Rich at any age: Buying insurance

Trading in your sports coupe for a minivan was bad enough, but nothing says “I’m an adult now” like buying insurance. No, it’s not fun to think about the disasters that could befall you, but for anyone with a family or property to protect, insurance is a necessity. The good news is that a few minutes of preparation can save you hundreds or even thousands of dollars in premiums. Read on to find out how.

Life Insurance

A much better name for life insurance would be income replacement insurance, because its main function is to provide for people who once relied on your income after your death. If you have kids or a spouse or a business partner who depend on your earnings, you need insurance. On the other hand, if you’re not supporting anyone else, you don’t. Children definitely don’t need insurance on their own lives.

If you do need life insurance, shop around. Compare quotes at Term.ca, Term4sale.com or MoneySense.ca, and always buy from a broker, who represents several insurance firms, so you can compare prices. Keep in mind that the premiums that different insurance companies charge for the same coverage can vary tremendously. For instance, 10-year term policies for $500,000 of insurance for a 35-year old male smoker in Ontario have annual premiums ranging from just over $500 to more than $1,000, depending on which insurer you choose.

You’re wasting money if you buy more insurance than you need, so think about how much you contribute, after taxes, to your family’s income. You should buy enough insurance to replace about 75% of your lost income, plus a bit extra for funeral expenses and legal fees. For instance, if you figure your take-home pay is $60,000 after taxes, you’ll want to leave a lump sum that could supply your family with an annual income of about $45,000 for however many years you think appropriate. How many years should that be? It depends on how old your kids are and your spouse’s job situation. There’s no single answer that fits every situation, so talk matters over with your spouse before settling on a figure.

When you head out to get quotes, ignore the insurance company’s pitch for complicated whole- and universal-life policies. These add a savings or investment element to your insurance, but are only appropriate in special cases. Instead, stick to renewable term life insurance, says William McLeod, author and insurance expert. Often, he says, combining your investing with your insurance leaves you vulnerable to large, hidden fees. “Under no circumstances should you buy a whole-life policy, and universal life is only appropriate in rare cases,” he says. “It’s usually only for people who are in their 50s or older.”

House and Car Insurance

You can often find good deals on home and auto insurance through university alumni associations, says McLeod. Engineers, teachers and other professionals can also get breaks through their professional associations. If you don’t qualify for such plans, check out quotes at MoneySense.ca and from a good independent broker. Sometimes you can negotiate a cheaper bundled rate if one company provides both your house and car insurance. And you can reduce your rates even more by raising your deductible — it’s not unusual to reduce premiums by 25% or more by raising the deductible to $5,000 from $500. If your car’s not worth much, you could drop collision and comprehensive insurance altogether.

Health Insurance

Supplementary health insurance pays for medical bills the government doesn’t cover, such as prescription drugs, dentist visits, glasses and care outside your home province. If you can’t get this coverage at work and you’re not covered by your spouse’s plan, you still may be able to get a group rate through your alumni or professional organization. If you decide to get your own coverage, be prepared for sticker shock — these plans are expensive. But you can lower your premiums by choosing a plan with a higher deductible.

Disability insurance, which covers you in event of disabling injury or illness, is important but often overlooked. Most people get disability insurance through work. If you don’t, says Bruce Cohen, author of The Money Adviser, you should arrange your own. “Disability insurance is even more important than life insurance,” he says. “Statistically, you’re more likely to suffer a disability early than you are to die early.”