1. Mortgage Insurance: Nearly everyone who buys a home is offered the chance to buy mortgage insurance along with the purchase, but no one considers insurance when they’ve just bought a home.
Instead, they likely think about their mortgage and their mortgage payment details. What they may not realize is that they could be costing themselves thousands of dollars. Mortgage insurance is supposed to cover your mortgage in the event of your death, but premiums can typically cost 30 per cent to 40 per cent more than term life insurance policies, and their coverage declines as your mortgage declines. Their coverage is also not portable if you move or switch banks, nor is it convertible. Mortgage insurance is also sold through post-claim underwriting, which could see the bank denying your claim at the very moment you need it most.
2. Accidental Death Life Insurance: Most Canadians are bombarded by life insurance companies approaching them to buy accidental death life insurance. Accidental death insurance is one of the highest profit-grossing products sold by life insurance companies in Canada. The reason for this is that fewer than 5 per cent of all life insurance claims paid are due to the insured suffering an accident. The percentage is even lower for older clients because your chances of dying by accident decrease as you age.
3. Blended Smoker and Non-Smoker Rates: Some life insurance suppliers offer blended smoker and non-smoker rates, which means that a smoker and a non-smoker will pay the same premium. These rates are a great deal for smokers but a very poor deal for non-smokers. Consider that a 50-year-old non-smoker would pay only $69.66 for $200,000 of Term 20 life insurance, whereas a smoker would pay $175.32 a month for the same plan. That’s $25,358.40 more that the non-smoker must pay over 20 years.
4. Buying Directly Versus Through a Life Insurance Broker: At first glance, buying directly seems like a better deal. After all, the commercials and ads seem innocent enough, (emphasizing that no sales person will call) but the bottom line is that in most instances, the consumer is ripped off. Consumers pay inflated prices rather than saving by buying directly. Direct insurance suppliers are essentially captive providers of life insurance, meaning they only sell their company’s products. Direct life insurance providers offer coverage that is often 30 per cent more expensive than equivalent coverage sold through a independent, licensed life insurance broker. Moreover, preferred rates and permanent policies are often not available.
5. Credit Card and Line of Credit Life Insurance: Similar to mortgage insurance, credit card and line of credit life insurance do not offer good value to consumers. The plans are directly linked to your debt and are not convertible. They are significant money-makers for the insurance provider, and the cost per thousand dollars of insurance is very high compared with equivalent life insurance coverage. An equivalent amount of Term Insurance protection usually provides a lower premium and much more flexibility if you pay off your line of credit and/or want to convert your coverage to a Permanent plan.
For more details on life insurance in Canada and to make sure you have not been sold a Shady Life Insurance policy contact us at 1-866-899-4849 or visit our Term Life Insurance Quote Page.
How can I make sure my broker is working in my best interest. I found the my premium high but I don’t want to g throwgh the whole thing again.
Hi George, It never hurts to get a second opinion. Ask your friends or family if they have an insurance broker they have been dealing with for a while and are happy with and ask if he / she will give you a second opinion on what you purchased.
In that event, contact the insurance company directly. If you don’t know who the insurance company is, check your bank records to find out who you are paying the premiums to. It may also be a good idea to review your life insurance portfolio with a professional. You can either contac LSM whose sponsors this page or to go to https://www.winquote.net ,select Canadian products, then run a survey, and on the survey page click on the orange “Find Broker” button.
Good tips Ami. Carry you also want to check out our insurance company directory page https://lsminsurance.ca/canadian-life-insurance-companies.
You can get the coordinates of the different insurance companies in Canada.
Thanks., My agent is no longer with the company. How do I get a copy of my policy all I have is the spreadsheet. Is there a change of some sort, if so how much.
Carey, Do you have the policy or just the “spread sheet”?
If you purchased the policy, the agent should have delivered the policy documents to you immediately upon issue. The policy documents should contain the premium schedule and should contain the wording to indicate whether or not the renewal premiums are guaranteed.
If you cannot find the policy documents, then I urge you to contact the agent AND the insurance company immediately to request that these be supplied to you. A “spread sheet”, on its own, is not an insurance contract. The policy documents govern. While you are at it, I strongly suggest that you also carefully read and check the correctness of the answers given in the application form. The application pages should be included with the insurance contract as they form part of the contract and the contract is contingent on the questions and answers in the application form.
