Is My Work Life Insurance Enough?

Most Albertans have at least some life insurance coverage from their group benefits plan. A common amount of group life insurance coverage is around one times your annual salary. Getting coverage for free is great, but is it enough to protect your loved ones? And will it be there when you need it?

If you are single, without a mortgage, have dependents, or other financial obligations, then your group life insurance coverage MAY be sufficient. But if you are married, have dependent and or debts, the group coverage typically is not enough. Completing a comprehensive insurance needs analysis is the best way to discover how much coverage is sufficient for your specific needs.

Are you one of the many Albertan’s that are coasting on group life insurance? Some surprises are fun, but like coming home to water in your basement… discovering your spouse has insufficient life insurance coverage when it is too late, is NOT a fun surprise.

Let’s look at how your family’s expenses will change if you are no longer around. Starting with your housing costs:

It is unlikely that your family will be able to cut down on these expenses if you were to pass. Because these expenses do not change much depending on the number of people in the household, we call them fixed expenses. You may not realize it, but fixed expenses typically make up over 30% of your monthly expenses. This means at least 30% of your family’s expenses will remain the same after you pass.

I’m sure you are thinking: “that still leaves 60 – 70%. What are those expenses?” If you are a typical family, you probably spend this piece of the pie on tithing, donations, food, transportation, clothing, sports, personal care and other discretionary expenses (like vacations, dining out/ordering in, fancy coffee and/or designer shoes). Some of these expenses will decrease with one less person in the house, but they won’t drop significantly. I estimate that 60% or more of these expenses will remain for families with a single income.

When you do the math, you can see that your family will still have to cover around 70% of your monthly expenses after you pass. Receiving one times annual income as a life insurance benefit will be nice, but it will likely not be enough to allow your family to maintain their lifestyle.

There are some cases where your group life insurance coverage may be enough; if your spouse has a large income and you have managed to save a lot for retirement. Or if you have sufficient disposable assets in the family to fund your lifestyle. But wait, before you throw your family into this pool, I highly recommend completing an insurance needs analysis, to ensure you do not require an extra life jacket.

How much does life insurance cost? Well, it all depends on your needs (and possibly your health), but a $750,000 20-year term policy for someone in their 30’s will cost around $50/month (standard rates). For a lot of people, that can be enough coverage to keep their families protected.

The most important time to make sure you have sufficient life insurance coverage is when someone depends on you financially. For most people this is when they get married and/or start having children. When you are young and healthy, you will be able lock in life insurance premiums at a very inexpensive rate. The older you get the more health issues typically arise, which in turn can increase your premiums.

Can anyone qualify for life insurance coverage? Yes. Even if you are seriously ill, there is coverage you will qualify for. As a broker, I have access to numerous insurance companies; this allows me to shop the market for you and find the best possible coverage at the lowest premium.