{"id":294,"date":"2023-11-27T13:52:21","date_gmt":"2023-11-27T13:52:21","guid":{"rendered":"https:\/\/policyarchitects.com\/CN\/life-insurance-basics-101-cut-past-the-jargon-and-save-some-money\/"},"modified":"2024-08-08T23:22:15","modified_gmt":"2024-08-08T23:22:15","slug":"life-insurance-basics-101","status":"publish","type":"post","link":"https:\/\/policyarchitects.com\/CN\/life-insurance-basics-101\/","title":{"rendered":"Life Insurance Basics 101: Cut Past the Jargon and Save Some Money"},"content":{"rendered":"

STOP right now<\/strong> because Life Insurance Basics 101 is the BEST resource online if you’re starting your search for the perfect policy.<\/p>\n

Of course, you have no idea what the ins and outs of life insurance are…<\/em><\/p>\n

…unless you’re in the business or you bought coverage before.\u00a0<\/strong><\/p>\n

So, I will take a moment to peel back the layers and get down to the nitty-gritty.<\/p>\n

How many life insurance articles have YOU read where knowledge is assumed?<\/strong> My guess is way too many…<\/p>\n

…and you know what they say about that, don’t cha’?<\/em><\/p>\n

Now get ready because I will give you the chance to provide me with the first degree, and we’ll leave no stone unturned.<\/p>\n

\"\"<\/a><\/p>\n

Life Insurance Basics 101: The Jargon<\/strong><\/h2>\n

I think this is one of the areas where life insurance agents get a bad rap.<\/p>\n

We use terminology, and sadly, many advisors don’t feel compelled to explain what they’re talking about in plain English to their clients!<\/b><\/p>\n

I guess\u00a0we all get used to certain buzzwords, and sometimes, we forget that\u00a0not everyone is immersed in <\/em><\/span>life insurance.<\/em><\/p>\n

No self-respecting life insurance Basics 101 post is complete without defining some of the standard vocabularies you encounter when applying for a policy!<\/span><\/strong><\/em><\/p>\n

Let’s check it out:<\/p>\n

Policyholder:<\/span><\/strong><\/h3>\n

The owner of a life insurance policy is usually the same person as the insured, although sometimes, an individual will take a policy out on another person\u2019s life.<\/p>\n

Beneficiary:<\/span><\/strong><\/h3>\n

The individual or entity (i.e., charity) that gets the cash when the policyholder dies. You can choose multiple beneficiaries.<\/p>\n

Death Benefit or Face Amount:<\/span><\/strong><\/h3>\n

The amount of money paid out when the policyholder passes away. For example, if you have a $500,000 policy, the life insurance company cuts your family a cheque for $500,000 if you die during the coverage period.<\/p>\n

Premium:<\/span><\/strong><\/h3>\n

Simply the cost of your life insurance, which you pay monthly, annually, or quarterly.<\/p>\n

Underwriting:<\/span><\/strong><\/h3>\n

Insurance companies’ process to pinpoint your rating class ultimately determines the cost. Typically, they\u2019ll look at your age, gender, health status and lifestyle:<\/p>\n

\n

“All of this said, it would be unwise to eliminate all bullshit (or what may seem like bullshit) from organizations. Professionals sometimes need highly technical terms to get their job done. For instance, it would be impossible for a doctor to perform surgery without resorting to some medical jargon.”<\/p>\n

If We All Hate Business Jargon, Why Do We Keep Using It?, Harvard Business Review\u00a0<\/a><\/p>\n<\/blockquote>\n

What Is Life Insurance and Who Needs It Anyway? <\/strong><\/h2>\n

Hey James, I started reading this Life Insurance Basics 101 post because I think life insurance is a scam!<\/p>\n

I knew someone would ask me that. Yep, there are still people out there who think life insurance is dodgy. Well, let me give you some facts.<\/p>\n

1. Life Insurance is NOTHING New. You can trace its roots back nearly 6,000 years<\/strong><\/h3>\n

Yep, the insurance industry dates back 6,000 years to Babylonian times, when a system of merchant insurance known as bottomry was developed.<\/p>\n

