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How to buy life insurance in 2020

Getting You Started

Are you confused about the choices you need to make when buying life insurance?

You are not alone, for most Canadians, Life Insurance is not a common purchase. It’s not typically something you can ask your friends and family about. My goal is to give you a guide to purchasing life insurance with confidence and without regrets.

You know that having life insurance is a good idea but not everyone has it. It could be a scary thing to talk about…

People typically look into it because of some recent change, like:

  • Buying  Home,
  • Having a baby,
  • A job change,
  • A new relationship,
  • Or unfortunately because they’ve witnessed a recent loss.

Trying to figure out why they are shopping for life insurance, I ask all of my clients why they think life insurance is a good idea or what’s got them thinking about it.

The answers typically boil down to one answer.

They buy life insurance out care for loved ones and making sure they are looked after.

Yep…even the ones who are asking me for help with business or corporate life insurance plans.

They want the business floating and doing well so that it can be transferred to their loved ones at the right value.

Regardless of your reason, if you’re looking into life insurance, this guide is for you.

This Guide Will Answer The Following Questions

Why Do you Need Life Insurance? Who Needs it?

Before we get into specifics, let’s look at the principles behind the “need” for life insurance.

When used correctly, Life insurance can be used for:

PROTECTION
Life Insurance is used to cover uncertainty provide for your family. In case of early death, it's designed to pay off liabilities or replace your income.
CASH FLOW
Life Insurance can used to create tax-free income source in retirement. This is ideal for those who have high tax rates.
ESTATE MAXIMAZATION
Life Insurance can be used to multiply the possible estate you would leave behind with your heirs. It's typically used to provide for charities, leave a gift to a loved one or settle taxes.

You probably think of life insurance simply just as a protection plan. This guide will focus mainly on using it for protection, but if you’re curious, here is another article that discusses the other uses of insurance in in detail.

 

Before I point out why others may need Life Insurance…

 let me talk about the main reason I have a sizable life insurance policies. 

It is because of my family.

 I have financial dependents who I want to secure should I pass away early. 

I have two lovely children who are both minors and my wife and I have multiple mortgages for our rental properties and our home. We are blessed to live a life we enjoy and we provide what we can to our kids and that required both incomes from my wife and me.

If that sounds similar to you, then I don’t really need to explain why you’d want life insurance right?

 

You Need Life Insurance For Income Replacement.

If you’re gone, so is your income.

So your life insurance must provide a large enough nest egg to create an income which would replace a percentage of income your family would lose.

After all, most households, require a dual income to maintain the family’s standard of living.

This applies to you if you both of your incomes are needed to maintain the lifestyle that your family enjoys, even if you have no children yet.

If both you and your spouse need to work to pay the bills, you are financially dependent on each other.

Check Issuing Concept

You Need Life Insurance If You Have a Mortgage on Your Home.

Life insurance conversations about mortgages used to be associated to the young family buying their first home, however that is not longer the case. 

More and more Canadians carry Mortgages into their retirement, it’s certainly a new normal here in Calgary, where my practice is located. 

I would say it’s even more important to have enough life insurance for your mortgage in retirement because your spouse is likely on a fixed pension income.

The banks, “strongly suggest” that you take out a mortgage insurance policy when you sign the mortgage application, after all, it’s a good idea to make sure, your family does not have to sell the home if you pass away while there is still a loan on your home. 

They can’t say it’s mandatory, but it sure feels like you have to buy the policy from the lender.  

However, these policies automatically pay the bank and not your family, so it’s a product that protects them, but you pay for it.

If you have a mortgage on your home, you should really look into having a personally owned life insurance plan. Otherwise, you could be overpaying for sub-par coverage. This article comparing life insurance and mortgage insurance breaks down why mortgage insurance is not for you.

Term Life Insurance Is better than mortgage insurance

You Need Life Insurance If You Have Debts

Closeup of credit cards

Though creditors cannot go after your loved ones for your personal debt, they can go after your estate.

So if you have any liabilities, and you have assets that you’d want to leave to your family, they’d likely have to pay for the debts in order for them to receive your gifts otherwise the assets themselves must be sold.

This is a common concern when valuable heirlooms, art, and family estates are given as an inheritance because they are likely being passed down for keeping and not liquidation.

If Your Parents Rely On You Financially, you need to buy them Life Insurance.

I used to think that it was a cultural norm for Filipinos (I am Filipino) to look after their parents in their old age, but I have noticed that this has become a financial norm, for Canadians at large.

What was once inspired by reciprocity will soon be born of necessity.

