Life Insurance in Canada

Life insurance options can be divided into two very broad categories - term insurance and permanent life insurance. Term insurance policies basically cover you for a limited period of time, e.g. ten or 20 years. Permanent policies on the other hand, can cover you for your lifetime. Furthermore, there are three additional categories of permanent life insurance policies: Term 100, Universal Life and Whole Life. The latter two options have several variations and a qualified independent broker can find the best solution that’s right for you.

When you pay the premium for a Whole Life policy, it already includes the investment component, but in case of Universal Life policies, it is paid separately. Another difference is that for Universal Life policies, the selection of investment possibilities is wider. When you are deciding for the best life insurance, the key aspect is that it has to fit your situation and needs. Let’s suppose your needs are met and you can afford a permanent policy. Next you need to ask - is it a sound investment?

Opinions on this subject vary, in part because life insurance as an investment is a very misunderstood topic. The most important advantages and disadvantages of using life insurance as an investment will be described in the following part of our article:

Pluses

* Profits within the policy and the MTAR limits grow on a tax sheltered basis. Whole Life policies adjust the premium, so as not to exceed the MTAR limit, and Universal Life policies set a maximum premium, which has the MTAR line in mind.
* Both the investment portion on an increasing death benefit Universal Life insurance and the dividends on a Whole Life insurance are added to the face amount and paid out on top of this face amount, tax free.
* On a permanent policy, you can use the investment portion to pay for future premiums. This way, you will be able to pay with pre-tax dollars, rather than after-tax.
* The minimum investment rate guarantees are in excess of 4% for many Universal Life policies. In the current low interest rate world, this is a great feature.

Drawbacks

* For many permanent policies, there are strict penalties, if you decide to cancel your insurance within the first few years.
* Generally, it is not a good idea to purchase a permanent policy, if you don’t need a permanent life insurance, since the mortality charge for the life insurance would be higher.

With the title above, it might look like we’re shooting ourselves in the foot as a life insurance brokerage that specializes in the online marketing of life and health insurance. We have thousands of people visit our Internet page daily, and many visitors often approach us about whether they can purchase an insurance policy directly through our website. After pondering on this idea for a long time, we came to a conclusion that purchasing life insurance via the Internet would mean a disservice to our customers.
We have found the following few reasons why it’s not such a smart idea to purchase a life insurance policy online:

1. Life insurance policies should be always regarded as a part of an overall financial portfolio, which is not possible to do when you purchase it directly via a website as a single product. When considering life insurance, careful planning should be put into consideration why the insurance is needed, how much is needed and what’s the optimum type of life insurance for a specific person. It is quite difficult to do this without speaking to a broker over the phone or in person.

2. When you decide to purchase your life insurance via the Internet, you can get only a limited product offer. Most companies offering life insurance online limit their selection to a few carriers and in some instances, just one carrier with only a few of their products.

3. When you purchase your insurance online, there is a risk that you might not fully understand all its characteristics. When you purchase your life insurance online, you may be surprised later about some nuances - for example certain ten-year term policies are not renewable or convertible, or may have a higher than usual renewable premium, and so on.

4. Certain things are just too complicated to be sold online, and life insurance is one of them. There are too many features in some policies (for example Universal Life or Whole Life insurance) that cannot be disclosed when the policy is sold directly online. BMO’s Universal Life policy offers over 400 investment options. The product is too complex to be sold online.

5. If you wish to get in touch with someone from the insurance company, it would be most probably with a call centre and not a broker.

Do not get us wrong, we are not suggesting that the Internet is not a useful resource when purchasing a life insurance. Some websites can offer a lot of useful information concerning life insurance. You can find many useful web tools, for example our Instant Quote Calculator or Needs Analysis Calculator, which can help you a lot. But it is one thing to look for information and another one to actually purchase an insurance.

US life insurance sales took their greatest six-month drop since 1942, reported by LIMRA International. Bloomberg News reports that individual life insurance sales have nose dived 20% in the second quarter of 2009 because savers turned their backs on investments linked to stocks.

