Life insurance is a great safety net for your family and an important part of financial planning, but where do you start? Understanding your insurance needs and buying the right policy for you can be tricky. This video was recorded in 2008, but the information is just as relevant and important today.
Here are some things to consider when shopping for life insurance.
Look for a company that is part of Assuris, the non-profit organization responsible for protecting Canadian policyholders. When a life insurance company goes under, Assuris minimizes the loss of benefits and arranges a quick policy transfer to a stable company, where up to $200 000 of your death benefits will remain in force. If your insurance companies is not a member of Assuris, you lose everything.
A Term Life policy covers you for the “term” or length of the policy. With a term policy, the premium starts low then rises as you get older. The average term policy can go up four times on a ten year policy and ten times on a twenty year term. Many companies now offer policies with level premiums for the duration, referred to as “level term” policies. While the premiums stay the same for the length of the policy, once this time expires the premium increases significantly. A term life policy has no cash value. Most term policies can be converted to a permanent policy regardless of any changes to your health.
With a Permanent Life policy, the premiums start much higher, but you have coverage for life, that is why it is often called whole life insurance. Plus, it has the added benefit of accumulating cash value. Permanent insurance premiums are usually guaranteed when you first buy the policy. Some plans allow you to pay for a set number of years and then never make another payment – your policy is paid in full. Universal and Participating are other forms of permanent life insurance that you may want to consider.
Insurance policies usually have some exclusions and limitations, that is why it is important to always read the fine print. For example, if you travel to places considered “hot spots” like parts of the middle east, and die while in that region, you may not be covered. The most common life insurance exclusions include:
There are all types of other exclusions, such as death as a result of drug or alcohol abuse. Make sure you understand all of the exclusions in your policy.
People with illnesses such as diabetes or high blood pressure, not under control, may be declined for life insurance or have to pay an extra premium. However, if a policy is issued before you are diagnosed with such an illness, the company usually cannot cancel your policy or increase your rate until the current policy expires. If you are issued a policy with added premiums, but then get your condition under control, the company may remove the extra premium or make other modifications to your policy.
People declined life insurance for medical reasons may qualify for specialty coverage like critical illness insurance or guaranteed-issue life insurance. Keep in mind, these types of insurance come with hefty premiums. In general, any high risk applicant can expect to pay more than an average consumer in good health and living a stable lifestyle. The amount you pay or the amount of the added premium depends on the insurance company’s rating system, which includes several variables, such as:
Type 2 diabetes is usually easier to control and has lower risk factors than Type 1, therefore added premiums tend to be more affordable. But, it all depends on how well the condition is managed. The same is true for people with high blood pressure. Uncontrolled, high blood pressure can lead to all types of other problems such as heart disease, stroke and other cardiovascular complications.
One of the most important considerations is what type of life insurance policy is right for you. Sales representatives can help, but no one understands your financial circumstances better than you do. Plus, sales representatives are trained to sell large policies, which may be more than you need. However, this doesn’t mean you should buy life insurance through a bank or trust company. In these cases, you will be dealing with an employee and not a certified broker. If you switch banks, your insurance policy may be canceled.
