We asked Farzana Damji, Head of Life, Health and Wealth Product Development RBC Insurance, about how Canadians’ insurance needs are changing, how much financial protection people need, whether insurance can really be used as a way to build wealth, and how the insurance landscape is changing.
More Canadians are living alone, and for longer stretches of their lives. How is that changing what people need from insurance? How are their needs different than the dual-income, two-parent household?
Each situation is different. You may be young and single, or have children or parents that you financially support. You may be living paycheque-to-paycheque or able to put away a small savings each month.
Either way, if you’re a single person living in Canada, you are likely experiencing more acute financial challenges. Homeownership costs and living expenses are shouldered alone rather than being shared with a partner, and the cost of living continues to increase. Many financial products are set up to provide value when paired with a spouse – from allocating retirement savings, to tax advantages, to doubling up group benefits to cover a child’s health needs. With no one to share these financial burdens with, singles must take a different approach to long-term financial planning.
The good news: You have a lot of options at your fingertips. Living benefits, like disability and critical illness insurance, protect your income in case of an unexpected illness or injury. Group benefits through your workplace offer a wide set of services, and are often underused. Annuities and segregated funds offer a layer of protection for your savings during retirement years with income or market volatility protection guarantees that can last your lifetime. And articulating your desires in wills, powers of attorney and insurance beneficiaries go a long way in ensuring you don’t inconvenience loved ones and have your requests actioned.
Beyond an emergency fund, what's the most overlooked form of protection for a single person who doesn't have the safety of a dual-income household to fall back on should they get sick or lose their income?
In the case of an unexpected injury or illness that prevents you from working, a single person often experiences immediate impact on their savings. Even healthy emergency funds can be depleted quickly. Disability insurance provides income replacement to ensure that ongoing expenses – mortgage payments, medical treatment options, daily needs – can continue. This financial security means you can focus on your health without the anxiety that often comes with financial uncertainty.
The numbers are higher than many think. In any given week, 500,000 Canadians miss work due to a psychological health issue, and 1 in 5 will experience a mental health issue this year, according to The Mental Health Commission of Canada.
A lot of single Canadians are caught in a squeeze of supporting aging parents now, with no one lined up to support them later. How should someone in that position think about sequencing their own protection against the help they're giving their parents?
I’m glad you asked this question, because it’s real for a lot of families. Consider what might happen if the primary caregiver becomes ill or injured and isn’t able to continue earning their regular income. Disability and critical illness insurance can ensure finances are stable during these difficult times.
Open conversations with aging parents can also help to create long-term financial security. If your parents have life insurance, for example, that may lessen the burden of their end-of-life expenses or even provide a small inheritance, after they’re gone. This may help to offset some of the financial support you provided during their life.
I also recommend becoming familiar with any group benefits you may have access to specific caregiver support programs through your workplace. Many are available as part of your existing plan, with no additional cost. For example, employee assistance programs (EAP) offer personal wellness support and elder care options that may help you through some of the more challenging moments.
When it comes to annuities, some people are worried about handing over a lump sum, dying early, and "losing" it. How do you weigh that psychological hurdle against the longevity protection? Who should be considering annuities?
Planning for later life stages can be difficult because most of us don’t know how many years we have ahead of us. We’re balancing quality of life, like vacationing with family and enjoying a comfortable home, with the realities and uncertainties of aging.
First, let’s be clear about what annuities are. As you enter retirement, you have the option to contribute a lump sum amount, which is then paid out in stable, predictable income amounts each month, similar to a paycheque. For many, payout annuities can complement a well-rounded retirement plan, which may also include a mix of bonds, mutuals funds and GICs, by providing a guaranteed income source that helps to safeguard against the risks of fluctuating markets and income rates.
Within annuities, you have several options to find the right coverage for you. If you’re concerned about passing away before you receive payments that equal the lump sum you put in, you may want to opt into a guarantee period, which redirects any remaining payments to a beneficiary of your choice. You can also choose to receive annuity payments for a set period of time, which can be helpful if you’re planning to retire early and only need income until your pension kicks in.
