Should You Insure Your Line of Credit?

The average personal debt in this country has increased by 6 per cent to $27,485, and many people have chosen to tackle it by taking out lines of credit so that they can avoid the high interest rates that often come with credit cards.

The interest rates are usually between 1 and 3 per cent above the bank’s prime rate, versus up to 28 per cent for some department store credit cards. Still, the rates are variable and rise and fall depending on your bank's prime rate, so it's important to be aware of this variability.

There are two types of lines of credit for individuals: unsecured and secured. A secured line of credit is backed by GICs, or the equity in your house. Secured lines of credit give you a higher limit and a lower interest rate because they lessen the risk to the bank.

Insurance is available to cover your credit line payments in the event of an injury or death. You can purchase it through the bank that lent you the credit or through an insurance company, which may give you a cheaper price. But is this an insurance policy you should really invest in? There are a few things you need to remember if you're considering line of credit insurance that may greatly influence your decision.

The Odds of Smoking If Your Parents Smoke

People are twice as likely to start smoking if their parents smoke.

Last year, a European study based on the British Household Panel Survey: 1994-2002 and published in the Oxford Bulletin of Economics and Statistics revealed that the likelihood of a son starting to smoke when both his parents do is 24 per cent. However, when neither parent smokes, that likelihood drops to 12 per cent. The statistics for daughters are almost identical, with the probability decreasing by only 1 per cent if both parents smoke and remaining exactly the same if neither parents smoke. In single-parent households, a son's likelihood of smoking if the mother smokes is 32 per cent, and it's 28 per cent for a daughter.

Regardless of whether your parents smoke, if you start smoking, the Center for Disease Control reports that you will increase your risk factors for heart disease and stroke by two to four times, chronic obstructive lung disease by 12 to 13 times, and cancer by 23 times if you're a man and 13 times if you're a woman. Plus, your lifespan could decrease to 64, which is 17 years below the Canadian national average.

Desjardins Increases Universal Life, Term 100 and Critical Illness Insurance Rates

As of March 14, Desjardins Insurance has announced a premium increase to their permanent life insurance and critical illness products.

For permanent insurance products, the average increase will be between 2 and 7 per cent on the following brands:

• MaxLife (T100) Guaranteed Whole Life and Life 20
• Foundation (T100) Precision and Precision 20 

The level cost for Flex 1 and Flex 1 paid-up at age 85 or in 20 years will also increase. However, the good news is that so will the cash surrender values for all time durations and ages on Life 20 and Precision 20 policies.

As for permanent critical illness insurance, rates will increase between 5 and 20 per cent on the following products:

• Harmony T100 (without return-of-premium, return-of-premium 15 year and 20 year)
• Harmony T100 (10- and 20-pay)
• Harmony Executive (return-of-premium 15 and 20)
• Harmony Term-to-65 Harmony Term-to-75 paid-up
• Harmony New Generation

*Please note that due to low sales volumes, Harmony Term-to-75 paid-up universal life will be withdrawn.

Life Insurance Basics

Life insurance can be a confusing and intimidating topic for many people. This could be the reason that one-third of Canadians feel underinsured, according to a survey conducted by RBC Insurance. 

The first step to buying any life insurance policy is to determine the amount of coverage that is necessary. Thankfully, the LSM Needs Analysis Calculator is available to help simplify the process.

The next step is to have a clear understanding of how different life insurance policies work. Life insurance con be broken down into two categories: Permanent Life Insurance and Term Life Insurance. Permanent life insurance policies can be further broken down into three subcategories: Universal Life, Whole Life, and Term 100 Insurance. These policies start off with a higher premium but offer lifetime protection and, in most instances, A-level cost. Some permanent policies can even be paid up in a limited number of years. Conversely, Term Life Insurance starts off lower in cost, but its premiums increase as the insured gets older.

Real Life Insurance Stories: Lisa Harbinson and Her Mother Joyce Truman

Lisa Harbinson wanted a new life insurance policy for her mother, Joyce. She thought mom was paying too much at over $100 a month for a $10,000 term policy that she had borrowed money against and now had to pay back.  Obviously, Lisa thought it was also definitely time to look for a more reasonable plan that wasn't about to expire.

She also began to research the cost of funerals so she could purchase exactly the amount she needed to give her mother a proper send-off, but little did she know at the time, that send-off would come too soon.

The Advantages and Disadvantages of Corporately-Owned Life Insurance

Corporately owned life insurance is simply life insurance that is owned by an incorporated business instead of an individual. It is most commonly put in place when a corporation is profitable and they want to be able to protect their interest if a business owner or key employee dies.

"Another scenario is that a key employee or partner wants to retire someday and the corporation needs an arrangement to provide the cash for when they leave the company. A cash-value policy can be a viable consideration," says Teresa Black Hughes, a former National Board Chairwoman for Advocis: The Financial Advisors' Association of Canada and is now a senior advisor at Rogers Group Financial in Vancouver, B.C.

Corporately-owned life insurance is essentially a structure whereby the after-tax cost of the insurance is more economical than personally owned. Being able to cover the company in the event of the death of a key player and the tax benefits that come with the policy are some of the more obvious advantages to corporately-owned life insurance. But, Hughes will tell you that there may be some advantages that aren't quite so obvious.

How are Lengthening Lifespans Impacting Insurance Rates?

Statistics Canada reports that both men and women are living longer than ever before. Men's life expectancy has gone up 0.2 years since 2005–2007 to 78.5 years, while women's life expectancy has gone up 0.1 years over that same period to 83.1 years.

People living longer should mean a decrease in life insurance rates, but this has only been the case on the term life insurance side of the business. The Insurance and Investment Journal highlighted in its March 2012 issue that term rates over the past decade have decreased substantially. For example, Transamerica Life offered a 40-year-old, male non-smoker $500,000 of term 10 coverage in 1998 at the rate of $510 per year. The same 40-year-old, male non-smoker can now receive $500,000 of term 10 coverage for $365 year.

However, the news is not all good for term life insurance consumers because even though the initial premiums are much lower now, the renewal premiums are significantly higher than they were ten years ago. The renewal on a term 10 policy can be up to four times the initial premium, and the renewal premium on a term 20 policy can be up to ten times the initial premium.

Are Convertible Term Life Policies On their Way Out of the Life Insurance Industry?

The life insurance industry has gone through a major transformation in the last 12 months.

Historically low interest rates and changes in accounting provisions governing insurance companies have put tremendous financial pressure on life insurance companies.

As a result, almost all life insurance companies have significantly raised prices on their permanent life insurance policies, such as term 100 life insurance, universal life level cost-of-insurance policies, and non-participating and participating whole life insurance. These policies have all gone up by 20 per cent to 30 per cent, and some companies have gone as far as removing these products from their lineup.

Permanent Critical Illness Insurance Rates are on the Rise

Critical Illness insurance coverage pays out a lump sum if the insured is diagnosed with a critical illness, and Canada remains one of the few countries in the world to offer critical illness permanent plans with guaranteed rates.

The number of critical illnesses covered can range from three to 25. However, permanent critical illness policies have been heavily affected by historically low long-term interest rates. As a result, many insurers have removed these products from their lineup or have significantly increased their premiums for these products.

Desjardins Insurance Announces Rate Changes for its Permanent Products

Just like a spate of other insurance companies in these times of high interest rates, Desjardins Insurance is modifying its permanent insurance and critical illness insurance products.

But, unlike many of their competitors, Desjardins is not getting rid of its permanent insurance line-up all together. Instead, the average increase in permanent insurance rates will be between 5% and 7% on the following products: