Of the less that half of Canadian families that have life insurance, very few do an insurance review on a regular basis. Most policies sit in a filing cabinet gathering dust and ignored until someone passes away.
Most Canadians today are more concerned about outliving their money than dying prematurely. Unfortunately, many fail to appreciate the randomness of sickness and death, and without proper life insurance coverage, 2/3rds of Canadian households would be struggling financially within a month or two if a family income earner was to pass away.
Fortunately, a large amount of coverage can be purchased very economically. For instance, a healthy thirty year old couple can have a $1 million each of 20 year term coverage for $106 total a month. This is probably less that many pay to insure their vehicles. For most families, a million dollars would pay off the family’s debt with some funds left over.
Some tips: Whenever considering term insurance, it’s important to choose a product that can be converted to permanent coverage sometime in the future. If your health should fail, you are still guaranteed some future coverage without requiring medical underwriting.
Tell the truth and don’t leave out details when applying for coverage. Life insurance companies can deny a claim during the first two years if some material fact was not disclosed on the application.
Be aware of the limitations of creditor insurance: These “policies” only protect the lender by paying off the remaining mortgage or loan balance. They cannot be transferred if you get a better mortgage rate offer somewhere else, and are no good once the debt is paid off. However, the biggest risk is that the company can and will deny the claim if they can find some material fact was not disclosed on the application.
Selling vs planning: Watch out for universal life policies with ART or YRT (annual or yearly renewable term cost). These are seemingly cheap initially and the growing cash value looks attractive. But the premiums increase every year and eventually eat up the cash value. I have run across a significant number of these plans sold to farm families for estate conservation or equalisation. When reviewed with the family they are shocked to see that the projected cash value disappears very quickly and the premiums become ever more expensive, with the result they eventually cancel the policy and lose the coverage. If this sounds like your situation, have your agent go to the carrier and request a quote to convert your policy to a new level cost plan without underwriting. This is also a good time review your coverage and shop around and see what other companies can offer on a new policy. The one consideration here though is, are you still insurable or will you now be rated due to health issues?
Be wary of agents who only offer products from one company. An insurance broker can help you find the best fit by surveying a range of companies for the best coverage at the least cost.
Sit down for an insurance review with a trusted financial advisor, as substantial premium increases can happen automatically. Find out if the coverage you have still meets your needs and is good value, or if there has been a change in your situation that requires some different planning.
Image licensed through Shutterstock