Making sure that their final expenses are looked after in advance using life insurance, is significantly cheaper than funeral arrangements. You can also read more about using life insurance for parents and grandparents as an intergenerational wealth-building tool here.

Daughter vising parents

These are some of the key reasons why my clients approach me for life insurance. here is an article that goes into further detail why you may need to look into life insurance.

How Much Life Insurance Do You need?

When you look at life insurance quotes or offers it’s usually at hundreds of thousands or even a few million dollars and you may wonder why you’d ever need so much.

For most of us, it’ll be hard to grasp why we would need such a big amount since we likely have never seen these amounts in our accounts before.

However, any financial advisor worth your while will walk you through a Financial Needs Analysis which would put all the numbers in perspective. 

I still meet clients who would refuse this and just demand a policy covering them for X amount because that’s what their friends or family have…

Before I get to the calculation, I want to share a little PUBLIC SERVICE ANNOUNCEMENT.

Be careful asking your friends about how much life insurance they have. 

They most certainly have your best intention at heart…

But they might not have the right amount for them, let alone your situation.

4 Steps to Calculate How Much Life Insurance You Need

I typically use a financial planning calculator to show my clients a more precise calculation. 

But, nothing beats a simple back of napkin math when simplifying things for people.

Let me introduce you to the DIME calculation. It’s an acronym for DEBTS. INCOME. MORTGAGE and ESTATE. 

You add all of these and you get your total insurance needs.

You need to do some simple math in each subsection. I suggest doing this yourself before you even contact a life insurance agent.

Debts: Using Life Insurance to Make Sure You Don't Leave Your Family With Debt.

Add any outstanding non-mortgage debts that you need to clear.

Note that if you are planning to do this for your family, make sure you add up all debts that you and your spouse have. 

What Typically falls in this List:

  • Credit Cards (Balances)

  • Line of Credits

  • Car Loans

  • Student Loans

  • Personal Loans

  • Business Loans

EXAMPLE:

Assuming all you have in outstanding loans is a small car loan balance of $10,000, your total for this section is $10,000. 

Remember,

you want your life insurance to give your family a fresh financial start.

So, anything debts that you’d want to be paid off so your family does not need to worry about it later must be added here.

Income: Calculate How Much Capital You Need to Replace Your Current Income From Life Insurance Proceeds.

If I had to pick only one thing, I wish all the readers take away from this guide, is it’s this section.

You absolutely must have enough life insurance to replace your income.

Your family’s lifestyle, their needs, the things they enjoy, is afforded by your income.  

You need to have an honest conversation with yourself and figure out what kind of lifestyle you’d want to provide your loved ones if you’re not around to provide for them.

There is a simple 2 step rule of thumb to calculate how much capital is needed to fund your income replacement.

Step 1: Multiply Your Gross Income (Pre-Tax) by 70%

Step 2: Multiply that by the number of years you need your income replaced.

EXAMPLE:

If you are earning $60,000 Per year and you want to provide for your family until your 7-year-old Graduates from college.


Step 1: You would Multiply that $60,000 by .7 or $42,000

Step 2: If Undergrads typically finish at 23-25, that means your income needs to be around for another 16 Years. So your total income replacement need would be ($16X42,000) or $672,000

Additional Notes About This Income Replacement Calculation For Life Insurance:

The 70% Factor assumes that there is a reduction of expenses in the household, mainly because you’re creating a plan that pays for the mortgage, which is likely the biggest household expense.

This also appears to ignore inflation and the investment returns that the funds would generate, however, if the funds are invested in a conservative manner, it would have sufficient returns to keep pace with inflation.

It also can’t be invested in a plan that relies heavily on market-driven assets such as stocks and equity funds because this fund is meant for annual distribution.

I go into more depth with this investment assumption with the customized proposals, please remember that this is a simplified guide.

Mortgage: Paying Your Mortgage and Making Sure That Your Family Can Keep The Home Using Life Insurance.

Woohoo! Finally an easy one. 

Simply take the outstanding balance of your mortgage or mortgages and list it here

Mortgage (Primary Residence)

Mortgage (Vacation Homes)

Mortgage for Rental or Investment Properties

EXAMPLE:

If you have just taken out a $450,000 mortgage on a new home, that’s all you would put.

 

Why should I Separate Mortgages From The Other Debts?

Mortgages are long term liabilities while most of the items listed in the section for debts would have a payment schedule under 10 years. Later in this guide, I’ll go over why that is important.

What I Have a Home Equity Line Of Credit Instead of a Mortgage?