Women live longer on average but often retire with less saved, thanks to career breaks and the wage gap. Does that change the math on how women should plan for retirement versus men?
It is vital that single people, especially women experiencing lower than average retirement savings, understand their options. Talking with a trusted advisor about your unique situation and goals is the best way to select which insurance and financial products will support you into your later years. Everyone deserves to understand their retirement options.
Without the safety net of a partner’s income, single people may want to ensure their retirement plan carries guarantees and protection. Insurance products, like annuities and permanent life insurance, help to ensure you don’t become financially insecure if the markets turn at a particularly vulnerable moment in your retirement years. Access to cash from a participating whole life insurance policy gives you the freedom to know your savings aren’t tied up if, for example, you want to help a child buy their first home, or if a medical situation requires immediate access to funds. Group insurance offers support through many life stages, including perimenopause and menopause, mental health issues and family planning support.
When it comes to divorce, what are the mistakes you see most often with regards to insurance and beneficiaries?
When living through a divorce, remember to review your insurance policies (including workplace group benefits). Beneficiaries surpass legal authority of wills, so ensure you’ve carefully named the people you want to receive any payout. As an example, is your ex- still named as 100% beneficiary in your life insurance policy? What might this mean for your children, and any children your ex- might care for within remarriage?
Timing is also important. There may be a court order to continue providing insurance to a spouse or children until the divorce has been finalized. Connect with your legal counsel and financial advisors to review the best options for your new family situation.
There's a growing push to see the value of insurance as a wealth-building and estate tool, not just protection. Can you walk us through the purpose of insurance beyond just protecting oneself against risk?
This is an important perspective. Many insurance products have a primary goal of protecting you and your family when something unexpected happens, such as travel, home, auto, disability, critical illness and term life insurance.
In addition, several insurance products are designed to offer even more financial and tax benefits. Particularly as you enter retirement and estate planning, products such as participating whole life, payout annuities and segregated funds offer investment options, stability guarantees or access to liquid cash. It’s about growing your savings, even while you’re protecting them. As Canadians find themselves with fewer defined benefit pension plans and less predictable markets, many are considering how insurance products can provide confidence in their planning and reduce apprehension around changes in the economy.
Looking out three to five years, how do you expect insurance products to evolve to fit a population that's more single, longer-living, and looking for simpler, more personalized financial products?
There are two significant shifts to keep our eye on. First, our population is living longer and spending more years in retirement. Insurance products will need to solve for a more self-reliant client through two distinct stages in their life: first, earning and accumulating wealth – and later, navigating the decumulation stage. Decumulation, including retirement and estate planning, is often talked about less and can be overlooked until much later in life. More malleable insurance products should both protect the client from a crisis by dealing with immediate financial needs, while also creating stable growth opportunities to fund a long, meaningful life and create a legacy to leave behind. Products that are less rigid and able to progress with a population would continue to support this changing demographic.
Secondly, there is a significant shift towards making insurance options easier to understand. As people are increasingly accustomed to looking online for information on their own, this presents an opportunity to demystify financial products. Through clear messaging in product options and policy contracts, the level of comfort in interacting with these products can be improved. For clients with financial needs that are inherently complex, we can arm experienced financial advisors with the tools to create a greater level of understanding.
If the average single Canadian in their 30s did one thing differently with their financial protection today, what would have the biggest payoff 20 years from now?
If you’re single with no children or other dependents, I can’t overestimate the benefits of protecting your income in these high-earning years. At this stage in our lives, we sometimes feel invincible, but the facts show how many people need to leave work to manage health issues. Disability insurance covers a portion of your income if you are unable to work due to injury or illness, and critical illness provides an immediate lump sum if you are diagnosed with one of 26 common illnesses.
And: be informed. The facts show that single people are less likely than the average Canadian to identify their financial needs for retirement (16% vs. 20%) or set aside money or insurance to pay for end-of-life expenses (21% vs. 28%). And while 91% of Canadians feel it’s important to maintain financial stability if diagnosed with a serious illness, only half (57%) feel they are even somewhat knowledgeable about disability insurance. Talk to a trusted advisor. Know your options. Be confident in your future.
