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Level Up Your Finances: Level 10


Level 10 - You have calculated your needs for life insurance, disability, and critical illness insurance needs and reviewed your policies within the last five years.


Why it Matters

Imagine there is a machine in your basement that generates over $50,000 per year. You would probably want to make sure that if the machine broke, you had money to fix it, or replace the money it was generating for you, right?


Surprise! That machine in the basement is a lot like YOU earning a salary. And having insurance in place to fix it if anything happens is exactly what life insurance, disability insurance, and critical illness insurance do.


Goals for this Level

In Level 10, we want to:

  1. Make sure you understand your needs for life insurance

  2. Make sure you understand your needs for critical illness

  3. Make sure you understand your needs for disability insurance


We aren’t saying you necessarily need to buy each of these types of insurances. You may or may not be a good fit for them based on your current financial situation, and we’ll talk through below how to calculate your potential needs. The bigger goal for this level is to consider the possibility that these types of insurances might be helpful for your overall financial well-being.

1 - Life Insurance

What’s life insurance?

Life insurance provides a tax-free lump sum payment if the person who is insured passes away during a specified period of time. This period of time is called the term of the policy.

Similar to auto or home insurance, life insurance involves you paying a regular fee (called a premium) to an insurance company for a specific period of time (called the term). In return, the life insurance company promises to pay a tax-free lump-sum cash payment if you pass away while the policy is in effect.


Your beneficiaries can then use the lump-sum payment to pay off debts (like a mortgage), pay for childcare, fund educational expenses, and cover day-to-day living costs.

How much insurance do I need?

The Government of Canada’s Financial Consumer Agency recommends that Canadians have between 7 and 10x their annual salary to protect their family.

The exact number depends on:

  • What debts you have, and want to pay off: For example, do you want your mortgage fully paid off if you pass away? Do you have any credit card debt that you want paid off?

  • What % of your income your family needs, and how long they need it for: For example, if you need to support a spouse and three kids, you may need more insurance than someone who doesn’t have a partner or kids yet. At the same time, if you have young children, you may want to have more insurance than someone whose children graduated from University and have full-time jobs.

  • What assets you may want to sell to help provide for your family: For example, if you had a second property, and wanted to sell it to help cover your family’s needs, you would need less coverage than if you wanted to keep the second property.

What are the types of Life Insurance in Canada?

There are two types of life insurance in Canada: term life insurance and permanent life insurance.


Term life insurance provides coverage for a specific period of time. For example, a 5-year term policy would provide protection for 5 years, a 10-year policy would provide protection for 10 years. If you pass away during that period, your beneficiaries receive the tax-free lump sum payment. Once the term ends, the coverage ends, and your beneficiaries don’t receive any payment.*


In contrast, permanent life insurance provides coverage throughout your lifetime. As long as you continue paying premiums, a permanent policy will cover you permanently for life.


Term life insurance is generally much less expensive than permanent life insurance, mostly because permanent life insurance typically comes with an investment component.

For a 30-year-old non-smoking female, $500,000 of permanent life insurance might start around $220/month.
For a 30-year-old non-smoking female, $500,000 of term life insurance might start around $22.50/month.

Term Insurance is the better choice for most Canadians because it offers the most affordable coverage.


How much does Life Insurance cost?

Life insurance is often less expensive than most Canadians’ cell phone bills.

For example, if you were a 30-year old non-smoking man with average health, and you wanted $500,000 in coverage for 20 years, your monthly premiums might be around $30 and $35/month.
If you were a 30-year old non-smoking woman with average health, and you wanted $500,000 in coverage for 20 years, your monthly premiums might be between $20 and $25/month.

What determines how expensive life insurance is?