Ami, How do I know if the renewal premium is accurate. I have an old spreadsheet from the agent but it does not say if that if that renewal premium is guaranteed. It says the premium renewal and is circled but I can’t see word guaranteed reneal.
Carry, you ask “Are all Term policies renewable…”
In responding to this question and in order to fully respond to it, I’ll assume that you are a consumer, not an insurance agent or insurance broker. My apologies if I assumed incorrectly on that.
Now, to the response, first to the word “renewable”. That word can in fact have two or more interpretations to a member of the general public:
a. Is the policy guaranteed renewable from year to year?
b. Is the policy guaranteed renewable upon the end of the (or each) level premium period?
Then, of course there is the all important question: Are the renewal premiums guaranteed or can they go into the next galaxy thus rendering the policy non-renewable in a practical sense.
Following are several tips for you as a consumer:
a. DO NOT shop by initial premium quotes alone. That’s an error that could potentially cost you heavily, or worse-leave you without insurance coverage when you are likely to most need it. You wouldn’t shop for a house just on the basis of the deposit toward the downpayment; would you?
Actually, how the agent presents the quote to you is one of the easiest and best guides to know whether to continue discussions with the agent or send him home to watch TV. If he cares about you, the agent would naturally and automatically show you the initial as well as renewal premium costs for your insurance, and would also show whether and for how long the policy is renewable and at what guaranteed cost.
b. Compare the costs of the coverage for the maximum period that you expect to need it in the worst likely scenario.
c. Ask the agent to provide you with a cost comparison based on internal rate of return to your life expectancy or to the longest potential period of need (whichever is the longest). In simple terms, “internal rate of return” is the interest rate at which your premium payments would have to be deposited, net of income tax, to accumulate to the insurance amount in the policy. This method is the most objective and fair as it doesn’t lend itself to mathematical acrobatics.
d. If the agent has not provided you with a LifeGuide printout, take an additional step of self-defense and check things out at https://www.winquote.net
e. If the renewal premiums are quoted as “projected” or “current”, ask whether these are the maximums that could be charged. If not, then demand to receive the maximum amounts that the insurance company could charge in the event that the “projections” or “currents” turn out to be overly optimistic.
Ami. you make a good point on guaranteed renewal premiums. This is a challenge with many association based Term plans.
Are all Term policies renewable I want to make suyre my company cant cancel my coverage
Thanks Carry. Most but not all Term policies are renewable you would have to check with your insurance carrier. The renewal premiums are significantly higher than the initial premium.
Ted H, you asked: “My sister-in-law who has been after me for years to cancel my Whole Life plan and replace it with a Term plan. What do you think? Is Whole Life Insurance a ripoff?”
Ted, this question and related “debate” has been ongoing at least as far back as my experience with life insurance – and that experience goes back over 40 years.
One of the best sources for a general – I stress “general” response to that question comes
directly from the insurance companies. In saying that, I refer to what the insurance
companies have been doing, not what they have been saying, over the years – and particularly since de-mutualization (since most insurance companies have changed from being owned primarily by their policyholders to being owned by investors/shareholders)
Although a graph/chart would present this more vividly, suffice to note that the number and variety of whole life policies being offered for sale by insurance companies has been on a consistent decline since demutualization while the number and variety of term insurance policy offerings has been increasing, with various permutations and gimmicks galore. To attract and retain investors (shareholders) and to have a smile on the face of shareholders reading quarterly and annual reports the companies need to show healthy profits. Insurance companies’ revenue and profits are generated by two primary sources – underwriting results
and investment returns. Due to their very nature, and life insurance being a long term
multi-year consideration, life insurers are restricted on risky investments and need to
keep much of their investment conservative and closely related to the interest rate
climate.
As investment returns headed south with the drop in interest rates, and particularly during
the most recent and persistent downturn since the latter part of the past decade, we see two
pronouncned consequences:
1. Insurance companies discontinuing previously sold whole life (including the whole life permutation called T100 (“Term to 100”)
2. Insurance companies hurriedly substituting various seemingly attractive (and I
emphasize “seemingly”) term policy offerings.
