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.