Unless you have a solid plan in place to pay the line of credit off in less than 10 Years, It would likely still be a long-term debt just like a mortgage. It would be wise to put that in the mortgage section of your life insurance needs calculation.

Estate: Using Life Insurance to Grand Your Estate Wishes and Maximize Your Plans.


You may have a weird association with the word Estate, it seems like the type of thing your rich uncle in bel-air would have.

An Estate is simply the legal term for EVERYTHING you leave behind. You can have a five-dollar estate or a five million dollar estate.

But don’t let it intimidate you, this portion is simply any wish you want to be fulfilled when you pass away.

When that’s done, add $25,000 for final expenses (Funeral, Burial, and Other Fees)

This is will be very specific to you but here are some common requests for estate plans: 

 

  • Give $100,000 to my favorite Charity
  • Give $50,000 to my church
  • Give $500,000 to my son/daughter
  • Give enough to pay for my grandchildren’s college
  • Pay the taxes for the cottage so my kids don’t have to sell it.

     

EXAMPLE:

Building on the above-mentioned case, assuming you have a son.

Maybe want to leave $100,000 for your son’s education funding or to help him get started, you would add that to your Estate Wished.

Your total for this section is $125,000. This is including the $25,000 for final and funeral expenses.

 

That list is by no means complete, but that should give you an idea.

Instead of these amounts being tied to a need, it appeals to those who have bigger desires.

Desires such as helping the next generation get started, fund a charitable cause or something as simple as funding a vacation. 

This will require your own imagination. If you’re curious, here is an article about using life insurance for estate planning and charitable giving.

Add All of It Up to complete your total Life Insurance Needs Calculation.

Once you’ve completed each section, you add them all up and that would be the total required insurance need. If you have any existing insurance you would subtract it from this total. 

Pro-Tip

1.) I would suggest you exclude coverage you do not own directly, such as group benefits from work or an association because those can be modified at any time.

2.) Ask for the consolidated quote total, it may be cheaper to get a new policy than to keep two separate policies.

If you had any existing life insurance you would then take it off this total. So if you already have $100,000 policy that you own, your total need would be $1,157,000.

Here’s a printable worksheet and calculator if you’re inclined to do a manual calculation for your own case:

 

How Much Does Life Insurance Cost?

There are several factors driving the cost of life insurance. This is where experts like my team and I can help create a plan the gives you the most value for your premium.

You can simply click here to run some life insurance quotes.

I suggest you read on so you can get a better understanding of the process and know exactly why your premiums may be more or less expensive compared to others.

The premiums you pay are typically determined by how risky the life insurance company perceives your case to be.

Because life insurance pays out if you die, their biggest concern are factors that would affect mortality.

Here are some factors we help our clients navigate when getting policies that are tailored to them:

Gender Affects Life Insurance Premiums.

Men, will pay more than women do as we have a higher mortality rate. (We die sooner) Therefore a higher risk to life insurance companies.

It’s important to note that some life insurance carriers have a blended rate or an average rate. This may be good for men, but it ends up charging ladies more.

The Younger You Are The Lower Life Insurance Premiums You Pay.

Life Insurance gets more expensive with age, that’s why it’s a good idea to get this done while you’re younger.

Smokers Pay More In Life Insurance Premiums.

Smokers will pay a multiple of what non-smokers pay. This is because of all the diseases which have been proven to be caused by smoking.

Life insurance companies have different definitions of smokers. It’s important that you disclose the frequency, amount and type of smoking product you use because you may be considered non-smoker. 

Your Current Health Concerns May Increase Your Life Insurance Premiums if It Does Not Disqualify You.

Your personal health history will play a huge part in your final premiums.

Not all life insurance carriers look at health conditions the same way some may consider your condition normal and manageable while another will rate you (charge you extra) or even refuse to give you coverage.

If you have any health concerns, it’s best to work with me directly or an insurance broker because any online or preliminary quote will be inaccurate.

Don’t Waste Your Time BOOK a Consultation NOW!

Your Dangerous Hobby Increases Life Insurance Premiums.

If you have extreme skills and hobbies that would put you on the next Redbull commercial, it’s likely that you’d pay more for life insurance. 

Any activity that could increase the chances of injury should be noted. A life insurance company may even reject your application or refuse to give you coverage if your death is caused by a dangerous activity. 

Your Work Can Affect Your Insurance Premiums.

The type of dangers you face at work would play a role in getting you approved and ultimately the premiums you pay for a life insurance policy.

An office clerk who battles papercuts daily, will not pay the same as somebody who handles explosives triggering controlled avalanches in the Rockies.

