If you are thinking about buying life and/or health insurance OR you are justifying why you should not pay money for this type of insurance, then this is worth a read. Here, we will look at insurance like a gamble or a bet: there is a cost, and there is a winning scenario and a losing one. How much could you win and how much could you lose?
Before we get into the 4 possible outcomes from either buying or not buying insurance, let us set the stage. Imagine you are in a casino, sitting at a table, gambling. You can either bet into the pot, or keep your money close. Here is the twist; if you bet and the cards are a winner you get to keep all the money you have and maybe add some cash to the pile. If you do not bet and you lose, you lose everything you have. The bet is small, and your pile of cash in front of you is big.
Unfortunately, in this game if you win, you have become disabled, gotten a critical illness or died prematurely. Not a very good winning hand, but all you assets/wealth is protected for you and/or your family. If you lose, you still get sick, hurt or die, but the life savings you have built up can all disappear, leaving your family or you with nothing. There is a big chance each year that nothing happens (a pass), and you have to decide if you will bet again next year or not.
Now, let us talk about the odds. Here are the chances each year of you either dying, getting injured or sick and ca not work, or getting a critical illness before age 65 (these numbers are the percentage chance each year until age 65):
Chance of dying in any given year: 0.15% chance
Chance of having a critical illness in any given year: 0.5% chance
Chance of becoming disabled for the long term in any given year: 1.06%
If these odds seem low its because this is the risk each year, and cumulatively it builds. Total risk to age 65 of one of these events happening to you is 10% chance of dying, 33% chance of getting a critical illness and 50% chance of becoming disabled during your working years.
So, knowing the odds, would you place a bet or not? Here are the 4 possible outcomes.
1. You Buy Insurance, and Something Happens
If you buy life, disability and/or critical illness insurance and one of these events actually happens to you, you are protected. For the relatively small amount of premium spent you or your family will receive a huge amount of tax free cash to protect their lifestyle, replace lost income and pay off debts like your mortgage. The cost of the insurance should be in the range of 1-2% of your family income each year to protect you from all risks. You Win Everything!
2. You Buy Insurance, and Nothing Happens
If you spend the money on life, disability and/or critical illness insurance and nothing ever happened to you before age 65, you can consider yourself one of the lucky ones. So, what did you lose by spending your hard earned money on insurance premiums? Let us assume you spent $1,000 per year for 35 years on life and health insurance. That would be $35,000 of premiums gone to insurance companies to provide protection that in hind-sight you did not need. This is less than one years income. This is only a fraction of the total income you made over those 35 years. This amount of money will not devastate you financially: it is a manageable expense. You Lose A Small Amount!
3. You Do Not Buy Insurance, and Nothing Happens
In this case, you have decided to not buy the insurance and again you are lucky: nothing happens through to age 65 when you retire. Since you have not spent any money on life or health insurance, you were able to invest that money or put a little more towards your family lifestyle spending: go on one more vacation every 3 years or something like that. You Win A Small Amount!
4. You Do Not Buy Insurance, and Something Happens
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In this case you have bet on nothing happening during your lifetime, and you are wrong. Either you got sick, hurt or died prematurely, and you and/or your family is left without financial protection. All your savings could be depleted in a matter of months. The high cost of supplementary health care not covered by the Alberta Health Insurance Plan can add up quickly. Or, for instance, you died and your mortgage ca not be paid and there is no more income for your spouse and children to live on. In this case, You Lose Everything!
Those are the chances, costs and possible outcomes of buying or not buying life and health insurance protection. These risks are real, and no one is immune. People are either the lucky ones who get through their working life without any major life or health events, and there are the unlucky ones. If you happened to be among the unlucky group, having insurance protection would be great. Unfortunately, we do not know what the future holds, and you have to buy insurance while you are still healthy (insurance companies will not insure a risk once it has occurred).
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