The fees that you will pay for life insurance depend on:

  • How much coverage you want: The more coverage you want, the higher your premiums are likely to be, because the insurance company will have to pay more if you pass away

  • How long you want coverage for: The longer you want coverage for, the higher your premiums are likely to be, because there is a greater chance that you will pass away over 20 years vs. in the next 12 months

  • Your age: As you get older, there is a higher likelihood that you could pass away in a given year, so your premiums are typically higher than someone who is younger*

  • Your gender: Women tend to live longer than men, so they tend to have lower insurance premiums because they are less likely to pass away during the term of the policy

  • Your smoking status: Non-smokers tend to live longer than smokers, so they tend to have lower insurance premiums because they are less likely to pass away during the term of the policy

  • Your overall health: Healthy individuals tend to live longer than non-healthy individuals, so they tend to have lower insurance premiums because they are less likely to pass away during the term of the policy


How can I get the best price on life insurance?

To get the best price on life insurance:

  1. Complete a detailed needs assessment to make sure you aren’t buying more than you need. One of the biggest drivers of cost is how much insurance you have. If you can be specific about your needs, you won’t be paying for unnecessary coverage.

  2. Don’t delay purchasing. Age is another big driver of cost. The younger you are, the less expensive life insurance will be. Life insurance literally gets more expensive each day you put off getting it.

  3. Don’t worry about getting lots of quotes. On average, the price of term life insurance doesn’t vary a lot from insurance company to insurance company. Getting 3 quotes should be sufficient.


How do you buy life insurance in Canada?

There are three ways to buy life insurance in Canada:

  1. Directly through a life insurance company

  2. Through an insurance agent

  3. Through an online broker


The big differences between them are:

  1. Ability to compare prices: Life insurance companies do not let you compare quotes against other life insurance companies, you need to do your own homework before purchasing to make sure you are getting a competitive price. In contrast, purchasing through an insurance agent or purchasing through an online broker allow you to compare quotes across insurance companies so you can get the lowest price.

  2. Variety of Products Available: Life insurance companies only have a few products available for purchase online. For example, Manulife’s CoverMe product only has 10-year terms available online. However, if you were to work with a life insurance agent or an online broker, you can access 1-year, 5-year, 10-year, 20-year and many more different types of terms.

  3. Ease of Doing Business: Purchasing directly through a life insurance company or through an online broker is often easier than working with an insurance agent because you do not need to meet with anyone in person.


2 - What’s Critical Illness Insurance?

Critical Illness insurance provides a lump-sum, tax-free payment if you are diagnosed with a serious illness. Different policies cover different illnesses, but the most common illnesses covered include cancer, heart attack, stroke, blindness, Alzheimer’s, multiple sclerosis, kidney failure, and paralysis. It is important to ask your insurance company for a complete and specific explanation of coverage. For example, some types of cancer are covered under some policies but not others.


Typically, you need to survive a waiting period (normally 30 days), before receiving payment. Unlike life insurance, to receive a payment, you need to still be alive.


Do I really need critical illness insurance?

As if critical illnesses weren’t scary enough on their own, they also carry significant economic consequences, for example:

  • Lost income from time off work for treatment and recovery

  • Cost of additional treatments that may not be covered through your employer health plan, private health plan, or public health plan

  • Cost of additional equipment to support your recovery that may not be covered through your employer health plan, private health plan, or public health plan

  • Ability to enjoy once-in-a-lifetime experiences


Many people purchase critical illness insurance so that, knock wood, they fall ill, they can fully focus on their recovery and not be burdened with financial stress.


How do I figure out how much critical insurance I need?

The Critical Illness coverage you may want to consider is equal to (Expected Costs in the case of an Illness) LESS (Any costs you can self-insure through an Emergency Fund). For example, if you currently maintain an emergency fund with 6 months of your salary, you may not need to pay for that coverage since you already could access those funds if you needed to.


When thinking about the expected costs, consider:

  • Loss of income from your job. For example, about 6 months for recovery

  • Loss of income from your partner’s job. For example, about 3 months to support your treatment and recovery

  • Domestic help during your recovery. For example, about 6 months of help at roughly $2,500 per month. That’s like 3 days of help per week for 6 months, at about $22/hour

  • Home modifications to help your recovery. For example, $10,000 for modifications such as wheelchair ramps, grab bars, etc.

