5 Most Common Mistakes that Canadian Families Make in Life Insurance

A recent survey conducted by the PolicyMe portal on statistics on life insurance services showed that many families with children use the services provided by a life insurance policy.

But there is sad news as well: the survey also resulted in the majority of respondents making the five most common mistakes that cost them extra money.

The main reason for mistakes is simple: people who use insurance services overestimate their financial capabilities. 

There is a tendency for the same repeating mistakes, which means that people need to be more aware and they need expert advice. All this will help Canadian customers save their money and not be deceived.

Mistake #1: Mortgage life insurance

Most of the common mistakes (about 25%, according to the survey) occur in mortgage life insurance. The mortgage is arranged so that it does not work for the usual protection of your family, as the usual insurance. Its most important function is the protection of the mortgage lender. 

Mortgage insurance is extremely specific: 

  1. It is more expensive than other types of insurance; 
  2. It’s not portable. 

If you ever decide to change the lender, you will have to take out a new insurance policy.

Mistake #2: Life insurance on a permanent basis

Usually, permanent insurance payments are sold to the elderly, or those who have a high level of income, because they need a higher level of protection. Malicious and unprofessional insurance agents, in this case, may use some tricks, i.e. the text can be written in fine print so that older people cannot read it, or the agreement text can be written very confusingly so that it is difficult to understand.

Only a third of all parents with young children use the correct type of insurance.

In the period from 10 to 30 years, there is often an urgent policy, that is, just at the time when your children are in school, it is designed as simply and easily as possible. 

Mistake #3: Children’s life insurance

One of the most popular types of insurance has always been associated with children. Almost ¼ of all parents in Canada applied to it at least once. There are several ways to buy it, either as an addition to your existing insurance policy or as a separate permanent contract. 

Fear of something bad happening to your child is the driver behind this type of insurance. Some circumstances are too awful to even talk about them. 

The good news is — critical situations involving children are not common. It’s way more common for families to express dissatisfaction with their children’s life insurance policies. 

There are plenty of better ways to use the money to benefit your kids in the future — from opening a savings account for them to use when they grow up or investing in more frequent health checks. 

Mistake #4: Life insurance in groups or at work

Group insurance is very popular and is often offered by employers to their workers to ensure safety. The study found that more than 2/3 of parents of school-age have it. 

44% of all respondents don’t have other separate policies and rely on them as the only source of life insurance and security.

This approach is, of course, full of drawbacks, not so well-known or obvious. First of all, it offers relatively incomplete coverage, with reduced options and strict limits. It’s also important to understand that you may, one day, decide to change your job. Sometimes — it’s not even your decision and you simply can get fired. In this period of extra vulnerability, you will be stripped of insurance as well, which doesn’t sound like a good option. 

Mistake #5: Saving on life insurance completely 

This point is pretty clear — in case of an emergency, you should be covered. That’s why insurance exists in the first place. 

Bad life insurance is still not as bad as no life insurance at all. 

Before you make the decision — it’s crucial to understand, whether the insurance plan you’ve chosen covers your family expenses, will it pass as an emergency fund, and will it cover your mortgage in the most critical situation? 

Carefully chosen and thoroughly researched full-scale life insurance might be a bit more expensive, but it will cover your risks — which is the reason you wanted it in the first place. 

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