Do you have the right amount of insurance?

Even if you don’t think too often about how much insurance you have, it’s important to assess whether you have the right amount. But how do you know what that is?

While you want to be protected, the more coverage you have means the more you will pay for it. So it’s important to determine how much of your income you put toward insurance versus other expenses or investments.


Life insurance

A life policy is meant to provide financial support to your loved ones when you can’t be there and they need it most. You should consider life insurance if your income is needed to cover your household’s daily expenses, or if you share responsibility for outstanding debt such as a mortgage. It may be helpful to use a life insurance calculator to guide you through thinking about how much coverage you may need.  

Accidental Death & Dismemberment (AD&D) insurance

An AD&D policy pays out a lump sum—after your claim is approved— if you suffer a covered accidental injury or accidental death. You may want to consider AD&D insurance, or a life insurance policy that includes AD&D coverage, if you travel frequently or have a dangerous job.

Disability insurance

Disability insurance replaces a portion of your income—after your claim is approved—if you are unable to work due to a covered disability. A common recommendation is to choose a disability plan that replaces 60% of your income; however, you should consider your unique needs when assessing how much disability insurance you may need. Disability insurance can help pay for everyday expenses (such as housing costs and groceries) so you don’t have to rely solely on your savings.   

Critical illness insurance

Critical illness insurance pays a lump-sum amount—once your claim is approved—to policyholders who are diagnosed with a covered condition such as a heart attack, stroke, or cancer. The money can be used however you wish—to help cover out-of-pocket medical costs or to keep up with everyday expenses so you can focus on getting better. You may want to consider critical illness insurance if you have elected a health insurance plan that requires you to pay high deductibles or co-pays, or if you are concerned about being diagnosed with a critical illness based on family history.

Accident insurance

Accident insurance pays you cash—once your claim is approved—for covered injuries (e.g. fractures), treatments (e.g. emergency room visits) and loss due to a covered accident. You can use this benefit however you see fit—to help pay for out-of-pocket medical costs or everyday expenses such as rent or groceries. You may want to consider accident insurance if you are a DIYer or if you or your family have an active lifestyle.

Here are some additional things to consider:

  • Do you have redundant policies? Evaluate what you’ve bought on your own versus what you may get through work.
  • Does your coverage have additional riders or features you no longer need?
  • Check out what insurance you may be able to buy at work versus on your own.
  • Figure out your budget and see what insurance you can afford that meets your needs.

It’s a balancing act when considering your benefits. Thinking about your whole financial situation when making insurance decisions can help you be sure to get the coverage you need without paying for coverage you don’t.

Sources

aarp.org, “Do you need disability insurance?” accessed January 16, 2015, http://www.aarp.org/health/health-insurance/info-08-2012/disability-insurance-do-you-need-it.html.

whitecoatinvestor.com, “Disability insurance part 4—the riders,” accessed January 16th, 2015, http://whitecoatinvestor.com/disability-insurance-part-4-the-riders.

wsj.com, “Don’t buy too much insurance!,” accessed January 16th, 2015, http://www.wsj.com/articles/SB10001424052970203405504576599051448432720.

SLPC 26383 02/15 (exp. 02/17)

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