In Canada, LIMRA tells a different tale. In Canada these drops were only reported at 14% for universal life policies, a massive 6% difference to the US, using Steady Term Life and Whole Life policies to compensate for the losses. All told, there has only been a 1% drop in annualized payments so far in 2009.

Most financial planning consists of at the bottom line one type of Life Insurance even if the family cash flow is tighter in the US. Most households would find that there is a financial nightmare to contend with, if a family member dies without leaving adequate life insurance. For family members left behind, life insurance policies supply security from monetary problems.

Life Insurance plans don’t have to destroy the bank, there are ways to save on your premiums. We have put together some cash saving hints to get the utmost out of your life insurance.

Refrain from accidental death insurance. Lots of Canadian insurance companies heavily market accidental death insurance to unsuspecting consumers. Accidental death is extremely profitable for these companies, but produces only rare benefit to the consumer because less than 3% of all life insurance claims are paid out thanks to death-by-accident. Accidental death insurance can usually cost more than a comparable term policy.

Be wary of sales people that only sell for one company. They can only sell that business’s goods. Independent brokers often charge less expensive premiums set side by side to companies that employ captive agents. When an representatives is tied into one company’s policies they are unable to look for policies that best meet your needs or your pocket.

Less expensive policies can work out more expensive for you. The early premiums could be cheap, but work out the overall cost as it could be more expensive than purchasing a slightly higher priced policy in the first place. A gimmick insurance companies use to acquire your business is offering reduced premium introductory offers. Term insurance policies, which offer low initial premiums that rise as the insured ages, are appropriate if used for temporary insurance needs. The main problem with this attitude is we are not all the same, nor do we all have the same needs. A speedy sale without finding out what is the best policy and best price for your circumstances is something few brokers and representatives concern themselves with.

organizations that offer preferred rates are what you need to be searching for. The difference between preferred and standard rates can be very significant, notably for term policies. For example, buying a standard rate $500,000 Term 20 policy with Equitable Life would setback the normal 40 year old, non-smoking male just over $62 per month. Taking the equivalent details, using the preferred rates this policy would cost just about $20 less

Establish whether you are not over insured. By utilizing our Needs Analysis Calculator you can find out at a flash whether you are over or under insured.

Independent brokers are there to support you - employ them. However you must be certain he/she has access to a full breadth of companies not just two or three.

You many believe that Canadian Tire is company that deals with furniture, tools and outdoor living, but it is life insurance. After making improvements their term life insurance scheme the home hardware firm rolled out their new plan. A marketing strategy was created by this firm whose underwriters are Canada Life. So now we will go through some of the small print of this kind of scheme. Applying for this policy is very simple. You have the choice of applying online, by phone or mail. You will be queried about your health. There are seven of these inquires. Answering ‘yes’ to any of the questions need more medical details and the possibility of a medical visit. The schemes face value is $250,000 with premium increases after the first five years. What’s the trouble? This all looks fine to me. Let’s consider this type of policy against Canada Life’s individual term life policy. If we examine a 40 year old male smoker. On the Canada Life policy the fees are $40 cheaper. The Canada Life plans are greatly less expensive. The versatility and customization of these types of schemes are not available on the Canadian Tire policies.The disadvantages to the Canadian Tire plan include curbed benefits of only $250,000 and a term of no greater than 5 years. A Canadian Tire Scheme also charges you PST. Joining plans or affixing a rider for additional benefits is an bonus of individual life plans. Exclusive advise from your broker which leads to a policy worked on your individual requirements are another advantage rather than a standard group policy which is offered by the Canadian Tire Term Life Insurance plans. So taking the contrast in cost, the benefits proposed, the fees charged and the inflexibility of the Tire Term policy, you will be better off with an Individual Life policy from your broker. To find out more about the Canadian Term Life Insurance, please refer to our more detailed article.

Photo source: Mikey G Ottawa

Regarding the commission payment for the insurance brokers, it doesn’t make a difference whether they are captive (working for only one company) or independent (for more companies), as all of them get their commission when an insurance policy is activated. Two advantages of working with a broker are that they can advise you on the best type and amount of coverage and they can search the market for the best premium. Of course, the agent receives his/her commission paid from the insurance company. Nevertheless, the media and consumer scepticism has done a lot to create misunderstanding. The main points regarding the payment process that are most commonly misunderstood will be described in the following paragraph.

