Insurances are sometimes a confusing topic for people so I thought we could spend some time clarifying this topic.
There are three basic insurances that we can use – life insurance, disability insurance and critical illness insurance.
We first need to ask this question – “What is the role of insurance?” The role of any insurance is simply to provide an income when you can’t.
In the event of a death, a disability or a critical illness, your ability to provide an income is jeopardized.
Most of us don’t think something bad will happen to us. It always happens to the other family, right? So let’s ask this question: On a scale of one to 10 with one being 'not likely' and 10 being 'most likely,' what would you say your odds of something “bad” happening to you would be?
Now, it doesn’t matter what number you gave yourself, the second question is this: On a scale of one to 10, with one being 'all would be fine' and 10 being 'we’d be in big trouble,' what score would you give yourself for your family’s finances going forward?
We generally focus on the odds and conclude that nothing bad will happen to us. Rather, we should focus on the consequences just in case something bad did happen.
A question to ask yourself is this: “how many pay periods or months could our family go without a paycheque before it would really start to hurt?”
If you could go for many months or a few years, and you have plenty of financial resources, then your family will likely be ok. If you feel you would be financially stressed and likely in some financial trouble after a few weeks of no paycheque, then you should consider insurances to relieve that risk to your family.
Another question to ask would be this – “what would I want my family’s situation to look like even if I am unable to personally provide the income?”
Once you’ve addressed these questions, then we can look at the different insurances.