Sample Life Insurance Quotes

In case you were freaking out about how much life insurance would cost, here are some calculations based on our current example of needing $1,257,000 of life insurance coverage.

The table breaks down the cost for 30,35,40,45, and 50 year old male and female. It Also compares the cost difference between 10 and 20 Year Term Options. If you don’t know what that is, that is how long your policy price is locked in for before renewal or expiry.

 

AgeTerm 10 MaleTerm 10 FemaleTerm 20 MaleTerm 20 Female
30$48.63$30.51$71.02$48.39
35$47.38$34.81$72.72$54.05
40$63.34$45.00$112.87$80.07
45$100.30$67.52$185.28$126.48
50$161.03$109.72$315.16$206.05

These quotes are pulled using updated software in December 2019. By the time you are reading this article, it may no longer be accurate. Use the free quoting tool to give yourself an updated and customized quote 

Graph Showing Increasing cost of life insurance due to age. Coverage is set to $1,257,000

What if I can’t afford or I’m unwilling to pay the premiums for the recommended life insurance amount?

Simply ask for a lower amount of coverage or opt for a shorter term. 

Look at the $500,000 and 1 Million dollar sample premium below and see how they stack up. 

Having some insurance is much better than having none at all.

Sample Quotes for $1,000,000

AgeTerm 10 MaleTerm 10 FemaleTerm 20 MaleTerm 20 Female
30$39.15$25.65$57.60$39.60
35$38.43$28.80$58.59$44.10
40$50.85$36.45$90.90$64.80
45$80.39$54.45$148.50$101.21
50$128.70$87.89$251.46$164.52
Monthly Life Insurance Premiums Term 20 $1,000,000 Of Coverage

These quotes are pulled using updated software in December 2019. By the time you are reading this article, it may no longer be accurate. Use the free quoting tool to give yourself an updated and customized quote 

Sample Quotes for $500,000

AgeTerm 10 MaleTerm 10 FemaleTerm 20 MaleTerm 20 Female
30$21.66$16.20$30.60$22.08
35$22.08$17.08$32.85$25.20
40$27.49$20.25$47.90$34.57
45$41.65$29.25$75.60$52.07
50$65.81$45.40$129.12$83.72
Monthly Life Insurance Premiums Term 20 $500,000 Of Coverage

These quotes are pulled using updated software in December 2019. By the time you are reading this article, it may no longer be accurate. Use the free quoting tool to give yourself an updated and customized quote 

What Types of Life Insurance Are Available in Canada?

When you really narrow it down, there are 2 main types of insurance available to Canadians.

TERM LIFE INSURANCE

LOW COST TO START
TERM LIFE INSURANCE: This is the most affordable and most simple way to start for most Canadians. You know your premiums, your coverage and how long that is locked in for.
EXPENSIVE TO KEEP LONG TERM
TERM LIFE INSURANCE: The premiums increase significantly after each renewal. If you keep it long enough, you may end up paying 5-10 times your original premiums.

Term Life is the most affordable type of life insurance, it is also the easiest to understand

The word “term” refers to the length of the policy contract.

“Term 10” life insurance would mean that this contract, at this coverage and at this price will be valid for 10 years. 

“Term 20” life insurance would mean that this contract, at this coverage and at this price will be valid for 20 years. 

This solution is ideal for temporary needs, or needs that have a predetermined expiry. Why keep paying premiums when you no longer need it insured?

Some examples are:

  • CHILDREN’S EDUCATION FUNDING

  • CAR LOANS AND CREDIT CARDS

  • PERSONAL OR BUSINESS DEBTS

  • MORTGAGES

Consider Term Life Insurance if your budget is a concern and if you know exactly when the obligations go away.

 

 

Pro-Tip

Even if you end up purchasing a term life insurance policy, make sure you get it from a life insurance carrier that has the following options:

Guaranteed Renewable: This means that when you hit your term, you don’t automatically lose your coverage. This means the coverage will automatically renew for another term. If you have a term 10 policy, it will insure you for another 10 years without having to apply for coverage again.

Guaranteed Convertible: I call this “the policy trade-in” this gives you the option to upgrade your term policy to a cash-value permanent life insurance policy. 

Your agent should give you some insight as to what options you would have to upgrade to if you later decide that you want to change your term policy to a permanent plan.

This assumes that the insurance carrier they are suggesting as permanent life insurance options.

Buyer Beware!

Some term only carriers are cheaper for a reason, they can provide lower premiums because they have no intention of maintaining long term plans that guarantee that there will be a payment to your family or estate.

