13 Things Everyone Should Know About Life Insurance
#1 – Mortgage Insurance
If you have your mortgage insured through your bank with Mortgage Insurance, then you are not alone. Many Canadians are not aware that this is the biggest mistake to make when they get a mortgage (or loan) through their bank or credit union. Not only is it usually much more expensive than an individual life insurance policy, but more importantly the coverage is not nearly as good.
#2 – What Is the Right Amount of Life Insurance to Purchase?
Any financial adviser will stress the importance of having the right amount of coverage. It’s important for clients searching for Life Insurance to ensure that they first focus on the right amount of coverage, and secondary to this, focus on the appropriate term/type of coverage.
#3 – Working with a Captive Agent
A captive agent is only allowed to sell his/her own company’s products. At LifeInsuranceAdviser.com, we are brokers, and therefore can shop around to all the major insurance companies to find our clients the best value with the most competitive products in the marketplace.
#4 – Optional Life Insurance Through Your Companies Benefit Plan
Most Canadians have some basic insurance (i.e. $25,000 or 1x Annual Earnings) through their employer’s group insurance plan. Although this is nice to have, some Canadians opt for additional coverage because it is offered to them. What people don’t realize is that most of these plans increase annually in cost. These plans also generally have a higher cost compared to what is available in the marketplace. Also important to remember is that if you leave your employer, you don’t have the option to keep this life insurance at that same rate. This is especially important if you have developed a health issue or have had a change in health because your ability to purchase individual insurance at that time may be restricted or lost.
#5 – Association Plans
Many associations offer Life Insurance options for its members. At first glance, these plans may seem attractive, although after careful review and proper comparison, these plans are not all that beneficial. The Canadian Automobile Association (CAA) offers a plan for its members. It is also very common to see most professional associations (i.e. Canadian Dental Service Plans Inc. (CDSPI), Ontario Medical Association (OMA) offering these plans to graduates and their members. These plans are usually rate banded and they do not carry the same guarantees of individually purchased plans.
#6 – Permanent Insurance Versus Term Insurance
There has been constant debate within the financial industry relating to which type of insurance is the best to purchase. Every person’s financial situation is different, and selecting the right type of insurance should always come secondary to selecting the right amount of coverage. Many people purchase the bulk of their insurance with term insurance in order to cover off “term risks.” A good example of a term risk is a mortgage or having dependent children. With both of these examples, it is only necessary to cover a volume of insurance for a set period of time (i.e. 25 years). Many people will choose a permanent insurance policy for all or part of their Life Insurance needs in certain situations. Many people will purchase a permanent policy for many various reasons (tax-sheltering money, covering a long-term risk, such as funeral expenses, covering taxes on an estate transfer, and guaranteed investment opportunities).
#7 – Joint Coverage Versus Individual Policies
When two individuals (common-law or married spouses, business partners, etc.) purchase a life insurance policy, they have the option of selecting between a joint policy (“one bag of money”) or having two individual policies (“two bags of money”). Joint policies typically offer a cost that is slightly lower than that of an individual policy. It is important to examine your needs in order to determine which is best for you. They are many differences between the two and it is important to educate yourself before purchasing a policy.
#8 – Non-Medical Life Insurance Plans
Some insurance companies offer policies that are underwritten non-medically. This basically means that there is no medical testing required. Most Canadians see these types of plans advertised through commercials on television. Although these plans are of value to those that have a history of certain medical conditions, these plans are associated with higher premiums and smaller face amounts than traditional life insurance policies. These policies ask some medical questions in order to be eligible for the coverage. Non-medical life insurance can be a very good fit in some instances, but these policies are designed for applicants with health issues that prevent them from applying for traditional life insurance.
#9 – Accidental Death Insurance
Most Canadian life insurance companies market accidental death insurance. These types of policies generate huge profits for the insurance companies, as under 4% of all life insurance claims are related to death by accident. These types of policies are sometimes warranted in order to supplement clients’ existing Life Insurance portfolios, depending on certain criteria, such as the client’s occupation and/or lifestyle (i.e. truck drivers).
#10 – Policy Exclusions
All life insurance contracts have policy exclusions. All life insurance policies include a two-year suicide exclusion. Some life insurance contracts can also carry specific travel and/or recreational activity exclusions. We are able to search around to not only find you the best value for your money, but we are able to find you the most favorable contract wording in the industry.
#11 – Misrepresentations on an Application
Life insurance policies all include something called an incontestability period. This period is usually two years, and it gives the insurance company the right to contest your life insurance claim if they feel that there has been misrepresentation during the application process.
#12 – Replacing a Life Insurance Policy
Many agents will recommend to their clients or prospects to replace their existing life insurance policies. Many agents will replace an existing policy to try to earn a new policy commission. Replacing an existing term life insurance policy usually only makes sense under a few circumstances. The first is when the current policy is nearing the end of its term (ie;
Term 10 or Term 20), and the second is if term policy costs are very similar or have decreased since the policy was purchased.
Replacing a term life insurance policy is much different than replacing an existing whole life or universal life policy. These two types of policies should rarely ever be replaced, as they are usually secured with guaranteed premiums (based on the age of purchase) and can sometimes have high cancellation/surrender fees.
#13 – Keeping Benefit Plan Life Insurance at Retirement
Many large corporations offer their employees the option to keep their benefits plan life insurance coverage at retirement or at a certain age (i.e. 65 or 70 years old). These options usually offer maximum coverage amounts with higher premiums than what is available through traditional individual plans in the marketplace. Some of these policies also include a policy schedule in which the coverage amount starts to decrease at a certain age. For a price comparison, please get a free quote.