Buying life insurance is not something that should be taken lightly, especially when your family’s financial future is at stake. There are so many things to keep in mind, but we’ve broken it down to the five essential tips so that you don’t have to wander through the Canadian life insurance market without a compass.
1. Make sure the insurance advisor you’re working with is truly independent. Many insurance companies employ a captive sales force e.g. Primerica, State Farm and Cooperators employ agents that only sell their particular products. In many instances, their premiums are completely incompetitive. An independent broker has the ability to shop the marketplace for the best possible value. Make sure you work with a broker who has access to a variety of carriers, not just two or three.
Companies such as Sun Life or RBC Insurance are an anomaly because they use both captive and independent distribution channels. They also use a direct channel to sell their life insurance policies.
2. Make sure your policy does not have any exclusions. Many life insurance policies are issued with travel and recreational exclusions such as flying or scuba diving. It’s important your broker shops around because different insurance companies have different underwriting rules so what is an exclusion at one company may not be an exclusion at another.
3. Make sure you’re buying the right amount of life insurance. The first and most important step in buying a life insurance policy is determining the right amount of coverage for you and your family. You can find this information quickly and easily with our Needs Analysis Calculator.
4. Is the insurance company a member of Assuris? Assuris covers policy-holders under member companies for up to the greater of $200,000 or 85% of the face amount of your insurance policy in the event your insurance company becomes insolvent. With the current economic situation, it’s no secret that in the 21st century even the largest, most reputable companies can be subject to financial failure. So far in Canada, three insurance companies have gone bankrupt:
Les Cooperants on Jan. 3, 1992
Sovereign Life on Jan. 18, 1993
Conferation Life on Aug. 11, 1994
In each of these instances, Assuris was called upon to deal with the insolvency. Founded in 1990, Assuris is a non-profit organization that protects Canadians in the event their insurance company fails. Through the three insolvent cases above, Assuris has protected almost 3 million people-representing 10% of Canadians.
5. Are there any hidden costs or fees? Group Life policies and Creditor Insurance charge sales tax on top of your base monthly premium. You should also check the surrender charge schedule on Universal Life policies. Many companies have surrender fees up to 10 years. So it’s important to determine if you think you will need access to your money during that time period. Some companies also have charges for moving money between investment funds of a Universal Life policy.
Can an insurance company charge to change a beneficiary on a policy.
Thanks for the note. I have never heard of an insurance company charging to change a fee for this.
What do you mean by this?? “Make sure the insurance advisor you’re working with is truly independent. Many insurance companies employ a captive sales force e.g. Primerica, State Farm and Cooperators employ agents that only sell their particular products. In many instances, their premiums are completely incompetitive.” Thank you.
Thanks Val. It means that these companies often offer products that may not be well priced. If the advisor is captive he will not be able to offer an alternate solution for his or her client.
Thanks for the note Peter and sorry for the delayed response. Virtually all insurance companies have a question asking has the insurance used tobacco products in the last 12 months. If you need the insurance you should not wait.
You could apply for a Term 5 or Term 10 policy this is you least expensive route initially and switch to a longer Term or Permanent policy once you reach the 12 month mark.
In addition to making sure you family is protected you also insure you have coverage and our approved even if your health changes during those 12 months.
My brother says that I am better off to quit smoking for 12 months before applying for a policy. Is there any way around this?
Just over 5 years ago, I had skin cancer, for which I was treated and have since been given a clean bill of health. Do I need to disclose this when applying for term life insurance?
Hi John,
Thanks for the note. If the policy bonus is stated in policy contract it can not be adjusted unless such a provision is made within the policy.
I would request written clarification from the insurance company.
I was sold a policy using an illustration with a GIC @ 3% plus a wealth bonus @ 1.5% totalling a 4.5% accumulation rate. 3 years later my statements were separating from this illustration.
I am now told the accumulation rate should not include the 1.5% wealth bonus. It is a huge difference in the policy.
Who is at fault?
Thanks for the note.
Your point is well taken. Full disclosure is crucial when submitting a life insurance application.
In terms of getting a doctor’s report with each application this is likely not feasible. The insurance companies bears the costs of attending physician statements (i.e doctor’s reports) Requesting a doctor’s report when there are no underlying health issues well translate into higher costs which ultimately be passed on to the consumer.
You should also tell people about the contestability period for two years and to make sure they read everything that is written down and to request that the company read all medical records before issuing insurance ..I am a victim of an agent that just wanted his commission and left out pertinent information of my husbands illness that he was told leaving us with a false sense of believing we were covered when he died within 20 mos we were left hanging to dry!!! Please please get this information out to clients its so importatn ..I want to change this law …nopolicy should be issued with out a medical check at the doctors so the ins co cant use this as an excuse … failure to disclose information!!!