To keep reading about Term Life Insurance, Click Here

We offer a range of Term Life Insurance Plans from top Canadian insurance providers, making sure we give you choices, you also have qualified advice to help you make your choices.

PERMANENT LIFE INSURANCE

THIS POLICY WILL NEVER EXPIRE
Permanent Life Insurance: Unlike term life insurance, permanent life insurance policies do not expire. Most plans even have a guaranteed premium schedule that can be paid during your lifetime or a quick pay of 10,15 or 20 years.
HIGH COST TO START
PERMANENT INSURANCE: When compared to a term life insurance policy of the same coverage, permanent insurance is significantly more expensive. That is because this policy will not expire and will guarantee that there is a payment to your beneficiaries as long as the premiums are being paid or the policy has been paid-up.

Unlike Term Life Insurance, Permanent Life Insurance Policies provides Life Insurance coverage that DOES NOT EXPIRE. 

If structured correctly, permanent policies guarantee that premiums will never increase and that your loved ones or your favorite charity will get a TAX FREE benefit.

 True Permanent Life Insurance Policies also give you the flexibility in your payment options. This means you have the option of paying it over; YOUR LIFETIME, 10 YEARS, 15 YEARS, 20 YEARS or other accelerated time frames.

When properly structured, Permanent Life Insurance policies also have the ability to accumulate cash values that grow tax-free and could multiply the initial life insurance benefits.

The permanence and flexibility of growing cash values tax-free, making this ideal for:

  • Final or Burial Expenses
  • Creating or Multiplying inheritances
  • Leaving sizable donations to charities
  • An alternative savings vehicle for the highly taxed

 

Though permanent policies offer a better appeal for those who “don’t want to throw money away on term life insurance”. The added benefits also add complexity and present opportunity for misuse and could result in unintended consequences.

Let’s have a chat before considering permanent plans.  

We offer a range of Permanent Life Insurance Plans from top Canadian insurance providers, making sure you have choices, you also have qualified advice to help you make your choices.

 

What Is Better For You, Term or Permanent Life Insurance?

Cookies and Cream! 

 

Mike and Ike’s!

 

Chicken and Waffles!

Aside from revealing my sweet tooth, these 3 things have something in common? It’s the word… “AND” Can you imagine, getting ice cream and being asked between cookies or cream? What a tragedy that would be, at least for me. Well, my favorite treats and life insurance planning have something in common. The truth is, you need a little bit of both.
 It’s not Term OR Permanent, rather, the right plan has both Term and Permanent.

Your Own Situation Will Determine the right combination.

Remember DIME Calculation earlier? 

A part of the reason we categorized the needs, is that these needs have different time horizons.

the right insurance plan has a mix appropriate term and permanent protection. 

Without using any sophisticated Financial Planning tools you can make the following estimated needs.

Debts: Consider a Shorter Term Coverage.

I feel like I would lose your respect if I don’t say the following.

Other than mortgages, business and student loans, you should not be taking out loans you can’t pay in five years.

With that said…

Use a term 10 coverage for loans and debts.

Income: 10 Year or 20 Year Term Will Work Best.

This will be based strictly on how long your dependents need your income. 

In the case above, it’s needed for 16 years, so they would opt for a term 20. 

For parents with minor children, the most typical request is to have the income until they are adults. 

If your spouse earns a high enough income you may only need to account for 2 to 5 years.

If they are able to maintain your current lifestyle without your income, allocating a few year’s income 

until they make adjustments or until the kids are in school full time may be enough.

Mortgage: 20 Year or 25 Year Term Will Work Best.

Mortgage will be covered using either a 20 or 25-year term policy depending on the amortization or your pay off schedule.

Assuming you aim to pay this off in 20 years, you would choose a term 20

Estate Planning Requires Permanent Insurance.

Estate Plans by its very nature are gifts we want to leave behind regardless of our age. 

Therefore the most appropriate type of insurance would be the one you cannot outlive. 

Getting a permanent policy for this is most appropriate. 

This would mean $125,000 must be covered under a permanent plan.

Going Back To Our Example

Using a permanent policy would have been over-kill and extremely expensive. While using a Term 10 would have been cheaper, you’d likely pay more over time due to the renewals.

Here is an example for a combined policy.

 

With the right insurance carrier,

we can create a policy that builds in all of these tiers.

We can do this WITHOUT having to apply for separate policies. 

The benefit:

Having a plan that covers your estate and lifetime needs without having to pay for unneeded coverage.

There is also potential to convert the term policies later on.

 

 

How do I pick the right insurance company? How do I know what insurance company is best for me?