“Life insurance commissions drive up the price of the policy.” Life insurance policies, whether sold by salaried employees or self-employed advisors, have distribution costs. The insurance company includes the price of distribution inside the price of their products. It usually doesn’t make any difference how the consumer buys the product. Some companies, for instance RBC Insurance or Manulife, charge the same premiums for the same life insurance sold via multiple distribution models. If you buy a $200,000 Term 10 policy from Manulife, you will always pay the same price - whether you get it via their call centre, website or use the services of an independent broker. “It is possible to negotiate the life insurance commissions.” That is not true, they are not. The situation is different from when you are buying a car or a house. Once again, the commissions are built into the distribution costs of the policy and cannot be changed.

“The commissions for Whole Life or Universal Life insurance are higher than for Term Life insurance.” In reality, the price of a life insurance policy influences the height of the commission for the agent - the higher the premium, the higher the commission. Whole and Universal policies have higher initial premiums than Term policies, but the Whole and Universal policies are bought once. Term policies increase in cost as the insured gets older, so they will buy multiple term policies over their lifetime. A commission is paid for each new policy, but what is crucial for the consumer is that each time he/she purchases a new policy, he/she is also older, so the policy price is therefore higher. The insurance rate also depends on the health status of the applicant - in case it has changed, the insurance rate will increase or the coverage won’t be available. For the applicants it is really crucial that they understand the difference between all the life insurance policies and that they know which one is the optimum choice for them. “The commissions paid by some insurance providers is better than from others.” It is true that one carrier might pay a slightly higher commission than another one, but the differences are only small. And the customer doesn’t need to care about this anyway, since the commissions are a fixed cost within the policy. It is however very important that your adviser has access to insurance from multiple carriers, as some of them, while independent, work only with two or three. Our advisors have access to 15 different life insurance carriers, ensuring you get the a best possible price.

Photo source: Tim Dorr

Stand up anybody who has ever collected anything in their lives. Most of people at some point started a collection of different things like toy cars, match boxes or bottle tops. Usually, after a certain period of time, these valued treasures have been put away or just disposed of.

For sure, there are those among us that have never given up this sometimes strange habit and have turned it into a lifelong passion There is, however, a certain kind of collectors, who have taken this passion to a higher level and have diversified their portfolios by investing in valuable coins or stamps.

So, who is the special insurance cover for? Consider this: normal household insurance is quite good enough if you just need to cover everyday items such as TV’s, computers and so on. However, collections of higher value need to be approached differently. In some situations, collections of low value might be covered, but if you need to claim from your insurer, more often than not this will end in failure. Most household policies normally only cover the material cost of lost or damaged property. It is relatively easy to claim for a damaged front door or smashed window, but try claiming for a priceless Blue Mauritius stamp.

Therefore, fellow collectors, what is the best approach to insurance if you collection is more valuable than your new car? Do you have nightmares, visualizing it being stolen? Fortunately, you won’t need to worry anymore. There are now special policies tailor made for these collections. AIG and Allianz are but two of many insurance companies that have specialist policies for valuable collections.

If you are a serious collector, then an ‘all risk’ policy would be your choice securing your collection against most imaginable risks, even nuke attack or ‘mysterious disappearance’. Mysterious disappearance cover is offered for in the Fireman’s Fund policy. Transportation and travelling shouldn’t be a worry as both are covered in all specialist policies.

Collections naturally increase in size and value over time and insurance companies tend to offer this in their policies as a way of appearing more customer friendly. New additions to your collection can be insured easily with a simple phonecall to your policy provider. If you are nervous about going to pick up a new addition, then a simple phone call to your insurer prior to going and your new investment is insured.

Obviously nothing can replace your cherished collection, should it be destroyed by fire or stolen by some hard-hearted thief.

Nevertheless, if you can be compensated financially for the full value of your investment, then the pain should be more bearable.

