is life insurance worth it for a single person canada

Is Life Insurance Worth It for a Single Person in Canada?

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One of the many questions we get asked as independent financial advisors in Canada:

“Is life insurance worth it for a single person?”

Now, this one is somewhat of an open-ended question since it depends on the person’s specific situation. Some people asking this question are those who are in their 20s, who are single for now but may have a family in the future, while some are middle-aged individuals who are in their mid-30s and 40s, who may remain single.

In my point of view, as a financial security advisor, life insurance is of vital importance if you have loved ones who may experience some sort of financial inconvenience as a result of your passing. They may be dependent on you financially,  or they may be responsible for paying your final costs such as internment, taxes at death (if any), etc.

Life insurance is a powerful financial risk management plan that protects our loved ones from the potential financial impact of our death. Canadians with young kids are advised to have life insurance coverage(s) that are at least enough to replace their income in case of premature death, single people, on the other hand, won’t need as much life insurance as breadwinners do but I advise single Canadians to have life insurance to cover their own final expenses.

Final expenses are the immediate cash needs that may arise as a result of a person’s passing. Even if you don’t have young kids, mortgage, debts, or any other financial obligations, you have one obligation that will only go away when you pass away, and many Canadian singles aren’t aware of this. People think that you only need life insurance if you have a family but in reality, you may still need one even if you’re single. This is so as not to burden our loved ones financially, at one’s death.

When someone passes away, there are immediate cash needs that must be paid, and someone has to pay it. If you’re a high-net-worth individual or at least have more than enough savings to cover your own funeral expenses, taxes at death, and any other expenses that may arise as a result of your passing, you may not need life insurance but if you’re in this category, I highly suggest that you speak to a will and estate attorney, and put a will in place.

A will helps your estate avoid probate proceedings and their corresponding costs, keep in mind however that if you have assets other than your residential property, these are all considered disposed of at or before death under Canadian laws, which means that your assets may be subject to capital gains when they are passed on to whoever your heirs are.

To make it a point that your assets are passed on to your loved ones in their entirety, talking to your accountant and lawyer helps you estimate how much taxes your assets may be subject to. You then implement a life insurance policy for that amount and name your heirs as the beneficiaries, this way they need not worry about coming up with the amount necessary to pay for any taxes that may arise as a result of your passing and receive your assets in full without the need to liquidate any of them to cover any taxes that may be due upon your death.

If your assets are growing in value over time, there are types of life insurance policies whose coverage amount increases over time, ask us about it here.

As of this writing, funeral expenses range between $20,000 – $25,000 in Canada, depending on your province of residence, and because of inflation, this may double in the next 20-years. Based on the inevitable increase in prices due to inflation, I always suggest our clients implement at least $50,000.00 worth of life insurance coverage to cover final expenses.

Ideally, you should buy life insurance when you don’t need it yet. This is because it’s more challenging and expensive to get one when you already know that you’re going to need it soon.

Come to think of it, it’s always advisable to carry an umbrella even if you think that it’s not going to rain because it’s pretty tough to find one when you’re already getting wet from the rain. This logic applies to carrying a spare tire too, you don’t look for one when you’re already running flat.

Life Insurance for Single Canadians

life insurance for single people canada

Most young Canadians who are single think that they don’t need life insurance since they don’t have any financial obligations but even if you’re young, if something were to happen to you, your final expenses will cost your parents or siblings at least $20,000, if you don’t have life insurance in place.

If your family is pretty well-off, this may not burden them but as I mentioned in the previous section, final expenses are an obligation that doesn’t go away until the person’s death.

Everyone passes away, eventually. I know that some people aren’t comfortable talking about their own death and I apologize if you feel that I’m being blunt when talking about this topic.

I’m in my early forties at the time of this writing, and I’ve had some friends and loved ones who are very close to me who have already passed. I realized that death is something that we can not stop or delay when it comes. No one knows how much more time we have in this world, hopefully, long but each of us has our own way and time of leaving our earthly bodies. We just don’t know when so as a side note, invest more time and build more memories with your loved ones, be nice to people around you, and always choose to do good while you’re in this world, as we’re all just passing through, and sometimes, life can be so short. 

You may have heard that life insurance is cheap when you’re young. I always suggest to my young, and single clients to implement a basic amount of permanent life insurance coverage of between $50,000.00 – $100,000.00 that will cover them for up to age 100. This can be a 20-year to pay whole life insurance or universal life insurance, depending on your preference.

If you’re risk-averse, I suggest that you put in place a 20-year to pay, participating life insurance, with a guaranteed premium amount, guaranteed death benefit, and guaranteed cash surrender values. A participating life insurance policy allows you to earn dividends on your policy, which can be used to buy more life insurance, paid out to you annually, or increase your policy’s cash surrender values.

On the other hand, if you’re looking for growth, and you don’t mind market fluctuations, universal life insurance, which is a life insurance policy with an investment component, allows you to invest in bonds, and stock portfolios by simply having life insurance in place.