Companies almost always use the same language in their marketing, it makes it very hard to pick among them. 

They all make the same promises and use the same stock photos of beaches, lighthouses and sometimes they throw in the occasional boats. (YAWN). 

This section should help you choose.

Before I get to the tips for picking the best company for you… You should be happy to know that the life insurance regulations in Canada are fairly strict.

Life insurance companies must maintain a certain level of capital reserves to make sure that they can meet their obligations and pay claims.

This means most companies that have been around for many years have been able to stand up to these requirements and keep up with the competition.

This should give you some reassurance that should your family file a claim, it will likely be paid.

That said, it does not mean you should just go with the lowest priced offer if you are not sure about the company’s reputation.

Here are some things to consider when picking a life insurance company:

 

Ask Your Agent How Strong The Life Insurance Company Is.

A simple measure is by asking your broker for the company’s AM Best rating or AMB.

AMB is the only credit rating standard designed strictly for the insurance industry.

It’s similar to how your credit personal credit score works when applying for loans.

The better the score the more trustworthy you look to the bank.

Use the same measure here, the better the score the more confidence you can have with the insurance 

company’s ability to pay your claims.  

Ask How Long The Insurance Company Has Been Around

This may seem like a simple metric, but life insurance contracts are 10 years at the short end and could be around until you’re 100-years-old.

You want to work with a company that will likely be there to serve you and your family, decades down the road.

When you are insuring hundreds of thousands or millions of dollars, it’s probably prudent not to go with a new company.

One Caveat is companies could go through a re-brand. So if it’s a new company, ask if the company existed under another name. 

One of the most recent examples of this would be IVARI, which was Transamerica Life Insurance of Canada.

When the ownership changed, they went through a re-brand but much of the processes, products, and services were carried over.

Ask What the Company’s Claim Experience Is Like.

Depending on the amount of insurance, some companies have a simplified claims process, one of the quickest turnarounds I’ve seen has been less than 10 days for a claim that was higher than $500,000.

The issue here is, unless you are working for a broker, you won’t see a proper review of the claim process.

The people who would post about something like this are likely disgruntled individuals complaining about their situation.

Making the online posts for this heavily skewed towards the negative, regardless of which insurance carrier it is.

Consider Your Personal Goals

When you first start with life insurance, it’s probably easiest to look into term life insurance plans because of the cost and simplicity.

You know your premiums, you know your coverage, you know how long you’d be covered for. 

 

However, there is a strong chance that your plans will eventually change.

If you start a term policy with a company with only term insurance and no options for converting or modifying your coverage, you could find yourself stuck paying unreasonable premiums for each renewal. 

Make sure that the company offers Guaranteed Renewable and Guaranteed Convertible plans.

Want To See Our Life Insurance Reviews?

Click here to read our expert reviews on Canada’s top life insurance carriers.

What Additional Benefits or Riders Can I add to My Life Insurance Policy?

RIDERS are add-on coverage you can ask to put on your base policy. Even term insurance have riders that enhances the overall protection for your family and your wealth.

Not all insurance companies offer these, if any of these matters to you, it would likely guide which life insurance company you ultimately get a policy from.

Here are the 4 most common riders I get asked about:

Critical Illness Riders
Disability Insurance Riders
Children’s Life Insurance Riders
Guaranteed Insurability Riders

Critical Illness Rider

This will provide you with a tax-free lump-sum benefit if you are diagnosed with a covered illness.

You can use the funds to replace your income while recovering, supplement the additional expenses or simply check off any bucket list item you want. 

There are no guidelines for how you spend the benefit. 

There are only a handful of companies that offer critical illness in Canada, and not all that do will offer it as a rider on your life insurance plan.

There are a few variations for specific illnesses but these are commonly broken down into the full critical illness that covers 25 or more conditions or the core 4 illness coverage:

CORE FOUR ILLNESSES

Most Critical Illness Insurance claims arise from the following:

 

  • Stroke
  • Heart Attack
  • Cancer
  • Coronary Artery Bypass Surgery
 
Comprehensive List of Critical Illness Covered
 
Most companies would have 25+ conditions covered and others will subdivide classifications such cancer making their list longer while another company covers ALL cancers.
 