This was the process of a shipowner taking out a loan to fund a trading voyage, using his vessel as collateral. The loan didn’t have to be repaid if the ship was lost at sea. If the journey was successful, the lender would get his principal back plus interest.<\/p>\n

In ancient Rome,\u00a0burial associations<\/strong>\u00a0paid funeral costs for their members from coffers built up through monthly dues. This was the beginning of Final Expense Insurance.<\/p>\n

Hey, as an aside, did you know Lloyd\u2019s of London began as a 17th-century coffeehouse frequented by merchants, bankers, and insurance underwriters, eventually becoming the “go-to” place to get your mariner’s insurance?<\/p>\n

Yep! They were far ahead of Starbucks!<\/p>\n

Feeling better yet?<\/strong><\/h4>\n

Now, if that doesn’t give you some confidence that life insurance has a long history and serves an important role, I’m\u00a0not sure what will!<\/p>\n

The first insurance company in the world,\u00a0The Amicable Society for a Perpetual Assurance Office,<\/strong>\u00a0was founded in 1706 under a charter from Queen Anne.<\/p>\n

In 1804, the Phoenix Assurance Company opened the first insurance company in Canada…<\/p>\n

….and an\u00a0incredible\u00a0$12.0 Billion\u00a0in life insurance benefits was paid to Canadians in 2016.<\/em><\/p>\n

2. Sadly, way too many Canadians are <\/b>underinsured\u00a0or completely UNINSURED!<\/b><\/strong><\/h3>\n

1\/3 of Families in Canada Don’t have life insurance<\/strong><\/p>\n

Ouch!<\/strong><\/p>\n

Well, the other 2\/3 are covered, right? That’s SOME good news.<\/p>\n

Ahem – maybe not as good as it could be.<\/p>\n

…only 15% say they have enough life insurance<\/em>\u00a0to cover their remaining mortgage balance in the event of their death.<\/strong><\/p>\n

Most people aren’t realistic about their needs. Financial experts in Canada agree that there is a large gap between\u00a0what people think they should have\u00a0in terms of protection and\u00a0what they need.<\/p>\n

What would happen to your family\u00a0<\/strong>if serious, unforeseen circumstances arise?\u00a0<\/em><\/p>\n

I think that the fact that only 25% of Canadians feel they are financially prepared for their death speaks volumes!<\/p>\n

3. Those are pretty dismal numbers considering the amount of debt we carry<\/b><\/strong><\/h3>\n

Canadian debt continues to hit record highs as household income declines.<\/strong><\/p>\n

According to a recent survey, over half of Canadians have a good grasp of managing debt.\u00a0<\/strong><\/p>\n

That’s funny because, for every dollar of income, Canadians have $1.71 of debt, which includes credit cards, Lines of Credit, Loans,\u00a0and Mortgages.<\/p>\n

While 64% of Canadians say becoming debt-free is a top priority, only 31% say they consistently reduce their debt.<\/p>\n

The sad truth is that 37% of Canadians feel overwhelmed by debt.<\/strong><\/a>\u00a0<\/strong><\/p>\n

So, what does that mean for families that unexpectedly lose a primary breadwinner? It can send them into a tailspin they may never recover from.<\/em><\/strong><\/p>\n

Debts and obligations don’t just evaporate when you reach the pearly gates.\u00a0\u00a0<\/em><\/strong><\/p>\n

4. Stuff happens to the best of us at the worst of times<\/b><\/strong><\/h3>\n

Thinking about real-life scenarios is essential when understanding life insurance basics 101. <\/strong><\/p>\n

Imagine this! You leave your house one morning, and as you walk along the sidewalk talking on your cell, you’re struck by a garbage truck and killed instantly.<\/p>\n

What happens to your family now?<\/strong> Are you the person who brings in the big bucks? What if you also have a mortgage and debt? Things can get very sticky. Funeral costs, settling debts, and continuing to pay bills could destroy your family’s\u00a0finances.<\/strong><\/p>\n

Ugh\u2014the scary truth is that those you love may have to cease living the lifestyle they’ve become accustomed to.<\/p>\n