* Without going into actuarials in depth as such is beyond the scope of this forum, it is suffice to note that a life that is insured by a newly underwritten policy – whether
insured as a “preferred” or “regular”/”standard” – is considered to be better (less likely to die) than the average of the population at the specific age and gender. However, as the years go by, the projection is that the “better than average” life will tend to the mean (will eventually merge with the average LE of the population). Therefore, a newly issued life
insurance policy issued as either “preferred” or “standard”/”regular” is expected to generate better underwriting results during its early years and will tend to produce deteriorating prospects for underwriting profit as the years go by. In terms of “years”, the assumption is that a newly underwritten life will tend to the mean within 7-10 years subsequent to underwriting. Of course, these are statistical assumptions and not indications of any particular single life (there may be 2.5 children per family but, then, no one has ever seen a specific 0.5 child at the mall).
Insurance companies are cognizant of this and therefore prefer to collect premiums during the period when the life insured is “better” than average and to be “off risk” (have the policy terminated
when the life becomes average or worse than average.
Remember I noted “seemingly attractive” in point #2 above? Let me elaborate…
The mirage has been pitched over the past decade or so that term insurance premiums have
declined sharply. Yes, they have declined; however, ever so slightly overall, and due to the long overdue shift from mortality tables that were long outdated to more recent mortality tables. Pundits would counter by saying “look at the premiums for term insurance from years ago versus current pricing.” OK, let’s look, and lets do that carefully. We find the following:
-Initial (issue) rates have declined significantly;
HOWEVER
-Renewal premiums have increased even more significantly.
Referring back to the paragraph marked by the *, I note that the insurance companies have tweaked term insurance premiums so as to make the initial period appear more attractive than in the past; however, consistent with the paragraph marked by *, they increased the renewal periods’ premiums for term to make renewal ever harder to afford.
The following is an example, of 10-year term for a male, “non-smoker”, “standard”/”regular” underwriting class, purchasing $1,000,000 of insurance:
-If newly underwritten at age 40, the premium from one of the large insurers is $654 per year
-If renewed at age 50, the premium skyrockets to $4,335 per year
BUT
-at current structure and rates if the same person is newly underwritten at age 50 for the same policy and from the same company, and in the same underwriting class, the premium is only $1,604
Note the huge and substantial difference! It is directly attributable to the matter referenced in the paragraph marked with the * above. In the past, renewal rates were the same as, or just slightly higher than for newly underwritten policies.
If the 10-year term policy purchased at age 40 is renewed at age 50 and then again at age 60, the premium reaches the next galaxy at $11,895 per year.
However, if the same person elects to purchase a Whole Life policy at age 40, the premium starts at $6,670 and remains at that level for each and every subsequent year – and continues to provide full coverage to age 100. The 10-year term policy, however, after going beyond the next galaxy to $36,115 per year at age 70 to age 80, implodes at age 80, leaving the life uninsured and likely only eligible for extremely expensive, TV-type, “burial insurance”.
Another swing at the cat was taken during the mid 1990s with the introduction of smoke and mirror multiple underwriting classes for term insurance. One company chimed in with 8 classes. Then, not to be outdone, another followed with 12 underwriting classes. The dust eventually settled several years later with 4-5 underwriting classes. Premiums for the “less desirable” classes were increased so as to produce the image of declining prices by advertising and quoting the premiums for the most desirable underwriting classes.
Because of it’s initial “going in” price, term insurance is much easier to sell than whole life type insurance. Likewise, it is also easier for agents to “replace”, particularly as the general impression of many is that prices are declining (yes, going in prices have declined but, as noted, renewal prices have increased even more than to compensate for the decrease in “initial”, going in, prices)
Life insurance sales commissions are, in general, “heaped” to the policy issue year. In other words, the sales agent is very handsomely paid shortly after the term policy is issued and the first premium is paid. Total first year commissions on term insurance including “base” and “bonus” normally exceed the entirety of the first year premium for the policy. If the policy terminates (“lapses”) during its initial 24-25 month period, the sales agent often has to repay all or a percentage of the commission amount. “Renewal commissions” subsequent to the first year commissions are comparatively meager relative to the first year heap, so there is an incentive to some agents to “replace” term insurance policies that are over 2 years since inception. While the commission structure for whole life type policies is heaped in a similar manner as term, inducement to replacement is generally in the direction of whole life type to term – sometimes justified; however, often unjustified. If any insurance agent suggests replacement of a whole life type policy with term, I strongly suggest that you obtain a second and even a third opinion. You deserve to have the second and perhaps the third opinion before agreeing to sign an application for a term insurance policy to replace a whole life type policy.