  • Acquired Brain Injury
  • Alzheimer’s disease
  • Aortic surgery
  • Aplastic anemia
  • Bacterial meningitis
  • Benign brain tumor
  • Blindness
  • Cancer (life-threatening)
  • Coma
  • Coronary artery- bypass surgery
  • Deafness
  • Heart attack
  • Heart valve replacement
  • Kidney failure
  • Loss of independent existence†
  • Loss of limbs
  • Loss of speech
  • Major organ transplant
  • Major organ failure on a waitlist
  • Motor neuron disease
  • Multiple sclerosis
  • Occupational HIV infection
  • Paralysis
  • Parkinson’s disease
  • Severe burns
  • Stroke (cerebrovascular accident)
 
 
 

Disability Insurance Rider

Disability insurance can be simplified as paycheck insurance.

It provides tax-free income if you are unable to work because of an accident or an illness.

Some policies cover accidents only while a full plan will cover both accidents and illness.

You can add this important coverage to your life insurance inexpensively.

For people with risky occupations, this is typically cheaper than getting a separate disability insurance plan.

 

Children's Life Insurance Rider

It provides life insurance coverage for your kids. This would typically be a nominal insurance amount from $15,000 to $25,000. Depending on the cost, most parents I work with, choose to have a separate policy for the kids with more coverage, benefits, and comparable costs.

Guaranteed Insurability Rider

This gives you the choice to increase your insurance without any medical requirements later.

However, if you think that your future needs will require additional insurance, check if you would get approved for the term 10 plan now. 

The cost of this rider may be similar, you might as well have the coverage today versus paying the premiums to have the coverage in the future.

Terminal Illness Rider

This benefit allows you to claim on a portion of a life insurance death benefit if you are diagnosed with a terminal illness. (Little to no chance of recovery). 

Some companies have this provision built in to the main contract at no cost.

This gives funding for treatment but it is often used to provide ease of life and comfort for the insured to benefit instead of waiting for the death benefit to pay the beneficiaries.

How do I buy Life Insurance?

I strongly suggest you work with a life insurance professional when you buy life insurance.

 

 

Admittedly, I’ve tried to create this site to make it as easy for Canadians to compare and purchase life insurance as possible. 

 

However, price alone is not going to help you decide what’s best for you and your family. 

 

 

The right life insurance advisor would walk you through the following process:

 

  1. Determine Why You Need Life Insurance.

  2. Determine How much Life Insurance You Need.

  3. Determine What Combination of Life Insurance Works for your plans today and tomorrow.

  4. Help you decide which company is best positioned to create a plan that addresses your Life Insurance Needs and Additional Benefits that matter to you.

  5. Walk you through the Underwriting or Approval Process to give you the best chance of approval and lowest rates possible.

  6. Make sure that the approved policy is structured as originally applied for or will make you aware of any modifications caused by the approval process. 

 

Steps 1-4 have been previously addressed by this guide while 5 and 6 are done through the underwriting process which will be addressed in the next section.

How Do I Get Approved? What Is the Life Insurance Underwriting Process?

Until you submit a complete application, all the premiums which have received are simply quotes.

Without going through a more detailed questionnaire, websites or agents simply don’t know enough about you to give you a guaranteed price.

Life Insurance companies must go through underwriting to protect themselves from insuring high-risk individuals. 

But you should also see it as a way to get discounted rates, the underwriting process is based on benchmarks and averages, if you take better care of yourself than most, you may qualify for a discount.

 

Potential Results of The Life Insurance Application.

When you go through the underwriting process it could have the following outcomes:

  • Elite- The best Discounted Rates

  • Preferred- Discounted Rates

  • Standard Standard Prices as Quoted.

  • Standard With Exclusions- Quoted Prices are honored but specific conditions are excluded. 
    Example: A skydiving instructor would have been declined life insurance unless skydiving is excluded from covered conditions. 

  • Rated- Extra Premiums are charged because of additional perceived risks such as existing health conditions or family history which increases your likelihood of filing for a claim. Ratings can be temporary or permanent.

  • Postponed- There is not enough information for the insurance company to give you a decision.
    This is typically because there is a pending medical exam scheduled in the future or a newly diagnosed health condition.
    These cases are typically reconsidered when there is enough new information from your doctor to give underwriters guidance.

  • Declined- The life insurance company is not willing to offer you life insurance coverage at this time.
    This can be appealed with more information just like a postponement but oftentimes this comes with no further reconsideration.
    The best course of action is to find the reason why and shop around.
    Different insurance companies have different guidelines and are willing to take on different levels of risk.
    A common example of this is the build charts insurance companies use, you may look obese to one company and normal to another.

How Do I Get The Best Deal On My Life Insurance Policy?