  • Medical Equipment to help your recovery. For example, $5,000 for equipment such as a wheelchair

  • Miscellaneous. For example, $50/week for 3 months for travel to appointments

Don’t forget to include an existing emergency fund in calculating your coverage. Otherwise, you risk paying for ‘coverage’ that you could already provide yourself!


What determines how expensive it is?

The cost for critical illness insurance will depend on:

  • Your age. Critical Illness insurance is typically less expensive for younger folks

  • Your current medical health. Premiums are less expensive for people who are in better health

  • How much coverage you would like. The higher the one-time payment you are seeking, the higher your premiums will be

  • The number of illnesses covered. The more illnesses covered, the higher your premiums will be

  • The insurance company. Each company offers slightly different rates, so be sure to shop around


Where can I buy it?

Right now, you can only purchase Critical Illness insurance through a licensed insurance agent. It’s not as well known or understood as life insurance, and there are fewer online options available to seek quotes.*

Anything else I need to know?

When working with your insurance agent, be sure to clarify:

  • What specific illnesses are covered because different policies cover different illnesses

  • What the Waiting Period is before your policy will payout

  • What happens if you never make a claim. Some policies have a feature where you can receive a refund or partial refund of premiums if you (hopefully) never make a claim


3 - What’s Disability Insurance?

Disability Insurance will replace a portion of your income if you become disabled and are unable to work. You can typically insure up to 80% of your income, not the full 100%. You will receive the benefit until you return to good health and start working again, or the end of your coverage length – whatever comes first. Coverage length can range from 2-5 years, all the way up to the age of 65 (when most people retire).


For example, if you insured 50% of your salary for 5 years, and you were suddenly unable to work, you would receive 50% of your salary until you either returned to work or 5 years after the benefits started – whichever is sooner.


There is typically a ‘waiting period’ before disability benefits kick in. For example, 30 days up to 6 months.

Do I really need disability insurance?

If you depend on your income, you should consider purchasing disability insurance. And before you think, ‘That could never happen to me’ consider that 33% of workers between 30-64 will experience a disability lasting longer than 3 months, according to RBC.


How do I figure out how much disability insurance I need?

First, think about the waiting period – or how long you’d want to wait between being unable to work and starting to receive benefits. If you already have an emergency fund with 6 months of your salary in it, you can likely opt for a longer waiting period and significantly reduce your policy costs. If you don’t have an emergency fund and don’t see a path to building it, you may want to consider a shorter waiting period.


Second, think about what % of your income you’d need to cover your expenses. For example, your after-tax, after-savings salary. If your gross salary is $5 thousand per month, your take-home pay after tax is about $4 thousand per month, and you are a super saver and save $1 thousand per month, which means you need $3 thousand per month to cover your expenses. That would mean you’d need to replace 60% ($3 thousand / $5 thousand) of your salary.


How expensive is disability insurance?

As a rule of thumb, disability insurance can cost 1% to 3% of your annual salary. The exact cost for your policy will depend on personal factors and factors related to your policy.


Personal factors include things like:

  • Your age. The younger you are, the lower the risk of your experiencing a disability, and therefore the lower the cost of protecting you against it.

  • Your gender. Women tend to be more likely to experience a disability and less likely to be able to participate in the labour force with that disability, and therefore policies for women tend to be 40% more expensive than men

  • Your current medical health. Premiums are less expensive for people who are in better health

  • Occupation. Premiums are often determined in part by how risky your job is. For example, an individual who does most of their work in an office environment will likely pay a lower premium vs. an individual who does manual labour in a mine.

Factors about your policy include things like:

  • How much coverage you would like. The larger the percentage of your income you want to replace, the higher your premiums will be

  • Your term length. The longer you want to receive disability payments the higher your premiums will be. Having a policy that covers 2-5 years of income replacement will cost less than replacing income to age 65

  • Waiting Period. The shorter your waiting period before benefits kick in, the higher your premium will be. The waiting period is like the deductible on your car – shorter waiting period = lower deductible = higher premium. Longer waiting period = higher deductible = lower premium.

