When your finances hit a rough patch, you may look for a way to cut costs. Life insurance and living benefits might become the target because some people may view these policies as unnecessary expenses, unlike auto insurance, which is mandatory. So, it might be tempting to cancel your insurance policies if you don't think they're important at that moment. But, in reality, it could cause some serious consequences that could put you in a worse financial situation. Also if you were to cancel your life insurance or living benefits and then want it again down the road, changes to your health may result in paying a lot more or being unable to requalify.
Insurance exists as a financial safety net to protect you, your loved ones, and your assets from unexpected events. You may have the mindset of "it won't happen to me," as do many people, but disasters and emergencies can happen to anyone, and they can strike at any time, so it's better to be safe than sorry.
Here are some reasons why you really can’t afford to go without various types of insurance.
1. Health insurance
If you are offered a medical plan with your workplace benefits, it’s a good idea to take full advantage of it. For most employers, it’s already mandatory to have health benefits, and the only option to waive out health and dental is if you are covered by a spouse or partner’s plan. Looking into your policy and seeing exactly what you could be covered for, and leveraging these benefits could save you some costs.
Emergencies to do with your health may not come with a warning, and they can be costly. For example, some medications can cost hundreds of dollars on a monthly basis, and it can significantly add to your financial strain. Or, if you suddenly have a bad toothache and need an emergency root canal, the out-of-pocket cost could reach thousands of dollars. Since extended health insurance may cover the costs of essential appointments, it may also help you to stay up to date on routine checkups, like dental cleanings and eye exams, so you can catch any problems before they escalate into more severe and costly issues.
Additionally, if you aren’t aware of what kind of coverage you have, it could cause you to put off getting care when it’s necessary because of how much you think it’s going to cost out of pocket.
2. Life insurance
There are some cases where life insurance may not be necessary, such as if you don’t have any dependents or if you already have more than enough savings to cover debts and expenses after death, depending on your situation. Life insurance is important when you do have loved ones who rely on you financially. It can help prevent financial stress on your family, as it can be used to pay off any outstanding financial obligations and debts, as well as replace a portion of your lost income so your family can maintain their standard of living. Additionally, life insurance can also be used to cover estate taxes to ensure that your heirs receive the intended amount of inheritance. Life insurance can give you peace of mind, knowing that the financial well-being of your family will be protected.
3. Home or tenant insurance
Insurance is crucial for your financial security, whether you are a homeowner or a renter. Mortgage lenders require home insurance, or they won’t approve your application. Home insurance protects your home and all the items you have in it, both of which are some of your biggest, most personal investments. If you are renting a place, most landlords and property managers will require that you have tenant insurance, which would protect the items you own inside of the rental.
You never know when an event or disaster may occur that could cause significant damage to your home, or even result in its complete loss. In fact, extreme weather events in Canada have caused insurance claims to increase significantly. According to the Insurance Bureau of Canada, $3.4 billion was claimed in 2022. If there was a fire, hurricane, or robbery that affected your home, replacing items and repairing the damage would likely foot you a huge bill.
Sadly, Nova Scotians recently had two natural disasters that caused a lot of damage due to wildfires and floods. There were some people in the community who had previously cancelled their home insurance because of the cost and found themselves in real financial trouble when they were affected by these events. So it’s important to insure your home with appropriate coverage and prevent additional financial stress on top of an already challenging situation in the case of a catastrophic event, even after you pay off your mortgage.
4. Auto insurance
If you drive a vehicle, you know that having auto insurance is a legal requirement, but it’s also a way to protect yourself, as well as others. Vehicles are expensive to have and maintain, and some people's vehicles are even their prized possessions. That’s why it’s so important to ensure you have adequate auto insurance in the case of an accident, as car repairs can take a significant chunk out of your pocket, even if it's just a minor fender bender.
Car accidents aren’t the only reason for insurance; vandalism and theft are just as important. In fact, car thefts in Canada have reached crisis level, with a car being stolen every six minutes across Canada, according to the Canadian Finance and Leasing Association. Without the right auto insurance, you will be responsible for paying for any repairs and replacements yourself, which can add up. Driving without insurance is also a serious offense, and it’s a risky move whether you get in an accident or not, as it could lead to financial challenges, as well as legal consequences.
Insurance can be a game changer in many ways. These are just a few examples of insurance and why they are so important for your financial security. In most cases, it is not worth skipping insurance in order to save costs. To ensure you have proper insurance coverage, and the funds to pay for it, shop around. Some insurers offer certain advantages, such as discounts to people with high credit scores. And if you’re struggling to find the money to cover premiums and other goals, speak with a financial professional and create a cash flow plan. A good cash flow plan is tailored to your unique financial situation, so you can get more life from your money without taking the risk of being unprotected due to lack of insurance.
Learn simple strategies to understand your insurance needs, and manage the costs as well. Watch: Financial Capability Series - Insurance.
CacheFlo is a financial education company that builds eLearning and tools to help financial professionals and individuals make behaviour-based changes, which allow them to get more life from their money. We want to make it easier for people to predict the impact of their financial choices before they make them.
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CCS professionals go through enhanced cash flow-based training to develop the skill set to deliver behaviour-based cash flow advice. They start the financial planning process with a cash flow plan to genuinely help their clients get more life from their money.
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