  1. Don’t buy what you don’t need. Just because your neighbors got a shiny policy with promised investment returns and tax-free retirement income options, does not mean you should get the same thing. If a term policy is what’s in your budget for the coverage you need, then stick to your guns and keep the term.
  2. Ask your agent about the renewal costs. I have seen quotes where prices are designed to win you today but charge you with annual renewal later on.
  3. Bundled Pricing Matters so Round-Up!.Life insurance costs are quoted at per $1000 of coverage. Higher amounts result in lower costs per $1000. I’ve seen cases where it was cheaper to get $500,000 than $425,000. Think of this as wholesale pricing at Costco vs. convenience stores, the per-unit pricing is better in bulk.
  4. Prepare for the Medical Underwriting. The better your health the better you feel. But this also helps your wallet. Eating right and having a regular exercise routine will help you qualify for better rates. Make sure you schedule the medical exam to appoint on a day when you will be well-rested and relaxed.
  5. Work with a Broker, not a Captive Agent. I have access to more than a dozen life insurance carriers, you can see the full list here. Having choice gives me to access the best rates and a variety of plans that will complement each other. Sometimes that means getting different policies from different companies for you and your spouse.

What Questions Should I ask my Life Insurance Broker?

What am I getting for the Extra Cost? Or Why is this so much cheaper?
What am I getting for the Extra Cost? Or Why is this so much cheaper?

What am I getting for the Extra Cost? Or Why is this so much cheaper?

Any insurance broker who if looking after your best interest will have a detailed understanding of each company and policy that goes beyond the price tag. If they are recommending policies purely on cost, they may not be looking into your situation deeply enough. 

Especially considering that you still have to go through underwriting, it’s common for us to recommend specific companies based on specific health conditions clients have. There is no point going through an application to get declined or rated with company A when they could have been approved standard in company B.

Price is only an issue in the absence of value so are you paying more because of:

  • Brand?
  • Ease of Approval?
  • Additional Options?

     

Conversely, you can ask “Why is this so much cheaper”?

 They need to be able to explain why one policy is better for you over the other.

Have you Handled a claim with the company you are recommending?
Have you Handled a claim with the company you are recommending?

Have you Handled a claim with the company you are recommending?

 

Ask if they’ve handled any claims before. The answer could be no and that’s perfectly fine as long as they can confidently explain their involvement in the process and how they can make it easier for your beneficiaries if they need to.

How do you get paid?
How do you get paid?

How do you get paid?

The whole insurance industry is paid by commission even Financial Planners such as myself, if we decide to help our clients implement our recommendations, we get compensated.

Even an employee, likely the commissions are paid to the company they work for and they are bonused for it. This is neither good nor bad, you simply ask this to see how comfortable they are disclosing compensation.

Are my premiums guaranteed? For How long?
Are my premiums guaranteed? For How long?

Are my premiums guaranteed? For How long?

This is a straightforward question to simplify your expectations. 

Term policies will have a guaranteed renewal payment schedule.

Non-guaranteed policies like some universal life policies are based on assumptions. They require some sort of interest or growth rate to make projections for total premium payments.

What assumptions did you use when creating my illustration and why?
What assumptions did you use when creating my illustration and why?

What assumptions did you use when creating my illustration and why?

Market-driven and investment based cash value policies have a role to play in Financial Planning.

However rose-colored expectations are great for creating disappointments.

Your broker or advisor should be able to logically explain why they reasonably believe that their recommendations will meet the assumptions they’ve used.

What do we need to change if we don’t meet the assumed rates?
What do we need to change if we don’t meet the assumed rates?

What do we need to change if we don’t meet the assumed rates?

What monitoring system do they have for making sure your insurance policy stays in line with the original plan?

 

Assumptions and projections almost always deviate from reality. The real challenge is having a game plan for these changes.

How much will I receive if I surrender this policy?
How much will I receive if I surrender this policy?

How much will I receive if I surrender this policy?

 

If it’s a term policy the answer is easy. $0

None of your premiums go into creating cash values.

 

If it’s a permanent policy, your agent should be comfortable explaining how much or how little liquid cash is in your policy.

For most permanent life insurance policies, you won’t have significant access to cash values until 5-7 years unless it was structured for immediate access.

Conclusion

Congrats!

 

If you’ve read this far into the guide, it’s either you take your financial plan very seriously or you have the potential for this industry.

 

If you apply everything you’ve read here, you should be more than equipped to get life insurance on your own, maybe even explain it to your friends.

 

My goal is to help 10,000 Canadians get life insurance protection for their families. So if you end up sharing this guide or sharing what you now know, you’d be helping me further my goal.

 

If however, you found this more intimidating. Simply book a consultation on my calendar here and I can help you directly.