Buying Life Insurance the Safe Way: The 3 Most Common Mistakes

Posted on October 16, 2013 and updated December 2, 2013 in Life Insurance Canada News 4 min read
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For many people, buying life insurance can feel like a complicated and frustrating process, especially when there’s a lot riding on getting approved.

Clients are cynical and pessimistic when it comes to insurance, thinking insurance companies are looking for ways to deny your application or your claims so they don’t have to pay. In reality, this is not the case, but there are at least three ways applicants can shoot themselves in the foot when buying life insurance and not even realize that they’re harming their chances of approval or doing things to make their claim experience more difficult down the road.

Mis-stating the answers to questions on your application — This is the quickest way to get either your application or your claim denied. Many people answer no to a health question they should have answered yes to and their application is denied as a result. This most often happens because the applicant misunderstands the question. Take the case of Consuelo Hermogino. The Filipino immigrant’s insurance claim was denied and the premiums she had already paid were returned because she answered no to the question “Have you been to the doctor in the last six months?” when in fact she should have answered yes.

Either she did not understand the question, as English was her second language, or the appointment had simply slipped her mind. Her case underscores the importance of going over your insurance application with an experienced and seasoned broker who can explain the questions to you and help you answer them truthfully. Even if English is not your first language, many insurance brokerages have people in the office from a variety of different backgrounds who may be able to translate, or at least find somebody for you who can.

“You also have the broker going to bat for you. If you buy a plan direct, you don’t really have anyone who’s going to advocate for you and try and push it,” said LSM Insurance president Chantal Marr when she heard about Hermogino’s case.

“If you go to a broker with a very good relationship with the insurance company, he may be able to sway the people in the claims department. He also may be able to offer more insight into what happened,” she added.

Buying Creditor Insurance — Creditor insurance or mortgage insurance is sold as a policy meant to pay off your mortgage in the event of your death. While it is beneficial for smokers because they end up paying the same as non-smokers, the insurance actually reduces as your mortgage goes down. Your family may not even be able to claim it because with most creditor insurance the underwriting is done at the time of claim, after you’ve already paid into it. If there are any health issues, you could be denied, and your family won’t know that until they need the money. You can find a more detailed analysis of creditor insurance by CBC Marketplace here.

Not Buying Enough Life Insurance There’s nothing worse than thinking you have enough life insurance to keep your family financially stable when you’re gone, but when you do pass away, your family finds you don’t have enough for what they need to pay for. To avoid this potentially dire situation, go to our Needs Analysis Calculator and see if you have enough life insurance, or need more. If you have already qualified for a traditional life insurance policy, perhaps you might consider topping up you existing policy with a guaranteed-issue policy. A guaranteed-issue policy will get you coverage automatically, since there are no health questions and no medical tests between you and approval. However, the premiums are more expensive than traditional insurance, and less coverage is available. Still, you can use this option as a last resort or in conjunction with traditional life insurance.

If you try to stay away from these three mistakes, you’ll be able to eliminate almost all the possible instances of decline and obtain the coverage you need.
 

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Donna Ziebell
Donna Ziebell

Always have your insurance reviewed with your agent to make sure you understand what you have purchased. Sometimes, things change and the agent needs to know so you are covered correctly. Don’t be afraid to bring the policy out and have it reviewed with your agent. That is what a good agent should do review with you frequently.

LSM Insurance
LSM Insurance

Thanks Donna. You make a great point. Life Insurance needs change as peoples lives change. When people gey married, divorced, have a child, changed jobs and move into a new home. These are all life events that often cause changes in the insured’s life insurance needs.

Bal Rana
Bal Rana

Does not have to be complicated… Always work with an Advisor.

LSM Insurance
LSM Insurance

Good point Bal.

Dominque F
Dominque F

If that you do buy such a life insurance policy and pass on within two years, most policies call for the organization to essentially give back where its due you paid. That means provided that you are exceptionally sick and don’t hope to carry on quite a while, this could be only a waste of energy.

LSM Insurance
LSM Insurance

Hi Dominque, I believe you are referring to a graded or deferred type policy. Most people in good health and even some people with serious health issues can qualify for a Traditional Life Insurance or Simplified Issue Life Insurance which pays out on an immediate pay basis.

LSM Insurance
LSM Insurance

Thanks Ed. You’re right Guaranteed Issue life insurance should only bought as a last resort. Too many people who could qualify for Simplified Issue or Traditional life insurance are applying for these plans.

LSM Insurance
LSM Insurance

Buying a guaranteed issue life insurance plan. especially the ones you get through the mail from …

Term Life Online
Term Life Online

Chantal, you make some good points about common mistakes people make when buying life insurance. I would like to add that paying too much for your life insurance is another common mistake. If you apply for life insurance with an agent from one single company, you may lose out on finding a better deal from other insurers. That’s why using an independent life insurance agent with access to multiple insurers may be a good idea, if you want to find the most affordable life insurance plan.

LSM Insurance
LSM Insurance

Thanks – agreed using a broker with access to multiple companies is crucial.