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.

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

Speaking from a position of life insurance broker, I can understand the frustrations when it come to purchasing a traditional life insurance policy that requires the accountable medical form which should be completed. This occurs when most people can’t account for planning in the future but want to make sure that their family is well taken care of. When it comes to these troubles then then look no further than the types of policies that require no medical interegation. These are called ‘Simplified Issue Policies’ and ‘Guaranteed Issue Policies’ but you must be careful because there are many differences between the two.

Simplified Issue Life Insurance Policies

For this type of policy questions need to be answered but this does not involve you being fully exposed medically. These policies are though limited because they only pay out to a peak of $150,000 because companies are afraid of losing too much due to the lack of protection. To be more accurate companies are at greater risk at losing money because a medical examination was not carried out before the agreement was made. Under the traditional insurance policy that caters a medical exam, once a full examination is completed and if you are in good physical and mental health and your medical and family history meets no question, it is only then when you can be offered good or standard rates. On the other hand if you are personally experiencing chronic health you will be charged additional costs and if your condition is thought to be a major or terminal disease then your application will be unacceptable. Plans such as the Simplified Life Issurance Policies can be very fast and there is no need to go through the tedious process of a full medical scrutiny. Although if you have been refused insurance in the last two years you will not be able to use this policy. Don’t forget that the more questions you answer, the lower the premium will be in the end.

Guranteed Life Insurance Policies

With these policies, there is no need foranswering questions, no need for a medical follow through and no small underlying writing. These policies are available to those people that have been refused during the last couple of years. Final expenses are fully covered with this policy. The limit is usually only $25,000 and benefits are usually limited to a return inc. the interest, if the person with the policy dies within 2 years of the agreement. Although the payout is made straight away if the person holding the policy dies by accident.

I don’t have to remind you, how dangerous times for investment we are living in these months. Stock markets collapsed and buried eight years of growth. Real estate prices are falling down.

More, interest rate after the recent cut by Bank of Canada down to 50-years low value of 1.5% means your money in banks are making less than the inflation rate takes, because inflation in Canada is around 2%.

And we can expect $4 billion spending soon, due to government’s commitment to participate on the North America car industry bailout. This can get the inflation rate even higher, due to bigger government spending. Interest rate can hardly go higher in upcoming months, because FED cut the interest rate even lower - near the 0% value and the Bank of Canada is usually following FED’s steps.

So is there any risk free solution with guaranteed growth over the inflation rate? Yes, there is. Some Canada life insurance universal policies offer 4% guaranteed growth. How is this possible? Easily, these products offer festure you can find anywhere else. It’s name is tax shelter, which is not influenced by the financial market!

Primerica Financial Services is financial company, based in the USA, with subsidiaries in Canada (from 1986) and Spain (2000). Its “problematic” Multi Level Marketing structure is the main topic of many articles, blogs and discussions.

Their efforts to have a quantity of advisers for any price creates a lot of negative responses. But I want to write now about something different. I don’t want to write about their employees. I want to write about their products.

I has been in life insurance Canada business for 15 years and I think I have enough skills to point out 5 importante remarks about Primerica’ policies and their disadvantages.

1. It’s expensive. If you check prices of  competitors and prices of Primerica policies, you will recognize most of their products are overpriced - simply because there are too many people involved.
2. Stuck to the term life. I have nothing against term life of course, it’s very important part of my business, but it doesn’t fit everybody
3. Captive sales force - do you believe some company’s products can fit ANYBODY? Range of clients’ needs is much wider than any offer of one company. But Primerica advisers can/t offer you anything else…
4. Part-time advisers. Do you think it’s a good choice? Do they know more than you know about finance? go and read some articles about their “seminars” on the web!
5. Non convertible policies. don’t you want to think on the back door? Primerica doesn’t offer permanent policies, so if you are unlucky with health - you have problem!