Adulting can be hard, the first step can sometimes be an easy one

 

It is one of the ultimate ironies of modern adulthood: we willingly insure our cars, our homes, and even our smartphones against accidental drops, yet we routinely ignore the protection of our most valuable asset—our life.

For the vast majority of people, purchasing a life insurance policy sits firmly at the absolute bottom of the to-do list. It is the classic "tomorrow problem." But why does something so fundamentally critical to financial security consistently rank as the very last thing on our minds?

The explanation lies at the intersection of human psychology, uncomfortable realities, and a few common misconceptions.

The most obvious reason life insurance gets pushed aside is that buying it requires us to do something human beings are hardwired to avoid: confronting our own mortality. No one wakes up on a sunny Saturday morning wanting to calculate the financial value of their absence. Planning for life insurance forces us to imagine a world where we aren’t around to see our children grow up or grow old with our partners. Because the human brain is highly adept at self-preservation, it naturally steers us away from these uncomfortable thoughts, labeling them as "not urgent" so we can focus on the immediate, living present.

Secondly, as humans, we are inherently prone to optimism bias: the cognitive illusion that we are less likely to experience a negative event than others.

When we are young, healthy, and building our careers, the need for life insurance feels decades away. We tell ourselves, "I’ll look into it when I’m older," or "I’m healthy, so I don’t need to worry about that right now." The danger, of course, is that life insurance is unique: you have to buy it when you don't need it, because by the time you do, it’s too late to get it. 

However, it doesn’t stop there. Not only are we optimistic by nature and have trouble confronting our own mortality, there is also the issue of immediate gratification. Or put differently, the lovely feeling of immediate gratification, the feeling of dopamine hitting, doesn’t come with life insurance; and that would be the third limiting factor. In a culture driven by instant results - like buying a new car and getting to drive it - when you buy critical illness, health and life insurance, you get nothing: no loyalty points, no discount and definitely not a pat on the back. 

Life insurance offers absolutely no immediate gratification. It is a financial product that you pay for today, with a tangible benefit that is entirely deferred. That benefit is deferred until some point in the future: tomorrow, retirement or after your death. Point being, you might never see the benefit of that policy you are paying for. Thus, it requires a high level of long-term discipline to prioritize a monthly expense that only yields returns for a strategy that is decades into the future or provides a benefit for other people after you are gone.

Then there is the matter of cost, and this is the most important and the final point. Many people put off life insurance simply because they assume it is too expensive or too complicated. Industry studies consistently show that people overestimate the cost of a basic term life insurance policy by up to three or four times its actual price. Further still many people forget about the tax benefits that are available. 

Coupled with a historically confusing marketplace filled with complex industry jargon—like premium, cash value, whole life, term length, and underwriting—it becomes incredibly easy to suffer from analysis paralysis. When faced with a complex financial decision that isn't actively screaming for our attention, our default response is almost always to do nothing.

And this is when problems begin. After all, Life insurance premiums are largely calculated based on two factors: age and health. So, every year you push it to the bottom of your list, the baseline cost goes up, and the risk of developing a medical condition that could price you out of coverage increases. Accordingly, time is your worst enemy: the longer you wait, the higher the costs.

However, those four “red herrings” hide the reality: critical illness, disability and life insurance reduce the financial cost of life. They provide a tax advantaged benefit that shows up when you need it most.  Critical illness, Disability and Life insurance also ensure that you don’t incur taxable additional costs when a life event occurs. After all, how many people have raided their investments held in non-registered accounts or registered accounts like TFSA, RRSP and FHSA.

The reality is simple: we willingly insure our cars, our homes, and even our smartphones against accidental drops. We should be willing to do the same with our life. If you want to reduce the taxes you want to pay in life, if you want to ensure that your corporation continues or that your family is looked after, you want to reduce the risks that come with a life event. That event could be retirement, the sale of a business or, yes, death. Life insurance is about maintaining that legacy that you created. It can be about ensuring a particular person has an education; or that a charity, church, health and/or educational facility is looked after. It could be about using life insurance as a collateral asset so you can spend wildly in life and; or life insurance could ensure that your family is not saddled with debt in death. 

Moving life insurance from the last thing on your mind to the top of your priority list doesn't take hours of agonizing over the future. It just takes a single afternoon of clearing away the misconceptions, facing the reality, and putting a foundational safety net in place so you can get back to living your life with total peace of mind.