Planning is everything!<\/strong><\/h4>\n

The only way to avoid this situation is to plan<\/strong>.<\/p>\n

A great\u00a0life insurance policy allows your family to stay in their own home<\/a>. We all want to keep our promises.<\/p>\n

….and life insurance allows us to do precisely that. <\/em>No matter what the circumstances.<\/p>\n

Ugh, this is a Life Insurance Basics 101 Article. Why the drama? Meh, what are the chances of me getting hit by a bus? Seriously.<\/p>\n

Well, I guess you could look at it that way or acknowledge that none of us know what the future holds. But if you need a cold, hard reality check – take a look at this:<\/strong><\/p>\n

\n

“It’s morbid to think of the worst case scenario, your spouse being gone, nobody wants that but you really have to put things into perspective and say, this can actually happen.”<\/p>\n

Widow urges others to “learn from our mistakes” after husband without life insurance dies, cbc.ca<\/a><\/p>\n<\/blockquote>\n

Unless you\u2019re one of those rare birds who are independently wealthy, you need life insurance.<\/strong><\/p>\n

…AND even if you have an estate, life insurance works exceptionally well to offset taxes for your beneficiaries. It’s just one of those great tools.\u00a0<\/em><\/p>\n

The best news? Term insurance is<\/strong> wayyyy\u00a0more affordable than you ever thought!\u00a0<\/strong><\/p>\n

No one wants to talk about life insurance because it means talking about death:<\/strong> we\u2019re mere mortals floating around on this sphere in space (sorry to get all trippy on you) for a very brief period…<\/p>\n

…and for some, it’s a shorter stay than for others.<\/em><\/strong><\/p>\n

Life insurance just isn\u2019t sexy, but it\u2019s a necessary evil when it comes to protecting the ones you love. I’d say it\u2019s the only product you buy where you hope never to use it.<\/p>\n

So, let’s get on with Life Insurance 101!<\/p>\n

\"\"<\/a><\/p>\n

Life Insurance Basics 101: Where Do I Start?<\/h2>\n

OK, I know I need life insurance. Now what? Take a long, hard\u00a0look at your circumstances.\u00a0<\/strong><\/p>\n

…and no, I don\u2019t mean estimate.<\/strong> Get a pen and paper and figure out how much money your family or loved ones need if you were to die suddenly.<\/p>\n

You’d be surprised how many people are not in a relationship with this!<\/p>\n

Step 1: Let’s Break It\u00a0<\/b><\/strong>Down! How Much Coverage Do You Need?<\/b><\/h3>\n
    \n
  1. What are your outgoings?<\/strong> Rent\/ mortgage, utilities, insurance, groceries, entertainment, subscriptions, clothing, etc\u2026 get the idea?<\/li>\n
  2. Do you have a mortgage?<\/strong> Would paying off that obligation relieve financial stress on the people you leave behind?<\/li>\n
  3. What about debt?<\/strong> Do you have outstanding loans, lines of credit, etc., that must be paid off?<\/li>\n
  4. Did you make promises?<\/strong> Maybe you want to help put your kids or grandchildren through university, or you’re in a business partnership that relies on your input.<\/li>\n
  5. Where do you see yourself in 10, 15, 20, or 30 years? <\/strong>There are chances you’ll be better off\u2014or\u00a0at least that’s the plan!<\/li>\n<\/ol>\n

    Ca-ching! <\/strong><\/p>\n

    I bet you’re in shock now that you know how much you need to keep this show on the road.<\/b> It knocks a lot of my clients for a loop.<\/p>\n

    …and it’s one of the main reasons I’m writing this Life Insurance\u00a0 Basics 101 post!<\/p>\n

    The Cost of Living Is Crazy!<\/strong><\/h4>\n
    \n

    “It’s no secret that the value of $1,000 changes<\/strong> pretty dramatically when you start visiting different places in the world. Though apparently, this is even true for when you are traveling within your own country! It makes sense considering the more popular cities of Canada such as Toronto, Vancouver and Montr\u00e9al are definitely more expensive to live in than others.”<\/p>\n

