurance are essential components of a solid financial plan. Despite this, many Canadians either believe they don’t need these types of insurance or significantly underestimate how much coverage they actually require.
The "It Won't Happen to Me" Mentality
One of the primary reasons Canadians neglect insurance is the belief that negative events are unlikely to happen to them. This "optimism bias" is a common cognitive bias where people think they are less likely to experience misfortune compared to others. While it’s comforting to believe in a bright future, this mindset can lead to severe financial repercussions if an unexpected event occurs.
According to a survey by the Canadian Life and Health Insurance Association (CLHIA), 4 out of 10 Canadian households with children under 18 would face immediate financial trouble if the primary earner passed away. Despite the clear risks, nearly 12 million Canadian adults are underinsured or have no life insurance coverage at all. This statistic highlights the vulnerability of many families who may struggle to cover funeral costs, mortgage payments, and other debts without adequate life insurance.
Underestimating the Need for Coverage
Even among those who do purchase insurance, many underestimate the amount of coverage they need. Life insurance is often seen as a way to cover funeral expenses or pay off debts, but its role is much broader. Adequate life insurance should replace the income of the deceased for an extended period, provide for children’s education, and ensure the family can maintain their current standard of living.
The same underestimation applies to disability insurance. Many Canadians assume that if they become disabled, they can rely on savings or government benefits. However, according to the Canadian Life and Health Insurance Facts 2021 report, about 1 in 3 Canadians will experience a period of disability lasting longer than 90 days before the age of 65. Moreover, the average length of a long-term disability claim is around 2.5 years. Without disability insurance, a prolonged absence from work can lead to significant financial hardship, as most Canadian families are just a few paychecks away from financial distress.
The Real Cost of Inadequate Insurance
The financial consequences of being underinsured or uninsured can be devastating. Families may face insurmountable medical bills, struggle to make ends meet, or even lose their homes. In some cases, the lack of adequate insurance forces loved ones to dip into retirement savings or take on significant debt, compromising their long-term financial security.
For those who believe they don’t need insurance, it’s essential to consider not just the possibility of a worst-case scenario but also the impact it would have on those who depend on them. Insurance is about more than just protecting yourself; it’s about protecting your loved ones and ensuring they can continue their lives with as little disruption as possible
4 out of 10 Canadian households with children under 18 would face immediate financial trouble if the primary earner passed away.
Canadian Life & Health Insurance Facts - 2021 Edition
The High Cost of Critical Illnesses
Critical illness insurance is another type of coverage that many Canadians overlook. This insurance pays a lump sum if you’re diagnosed with a severe illness such as cancer, heart disease, or stroke. The funds can be used for various purposes, such as covering medical expenses not included in your health plan, paying off the mortgage, or even exploring alternative treatments. With the rising cost of healthcare, even those with excellent health insurance can face substantial out-of-pocket expenses due to a critical illness.
According to the Canadian Cancer Society, nearly 1 in 2 Canadians will develop cancer in their lifetime. Despite this alarming statistic, many Canadians do not have critical illness insurance, leaving them financially exposed during an already challenging time.
How Much Coverage Do You Need?
Determining the right amount of coverage can be challenging. It’s essential to assess your individual situation, including your income, debts, dependents, and long-term financial goals. For life insurance, a general recommendation is to have coverage that equals 7-10 times your annual income. For disability insurance, you typically want to replace 60-70% of your income. Critical illness insurance should provide enough to cover potential medical costs, living expenses, and any additional care you might need during recovery.
Consulting with a insurance advisor and broker like Jules can help you understand your options and ensure you have the right coverage in place. They can work with you to tailor a plan that fits your needs and gives you peace of mind.
Conclusion
Insurance might not be at the top of your priority list, but it’s a critical part of safeguarding your financial future. The belief that "it won’t happen to me" is a dangerous one that can leave you and your loved ones vulnerable. Don’t underestimate the importance of life, disability, and critical illness insurance. By taking the time to assess your needs and secure adequate coverage, you can ensure that you’re prepared for whatever life may throw your way.