Having noted all the above, there are convincing and valid counter arguments to the argument noted above. The validity of the above argument and of valid counter arguments depends on the specifics of each and every individual case. This includes the amount of life insurance actually needed now and projected for the future **, the ability of the person to safely and comfortably afford to pay the premiums year after year *** and other financial planning considerations. There is no answer to the question of “term” vs “permanent” other than that the consumer should consult with a knowledgeable, and LifeGuide equipped independent broker who has the consumer’s interest as first and foremost. Don’t be shy to ask the broker to provide you with a LifeGuide market survey, and a LifeGuide side-by-side MontAge spreadsheet comparison of options. If the broker is really shopping the market (s)he will be glad to provide you with the LifeGuide market survey and comparisons bearing his or her name. If not, find one who will.
A couple of additional “tips”:
In reference to the sentence marked with ** above: Inflation is cyclical. Presently, it is at or near the bottom of the cycle and eventually it will go back up. Some writers suggest that you will need less life insurance in later years when the kids are grown up, the mortgage is paid, etc. While perhaps having some truth in theory, such suggestions assume zero inflation forever, and hence the flaw in the argument. If you keep the number of dollars of life insurance coverage constant (“level”), and keeping inflation in mind, the actual purchasing power of those dollars declines because of inflation. For example, assuming only a 3% yearly inflation rate, the purchasing power of $1,000,000 will decline to only $553,676 twenty years from now. For a 40-yar old, purchasing $1,000,000 of life insurance today, and at a 3% annual inflation rate, the purchasing power of that million dollars will only be equivalent to $477,606 by the time (s)he retires at age 65. If retirement happens at age 71, (assuming the same inflation rate), the value of that $1,000,000 drops to under $400,000 in terms of the present value of money. Also keep in mind that “topping up” deficiencies in coverage becomes more difficult and more expensive as your age increases. By age 80, as noted earlier, you are more or less SOL with only “TV stuff” perhaps available at exorbitant prices.
In reference to the sentence marked with *** above: With the exception of Universal Life type policies, budget to pay your life insurance yearly rather than to finance these on the monthly installment premium payment frequency. The large majority of insurance companies charge a rate above 18% APR to finance life insurance premiums on the monthly installment basis. Unless you have poor credit, you can borrow money at notably lower rates.
If you wish, I’ll be pleased to present the counter arguments to the arguments that I made above. Let me know if you are interested in reading those counter arguments.
AM
When you’re 50, 55, 60, or over, then life insurance is more important than ever.Though it may look grim, knowing which policy is right for your will help you save on over 50 years old life insurance.Over 50 years old life insurance will often be more expensive than insurance for younger clients. An increase in age makes a client more of a risk for the company, a risk that can be covered with increased premiums. A whole life insurance policy is perfect to cover any individual. Senior may find procuring a whole life policy to be more difficult, but it can be done.
Excellent points Ami – thanks for sharing.
Chantal, this is well put, particularly the 4th example “Buying Direct Versus Through a Life Insurance Broker”. In nearly all cases, a LifeGuide equipped broker can deliver significantly better value, lower overall costs, as well as a contract that is better suited for the buyer’s need and circumstance. This is so not only in comparison with the offerings of so called “direct sellers” but also in comparison with the figures shown at many of the so called online term life insurance shopping sites.
Moreover, the validity of the contract attesting coverage depends to a large extent on the accuracy and completeness of the information provided on the application for coverage, and on pre-issue underwriting. Therefore, meticulous, full and detailed completion of the application form in consultation with a caring and consumer interest minded broker is more than highly advisable.
Thanks for the note. Whole Life Insurance is an effective way to solve Permanent life insurance needs.
It’s probably a very good thing you didn’t cancel your policy Whole Life and other Guaranteed Permanent Life rates have been rising in response to historically low interest rates. Moreover, your policy was taken out when you were younger so the rates were lower to begin with.
My sister-in-law who has been after me for years to cancel my Whole Life plan and replace it with a Term plan. What do you think? Is Whole Life Insurance a ripoff?