Fact CheckedIf you are looking for term life insurance Canada, then you’re concerned about your family’s financial well-being.
Life is messy, and even the best-laid plans get derailed.
When you’re young and healthy, it’s easy to convince yourself that life goes on indefinitely. It usually takes a tragedy for people to wake up.
This happened to my wife about 25 years ago. She saw an acquaintance lose everything when her husband died in a hiking accident.
It threw the family into a financial tailspin, which they would not have recovered from without the organized support of friends and family.
… her husband didn’t have life insurance. If he had, they wouldn’t have had to rely on the generosity of strangers or endure all the turmoil they sustained.
The most important reason people buy life insurance is to replace income. Put it this way: Your salary dies with you when you pass away. Your loved ones depend on your income now and for years to come to pay the rent, mortgage, and basic expenses. If that suddenly stops, not only will they be devastated emotionally, but they will also be in serious financial distress.
“Life insurance can cover the loss of your income from the household, plus offset your funeral expenses and pay off outstanding debts. While creditors might try to go after your assets or your family members to pay off debts, they can’t touch life insurance benefits.”
Why 2020 Should Be Your Year to Buy Life Insurance, Yahoo.com
Life Insurance & The 7 Habits of Highly Effective People
In 7 Habits of Highly Effective People, Steven Covey suggests that all human behavior and activity falls into four quadrants:
- Urgent, Important
- Non-Urgent, Important
- Urgent, Not Important
- Non-urgent, Not Important
He argues very successfully (if you haven’t read this book, read it) that the most influential individuals in life spend more of their time in Quadrant #2: Non-Urgent, Important activities. These include planning and prevention, relationship building, essential goals, and exercising – “all things we know we need to do but somehow seldom get around to doing because they don’t feel urgent.”
Which Quadrant do you think purchasing life insurance is in? You guessed it, Quadrant #2! Most people agree that life insurance is essential, but it doesn’t feel urgent until our health changes or something drastic happens.
If you have debt and dependents, life insurance shouldn’t just be on your radar; it should be a priority.
So, let’s find out what term life insurance and how it’s the best way for Canadians to protect loved ones from financial devastation.
What is Term Life Insurance Canada
There are two types of life insurance: Term and Permanent. For the purposes of this article, we’re going to focus mostly on Term.
Term Life Insurance is the most common form of coverage and it’s what the majority of Canadians use to protect their loved ones. It’s essential for income replacement in the event of a breadwinner’s death.
How does it work? You choose a “face value” – or amount of coverage such as $250K, $500K, $1 Million, etc. In the event of your premature death, this is what the insurance company will pay to your family.
You also have to decide on the “term,” or period of time you wish to have coverage for. Typically, consumers will purchase a 10 or 20 year term but longer terms (30 years) are available as well. It’s crucial to select a term length which will protect your family through the period when they’re most vulnerable n(ie. child & young adulthood).
The most important thing to note about Term Life Insurance is its Temporary. You buy it for a set period, and when it expires, your payments stop and so does your coverage.
Permanent Life Insurance is guaranteed protection until the day you die. It pays out whether you die 5 years from now or live to the age of 90. For this reason, permanent life insurance is usually 8 to 10 times more expensive than term.
Term Life Insurance Canada – Why We Recommend It to Most People Most of the Time
Term life insurance provides clients with the most protection at a VERY reasonable price which is why we suggest it to the majority of our clients looking to protect their incomes.
So, let’s dig a little further to see why I made this statement.
Permanent life insurance is a lifetime commitment. If you fail to make your payments, you lose your investment.
People don’t think about financial hardship BEFORE it happens. Things can be ticking along, and boom, you lose your job. Suddenly, those big permanent payments look burdensome. A lot of people lose their shirts when something like this happens.
Term provides high coverage amounts for very little money.
This allows families to provide enough coverage without breaking the bank. Also, keeping up with payments is easier if something changes on the financial front.
Most Important Things to Consider When Purchasing Term Life Insurance
1. Face Value – How Much Life Insurance Do You Need?
One of the biggest questions you need to answer before you buy term life insurance in Canada is how much coverage you need.
….and it’s not as straightforward as you might think.
Sure, $100K is more money than most of us will ever see in a lump sum in a lifetime. But is it enough to cover your family if you die?
Definitely Not!
You probably think I am trying to sell you more life insurance, but this is false. I would never advise someone to buy more than they need or to take on payments they can’t afford. There are a lot of considerations you must address BEFORE you select a coverage amount. Here are just a few:
- How much money do you make? The general rule of thumb is at least 7 -10 times your gross salary should cover it. However, if you have small children, that figure should be closer to 15X or 20X your salary. Think about it: if you’re a breadwinner in your family and you die tomorrow, your family loses all the income you would have earned until you retire. How much is that?
