LIFE INSURANCE

Modern life insurance policies were established in the United Kingdom in the early 18th century. As it did in 18th century England, life insurance today provides a cash death benefit in the event of death. The vast majority of people (especially those with dependents) require life insurance above and beyond what the typical pittance offered by employers. A premature death almost inevitably leads to financial hardship for the survivors.

Below is information on various types of insurance.

  • Term Life Insurance
  • Creditor (Mortgage) Insurance
  • Life insurance for new immigrants
  • Non-medical life insurance
  • Manulife Vitality
  • Permanent Life Insurance
  • Term 100
  • Universal Life Insurance
  • Whole Life Insurance
  • Living Benefits Insurance
  • Critical Illness Insurance
  • Disability Insurance

Term life insurance is the most affordable kind of life insurance; a large death benefit can be acquired at relatively little cost. Premiums are level for a fixed term at which point they increase. The coverage will eventually expire, usually at age 80 or 85. Term insurance is primarily used to pay off debts (especially a mortgage, refer below) and replace an income for dependents in the event of one’s premature demise. Businesses may also use term insurance to replace a key employee or buy out the estate of a deceased partner.

Creditor insurance is a terrible insurance product for many reasons. To name a few:

Cost: it is typically 30-40% more expensive than a private term life insurance policy.

Many claims are denied: Creditor actually underwritten at time of claim often leading to the lenders insurer finding a reason or technicality to deny the claim. In contrast, less than 1 in 500 private claims are denied (source Manulife).

The bank, if the coverage pays, is the beneficiary of the policy – not the family.

If you change banks you may have to re-qualify at the new financial institution – what if your health has changed and you can’t get coverage? Remember, life insurance is a privilege not a right.

The coverage is ‘decreasing term’. This means that every time you make a payment that the death benefit decreases but the premium does not.

Are you new to Canada? You may be insurable faster than you think.

Permanent residents

People with PR are eligible for insurance with any company just like Canadian citizens. The only caveat to this may be if you are planning on leaving Canada permanently. That being said, if you are planning on staying in Canada and life takes you elsewhere, your insurance should still be valid.

Let’s look at the various categories of immigrants/visas:

Have you been declined for life insurance? Non-medical insurance may work for you. But tread cautiously and work with an honest and experienced broker.

An industry adage is that life insurance is a privilege not a right. It can be difficult to get if you have any health issues.

Non-medical insurance is life insurance that is issued without a medical exam. You just need to able to answer “no” to a series of questions. Generally it’s 150% to 300% more in premium than a medically underwritten plan. For this reason if you can qualify for a medically underwritten plan this is a better option. But it not, there’s non-medical to fall back on.

Manulife Vitality is a term life insurance product offered by Manulife. It has all the standard features of a regular term life policy plus rewards tied to healthy living.

By tracking exercise (even standing hours) the insured gets rewards: discounted life insurance premiums, Amazon gift cards, Apple watch financing and even discounted nights at www.hotels.com.

To be frank, the idea is that healthier people don’t die as often so the insurer pays out less in claims. The insurer in incented to reward healthy people. It’s a win-win this way.

In contrast to term insurance, permanent insurance does not have an expiration date. The policy will pay out upon death at any age. Permanent insurance is considered analogous to buying and acquiring an asset because an eventual payout is guaranteed when the insured passes away. Term insurance on the other hand is often considered renting because the vast majority of the time a payout and return of premium never occurs. For this reason, term insurance is much cheaper than permanent insurance. As the cost of permanent insurance can be prohibitive, many of our clients opt to acquire a combination of term insurance to meet their short and mid-term needs and permanent insurance to meet their long term needs.

Permanent insurance can serve several purposes. The simplest purpose is final expenses: dying is expensive and a small permanent policy can provide money for funeral and estate costs. Other times, permanent insurance is used to fund capital gains liabilities on death such as taxes on a recreational property or a family owned business. Permanent insurance can also be used to shelter investments from taxation.

There are effectively 3 kinds of permanent insurance: term 100, universal life, and whole life.

This is a very confusing and misleading name for what is actually a very simple policy. The policy is almost always permanent and does NOT expire at age 100. The 100 rather means that if the insured lives beyond age 100, premiums are no longer required, but on death the policy will still pay out. The insured simply pays into the policy until they pass away at which point the death benefit pays out. Premiums never increase and coverage never expires. This is the simplest and cheapest form of permanent insurance.

UL is permanent usually with level premiums for the duration of the life of the insured. With level cost, UL premiums do not increase and the coverage does not expire. UL can also have an investment component to it that grows on a tax sheltered basis. Due to historically low interest rates we have seen UL premiums increase over the past few years. Therefore it is not as popular as it once was but may be a good fit for the right person.

Whole life insurance comes in many shapes and sizes and can accrue substantial guaranteed cash values over time. Many people invest in a whole life policy because contrary to the markets, the dividends are very stable. Like RRSPs and TFSAs, investing in a whole life policy also offers major tax advantages. Whole life is very popular at the moment and many people are using it to supplement their investment portfolio.

LB insurance provides a benefit in the event of serious illness or injury. Without adequate preparation, a critical illness or injury usually leads to financial hardship. Survivable illnesses and injuries are far more common than premature death and therefore, the financial risk needs to be covered. Some statistics to consider: by age 65, a healthy 30 year couple has a combined 62% likelihood of long term disability, 41% of a critical illness and 12% chance of death.

There are two primary kinds of insurance to protect against illness or injury: critical illness insurance and disability insurance

Critical illness insurance pays out a lump sum of tax free cash 30 days after diagnosis of a serious illness. More than one quarter of people will suffer a critical illness before age 65. There are a host of covered conditions with the vast majority of claims being for cancer, heart attack or stroke. The funds can be used to take time off work to focus on recovery or to seek private medical treatment.

More than one in three adults will suffer a serious disability before age 65. Contrary to the cliché, our single biggest asset is not usually our home but rather our ability to earn an income. Disability insurance pays a monthly benefit in the event that one is unable to work due to illness or injury. Some people may have adequate disability insurance through their employer but those who do not need to consider a private policy.