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.