  • Definition of occupation. There are three types of ‘disability’. Own-Occupation, Regular Occupation, and Any Occupation. Own-Occupation would consider you disabled if you cannot go back to your own occupation. If you pick up a different career and start earning income from it, you can collect both your disability payment and your new income stream. Regular Occupation would consider you disabled if you cannot go back to your own occupation BUT if you pick up a different career and start earning income from it, your benefits are reduced by that amount. Any-Occupation would consider you disabled if you cannot go back to any occupation, including lower-paying jobs outside of your field. If the insurance company deems you able to work, even if you choose not to go back to work to focus on your recovery, your benefits are eliminated.

  • The insurance company. Each company offers slightly different rates, so be sure to shop around


Where can I buy it?

You can purchase disability insurance through:

  • Your employer

  • A professional association or alumni association

  • Individually

Benefits of group coverage through your employer or association, include:

  • Less expensive. The employer/group has often negotiated lower rates with the Insurance Company in exchange for giving the insurance company access to the group

  • Rarely requires medical underwriting, so coverage is often guaranteed

The downsides of group coverages include:

  • Fewer options for coverage. You may not be able to choose the exact salary coverage, term length, or waiting period you’d like

  • The coverage isn’t portable. If you leave the employer or group you are often unable to take your coverage with you


You can imagine that the benefits of individual coverage are the opposite of group. Although you have more options for coverage and you can take the coverage whatever employer you go to, your coverage is likely to be more expensive than group and will require medical underwriting.

Anything else I need to know?

When working with your insurance agent, be sure to clarify:

  • If the policy you are being quoted is Own Occupation, Regular Occupation, or Any Occupation. Aim for Own Occupation if you can afford it

  • What the Waiting Period is before your policy will payout

  • What happens if you never make a claim. Some policies have a feature where you can receive a refund or partial refund of premiums if you (hopefully) never make a claim


*Untangle Take

You can ladder term life insurance. For instance during child-care years where there is an added expense you can carry both 5- and 10-year term life insurance during this time. The 5-year term covers those day-care years and the 10-year term covers ongoing costs, such as a mortgage.


If you are approaching a milestone birthday (30, 40, 50) try to get insurance beforehand as there is a jump in price at these inflection points.


Check what insurance your employer provides, many companies have insurance coverage through their employee benefits.


If you are self-employed, or a gig-worker, check out Canadian Fintech Bounc3!


What's next?

Stay tuned every Thursday for a new level in the series!


In case you missed it:

  1. Level Up Your Finances: A Step By Step Guide For Your Money

  2. Level Up Your Finances: Level One

  3. Level Up Your Finances: Level Two

  4. Level Up Your Finances: Level Three

  5. Level Up Your Finances: Level Four

  6. Level Up Your Finances: Level Five

  7. Level Up Your Finances: Level Six

  8. Level Up Your Finances: Level Seven

  9. Level Up Your Finances: Level Eight

  10. Level Up Your Finances: Level Nine


Pineapple Finance Co is a collaboration between Emily and Elizabeth with a goal to answer one simple question: could they use Instagram to improve Canadian's financial literacy.


You can follow Pineapple Finance Co. over on Instagram, and we've linked two other blog posts written by Emily and Elizabeth here:

  1. What We Learned From Our First 1,000 Followers

  2. What We Learned From Our First 1,000 Followers: Part 2


You can also follow Untangle Money over on Instagram, Facebook, Pinterest, and LinkedIn, and sign up for our newsletter here!


Financial independence is a huge part of being a strong, independent person, and it is our mission to help women, and anyone who doesn't feel safe or welcome in financial spaces typically dominated by cis men, set themselves up for financial success.


At Untangle Money we help women understand their (real!) financial picture, and obtain financial guidance from people that actually, really, get it. We would love to help you, too! Join the community of hundreds of other women looking to strengthen their financial well-being. You can check out our products and plans here or get in touch for a free consultation!

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