- Do you have debt? This also needs to be considered if you have a lot of debt. Remember, debt doesn’t vanish when you die. Your estate has to pay off anything outstanding before your loved ones get a dime. **If you take out a life insurance policy, it’s very important to designate beneficiaries rather than leave it to your estate. Doing so will enable the proceeds to be paid out to your loved ones faster, bypassing your estate, probate, and possibly creditors altogether.
- What does the future look like? Ok, so you are basing your numbers on your current financial situation. The thing is, most people get salary increases, pay down debt, etc. Chances are it’s a lot! If you’re 40 years old and earning a $60k salary, that’s at least $1.5 million. You need to take a long, hard look at your future in 10, 20 & 30 years!
Unfortunately, I think many people are underinsured. They think $250,000 is an adequate amount of protection when really they should probably have closer to $1 million of insurance.
2. Term: How Long Do You Require Coverage
This section bleeds down from the issues I talk about above.
When you look at your life, you need to be aware that profound changes happen from decade to decade, which means your needs may completely transform.
I mostly try to get young and healthy people to take out longer terms because they are just embarking on their obligations, and coverage is cheap.
But everyone’s circumstances are different. Some people need term life insurance to cover short-term obligations like loans. In this situation, a 10-year term works a charm. Other people are well into parenting when they take note of their needs. In that case, maybe a 15-year term will protect them during their most vulnerable period and save them some cash as well.
Whatever you look at it, doing some basic calculations before buying a term life insurance policy is important.
3. What Life Insurance Company Should You Select?
If you have been reading my posts, you know that not all life insurance companies are created equal. Many differences can trip you up if you make the wrong choice.
Each insurer has its lenient and strict areas. Some companies are easier on people with diabetes, while others have less tolerance.
The only way to understand all the information is to work with someone who knows the details of the current policies.
Which brings me to our next point…
4. Always Work with an Independent Life Insurance Agent
A solid independent life insurance agent is your best bet. They will know which companies are the best for diabetes or people carrying a few extra pounds.
They will help you find the most comprehensive coverage at the best price possible.
Independent agents are NOT married to one insurer. They have access to the best life insurance companies in Canada. An excellent independent agent reviews your needs to weigh which company offers you the best package.
Keep in mind, all life insurance products have a commission built into the price. You pay this regardless of whether you buy the product through a bank, captive broker or an independent agent. In other words, you’re paying a commission whether you receive good advice or not. Why not get your money’s worth and get a recommendation and the added value of working with an experienced, independent broker?
5. Don’t Rely On Online Rates
Doing your homework is a great way to save some serious cash. This is why I started the Policy Architects blog: to help people find excellent tips and information BEFORE they speak to an agent.
….BUT, and this is a big BUT…
…take online rates with a grain of salt. Yes, you can use them as an essential guide to see how much you MAY pay…but just because you see an advertised rate doesn’t mean you’ll get it.
Applying for a term life insurance policy is a process. If you are in terrific shape with no severe family medical history of illness, you may qualify for the cheap, preferred plus rates that lure you in.
The thing is, most people won’t qualify. Most applicants get standard rates (which are still outstanding, by the way). The key is to find the company that will consider you most favorably and off you the lowest premiums.
6. Fully Underwritten Term Insurance Is the Most Affordable Option
Typically, the cost of insurance is determined by the state of your health. The healthier you are, the more affordable the coverage. If you have moderate to serious health issues, you will likely pay a little more or be declined coverage altogether.
It is possible to get coverage without a medical exam; most people are healthier than they think. To put things in perspective, approximately 80% of all life insurance applicants in Canada will be approved at a standard health rate or better. 15% will be rated (have to pay more), and 5% declined outright.
No-exam policies allow consumers to get coverage without needles or providing fluids. These policies can be put in place quickly but the convenience will cost you more money.
Traditional underwritten insurance requires a medical exam and costs less. This is because the whole life insurance model is built on assessing risk.
If you’re healthy and aren’t afraid of needles, I encourage you to go for a traditionally underwritten policy to save money. In some cases these traditional policies can be underwritten on a non-medical basis.
Looking for Term Life Insurance? Contact Policy Architects NOW!
If you are looking for Term Life Insurance in Canada, we’ve got your back.
Term insurance is the right choice for most people 90 percent of the time. It’s affordable, flexible, and provides enough coverage to protect your family if a worst-case scenario unfolds.
Don’t get me wrong; permanent insurance is a GREAT product, but it’s very specific and costs much more.
Even if you have medical concerns, I bet we can find you affordable protection with one of Canada’s best life insurance companies.
Let us help you make an educated decision. Remember, our advice is free, and you’re not obligated to proceed unless you’re 100% happy with the policy we can get you.
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