Life insurance gets expensive the older you get that’s why I always recommend young Canadians to put in place at least a small amount of permanent life insurance, which locks in their rate based on their young age. I bought my youngest child’s permanent life insurance at 0 age. It’s a 20-year to pay permanent life insurance that’s going to cover him for the rest of his life with an option to cash out the policy should he deem it’s no longer necessary at old age. This means that he’s going to get more money out from his life insurance policy than we’re going to put in.

Buying permanent life insurance while you’re young helps you avoid high premium costs in the future. Say, you implement a 20-year to pay permanent life insurance at 25-year old, your policy is paid up when you turn 45, and you would have built a good amount of cash values from within your policy, which you can either borrow, cash out or use as a bank collater loan, should you ever need the money.

I always compare permanent life insurance policies to buying a house, as in essence, it’s an asset to you buy where you build equity over time.

Life Insurance, An Expense, or An Asset?

is life insurance an expense or an asset

Is life insurance an expense or an asset? Most Canadians don’t get life insurance because they think that not doing so helps them save money. Not having life insurance may put your loved ones in financial discomfort, whether you’re single or you have loved ones who are financially dependent on you. Life insurance is worth considering. For people with young family though, it’s a must. I always suggest breadwinners have at least half a million of life insurance coverage, if not 1 million. In any case, they should have enough coverage to replace their income, or at least part of it in the event of premature death. Then around $50,000.00 to cover any immediate cash needs that may arise as a result of their passing.

A person making $50,000.00 a year of gross income is worth $1,250,000.00 to his or her loved ones, while a person making $30,000.00 a year is worth $750,000.00. You might be surprised by these high figures, knowing that the average life insurance of Canadians is in the area of $150,000.00.

So, why do I recommend such a horrendous amount of life insurance coverage for people with young families (take note that these don’t have to be permanent life insurance). These coverage figures are all based on numbers; I always recommend planning for income replacement in case of premature death for people with dependents. 

If you’re my client, and you have people dependent on you for financial support if something were to happen to you prematurely, I advise the surviving loved ones to invest the income replacement part of the death benefit. Realistically, they could expect to earn a 4% annual return on their investment.

  • $1,250,000.00 x 4% = $50,000.00
  • $750,000.00 x 4% = $30,000.00

In most instances, a person’s income stops if he or she can’t work for a living. This is the main reason why insurance policies are implemented for financial risk management purposes. A person who is injured, critically ill, or has passed loses his or her ability to make a living, insurance provides the monetary benefit to minimize the financial impact(s) of these serious life events.

Of course, you don’t need to plan for income replacement if you’re single, a final expense life insurance, in most instances suffice. 

If you’re implementing term life insurance, the premium costs in all fairness are considered as an expense but if something were to happen to you during the policy’s term, it will be the best investment that you’ve ever made. The drawback of the course of a term life insurance policy is that when you outlived your policy’s term, which in my book is a great situation to be in because it means that you would have lived relatively long. I always use term life policies as a hedge for my clients’ non-permanent financial obligations such as income replacement, which was sampled above. Permanent obligations like final expenses, charitable giving, or leaving a legacy to your next generation, should always be covered with permanent life insurance, which is an asset since it generates equity, which you can later cash out should you feel like there’s no longer a need for the policy.

So, in essence, life insurance when implemented as a term life policy can be an expense but a worthwhile expense that can guarantee your loved ones’ financial security, and future in the event of the untimely passing of any of the breadwinners. A permanent life insurance, on the other hand, is an asset that allows you to build equity from within the policy, much like you would when purchasing a property.

In Summary

Is life insurance worth it for single people in Canada?

Whether or not life insurance is worth it depends on your specific situation. Some people who ask this question are young people, probably in their 20s who may eventually have their own families, while some may be in their middle 30s or 40s, who may not have families of their own.

Another factor to consider when gauging whether or not having life insurance is worth it if you’re single is your financial standing, do you have assets other than your primary residence? or do you have the money set aside to cover your final expenses?

The worst case of not having life insurance in place is having one’s loved ones shoulder the financial burden of one’s passing. Lots of Canadians think that they don’t need life insurance because they feel that they don’t have any financial obligations if they’re single but I suggest that you look closely at whatever financial obligations that you may have. Regardless of one’s age, if you don’t have money set aside for final expense purposes, you need to implement at least a small amount of life insurance coverage so as not to burden your loved ones with the immediate cash needs that may occur as a consequence of one’s passing.

If implementing life insurance for final expense purposes, I suggest that you get a 20-year payable, permanent life insurance that covers you up to age 100. A participating permanent life insurance policy allows you to build equity inside your policy much like when buying a home, which you can eventually cash out, borrow, or use as collateral for a bank loan should the need ever occurs in your lifetime. If you don’t cash out your policy, you will remained covered for the rest of your life.

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