Strange as it may seem, it is true that weather insurance not only exists, but it is one of the oldest types of insurance at all. Weather has been the crucial factor for farmers and their earnings, ever since the beginning of agriculture. The modern weather insurance can cover much more than crops.

Rain is the most common target of weather insurance. The good news is that rain insurance is quite common and quite easy to find. Regarding rain policies, you can pick rain accumulation policies (for this, you need to determine how much rain would still be acceptable for your event and how much would already waste it) or dry hours (how many hours in a period of time were without any rain). Analogically, you can insure your event against snow - either determine the amount of inches snowed per one session or per one storm. Municipalities and public organs can buy a particular version to cover extra costs – snow removal insurance.

And that is only where the whole business begins. There is wind insurance against bad wind conditions, great for instance for a hot air ballooning show. An ice cream promotion can buy temperature insurance to secure the investment in the face of bad weather.

Normally you can choose your own combination of the different policies suitable for your event. Typical clients are film productions (and many insurance companies tailor special policies just for the film industry, for example conditions of underwater visibility or lack of snow). Managers of sports events, concerts, festivals or trade shows are also typical clients of weather insurance. But also other people, who don’t earn money depending on weather, like me, selling life insurance, but who are enjoying some free time activities or going for holidays, can buy such insurance.

This quite new product is just acquiring clients around the world. You can get some of your money back if it rains more than usually during your holidays - this is for sale by certain French travel agencies, in cooperation with Aon France. Equally, German airline Lufthansa has made available a new sunshine insurance. Passengers from Germany can pay €20 ($31.24) for a simple insurance policy, which will give them €20 back for each day during their holiday that was spoilt by more than 5mm of rain.

Naturally, weather insurance is probably not needed when you are travelling to Tunisia or Greece. However, when travelling to Vancouver, weather insurance might not be available. But just asking is for free.

Life insurance, long term care, disability insurance - we all have bought at least some of these products. They are well known options to shield financial safety of our everyday life. The selection of insurance types is quite wide, however conservative it may look at the first sight. But don’t be surprised when you find out about the unexpected variety even in the insurance world. Strange or at least a bit funny, that is how some special policies look. You can for instance purchase insurance for your special events.

Imagine yourself organizing a wonderful wedding ceremony full of romance - taking place on the beach, with roses all around and guest count going into hundreds. But in the worst possible scenario, it may happen that just before the ceremony starts, you step on your veil, slip and end up with a broken leg. For such cases, there is a special insurance policy available, if only to limit the damage to the minimum. No matter if you need to insure a birthday party, a wedding ceremony or a bar mitzvah, almost all attributes of the event can be covered if you choose a suitable product. The most often used insurance types are liability and cancellation insurance, but you can tailor the insurance according to your specific needs. But what to do if you have dreamed of an outdoor ceremony and the weather shows you its unfriendly face? No problem, if you buy the insurance in advance (around two weeks), you can ask also for this protection.

And there are many more options regarding your events insurance. If an unskilled photographer by mischance damages the pictures, the insurance will help you to retake it. You can also sign up for an insurance covering all the gifts, jewellery or rental property. And think about a case of a bride running away from the altar… Yes, believe me; you can cover cold feet too

Event insurance is in some of the most famous world insurers’ selection Allianz offers it via Fireman’s Fund subsidiary; Axa adds fireworks and Christmas light insurance, some other offer the option to cover alcohol related accidents. The basic coverage can often be bought a bit below $100.

Shortly said, all your events can be covered from the beginning till the end.

Losing your mobility due to an unexpected accident connected to work or sport - that is the traditional explanation of the word ‘disability’ for most people. But as we can understand from the statistics, the reality is quite different: twice more people end up handicapped because of a serious illness (cancer, diabetes or heart disease) than due to an accident.

You and becoming handicapped?

People under 65 years of age are twice as much likely to get long-term handicapped than to die due to accident or illness. But course~naturally} with growing age, also the chances that a person will become handicapped are increasing:

• 3 in 100 children under 14 years of age become handicapped
• 4 in 100 young adults between 15 to 24 become handicapped
• out of every 100 adults between 25 - 44 years, 7 are handicapped
• 17 in 100 adults between 45 to 64 become handicapped
• 40 in 100 adults 65 and over become handicapped
• out of every 100 adults over 75 years, 53 are handicapped

4.4 million of Canadian inhabitants (14%) are officially handicapped at the moment.

What can you expect when you apply for disability insurance?

There are different people who have different needs and get into different situations, therefore the selection of different types of insurance is quite wide. Life insurance, for example, is offered to provide a sufficient cash coverage for those that are hit by the sudden loss not only emotionally, but also financially. On the other hand when a person becomes (completely) handicapped, not only the person is not fit to maintain sufficient income for themselves and their family, but on the top of that the extra medical and other care for this person takes even more money out of their pocket, or the pocket of their family that has to provide the extra care for the once self-supporting. So the disability insurance is often more profitable than the life insurance. Nevertheless, there are different definitions of disability, meaning that some handicapped people are able to have some kind of a job, but the statistics tell us that some 15% of people filing for bankruptcy are giving illness or accident as a reason. Handicapped people can sign up for some government contributions, but this is only a limited option. The coverage group plans won’t match your present income either: they mostly cover only 50% to 60% of your net income.

If you are thinking about enrolling for disability insurance, first think about the possibilities you would have in case you couldn’t earn a sufficient amount of money.

You might decide to:

* place the confidence in your spouse/family
* rely on your savings or retirement funds
* get rid of your property or other assets
* get a loan
* have a reliable disability insurance that covers your missing income

As an independent disability insurance broker, I have never faced the question about comparing the ups and downs of the Canadian & US health care system more often than now, when the US congress is considering a huge change concerning the system. Although non of them is hundred per cent, I absolutely detest some of the lies that are spread about the Canadian system. So what am I talking about?

“The Canadian health system is much more expensive than the system in America.”

Firstly there is this cost-related myth. Compare the numbers yourself: US spends 15% of GDP, leaving at least 15% of Americans without any coverage, while Canada spends 10 percent of its GDP, covering 100 percent of Canadians. For example in 2005, the US spent US$6,401 per head on their health expenditures - that’s almost twice the sum spent in Canada that year - US$3,359.

“In Canada, it’s up to the administration to determine who gets the treatment.”

Of course this assumption is totally faulty - only the doctors have the authority to determine about the character and timing of the necessary treatment. On the other hand, the situation is quite different in the USA, where in fact it is up to your insurance administrators to decide what treatment you are allowed to get, never mind what you doctor thinks.

“The Canadian insurance sucks since it only covers the basic and the rest comes out of your pocket anyway.”

The rules regulating the insurance’s inclusion comes from the provincial government. Generally speaking, physician’s fees and all the hospital procedures are covered. Generally various medical equipment and also vision and dental care are not. Because all these extras can be quite well predicted (all the really expensive stuff are covered by the national insurance), some private plans are offered (i.e. FlexCare Program from Manulife) with low-cost premiums to cover them. All in all, to get the same kind of service in the States as in Canada, the Americans have to pay much much more. The system is simply running better in Canada.

“The biggest problem with the Canadian system are the long waits. Virtually there are thousands of Canadians coming to the US to get their treatment every year.”

The situation doesn’t differ that much from the one in America, since the waits associated with some specialist treatments (up to Of course, some selective surgery takes even longer. On the other hand, all acute operation, you will get it fast one way or the other. And, unlike in the US, nobody cares whether you’re rich or poor. For example, if you can’t get acute care you need (i.e. surgery) and you cannot get it as fast as it is medically required, you will most likely be sent to the States - at the expense of the state insurance. If you spoke to somebody from Canada who rushed to the the US for their treatment and had to cover it themselves, they most likely didn’t need the treatment as fast as they wanted it.

“In Canada, the physicians work for the government. And the government selects the physicians for you!”

Not true. Though the Canadian physicians are paid by the provincial government, they are not employed by it: the keep their own practises just like the doctors in the US. And of course you can choose the doctor yourself.