    Here’s How Much Money You Need To Make To Be Considered Rich In Each Of Canada’s Major Cities, Narcity.com<\/a><\/p>\n<\/blockquote>\n

    Man, that\u2019s a lot of work. I don\u2019t know if I have the time. Why don\u2019t I pick a figure?<\/p>\n

    Because you want to make sure your family is protected! Read on…<\/p>\n

    Let’s say you buy a policy with $200K of coverage! It sounds\u00a0like a lot of money to most people.<\/strong><\/p>\n

    But when you pay off some debts, take care of the funeral, and continue with your family’s daily machinations…<\/p>\n

    …it’s not a lot of money at all<\/strong>.<\/p>\n

    It could leave you underinsured. That\u2019s why it’s important to speak with an independent agent who can give you a starting point.<\/p>\n

    I go through a complete needs analysis with all my clients.<\/strong> This process involves using a formula to produce an accurate amount of protection. If you’re in a pinch, 7 to 15 times your gross income is an excellent place to start.<\/p>\n

    Remember, there’s a gap between the protection people THINK they need and what they need<\/strong>. Trust me, you don’t want to be caught in a bind when something terrible happens, and insufficient coverage is in place.<\/p>\n

    OUCH! This Life Insurance Basics 101 post is an eye-opener! I feel confident I need $500K of coverage, but I’m not 100% sure how long I’ll need it!<\/span><\/strong><\/em><\/p>\n

    Step #2: Choose Your Term\u00a0<\/b><\/h3>\n

    Let\u2019s say you\u2019re in your late 20s and decided to buy a life insurance policy while young and healthy. <\/strong>First of all, kudos to you! I’m impressed that you’re taking care of business.<\/p>\n

    This is a financially savvy decision.<\/strong><\/a>\u00a0<\/strong><\/p>\n

    Why?<\/p>\n

    Because if you’re starting a family, you can get a 30-year\u00a0term policy for the cost of your daily coffee<\/strong><\/a>!<\/strong> This coverage carries you through your childbearing years into your children’s adulthood.<\/p>\n

    Wow! Now, that’s a fantastic deal. You’re covered no matter what happens to you health-wise.\u00a0<\/em><\/p>\n

    Don’t get me wrong; a 30-year term isn’t for everyone. If you want to cover some short-term debt or business expenses, a 10- or 20-year term might be more suitable.<\/p>\n

    The key is to be honest about your needs and meet with an independent life insurance agent to ensure you get the right policy! Call Policy Architects today! 1.888.501.9583<\/strong><\/p>\n

    \"What<\/p>\n

    Step #3: Select the Type of Life Insurance YOU Need\u00a0<\/b><\/h3>\n

    You have two main categories of life insurance to choose from.<\/strong>\u00a0Whole life falls under the umbrella of Permanent Life Insurance.<\/p>\n

    Now, while Whole Life is a GREAT product, it may not be a fit for your circumstances.<\/p>\n

    Many people don’t benefit from whole life or cash value life insurance. I typically recommend this product to those with estates and disposable income who need somewhere to put their money after exhausting other outlets.<\/p>\n

    I also don’t consider life insurance a traditional investment. There are better places to put your money if you want to see good returns.<\/strong><\/p>\n

    This is why you need an independent life insurance agent, like Policy Architects. We can discuss all your options so you can pick the correct type of life insurance for your situation. Here’s a simple description of the two main types of life insurance:<\/b><\/p>\n

    Term Life Insurance<\/strong><\/h4>\n

    Term life insurance is the cheapest and best-known type of life insurance AND the most suitable for 90% of people.\u00a0<\/strong><\/p>\n

    It is the purest form of coverage. A client purchases protection for a set period, referred to as a “term,” hence\u00a0the name.<\/p>\n

    These terms can be locked in for 10, 20, 25, or 30 years (give or take). If the insured dies before the term ends, their beneficiary receives the coverage amount or death benefit tax-free.<\/p>\n

    Typical coverage is for $50K, $100K, $250K, $500K, and $1 Million,\u00a0although you can customize these figures to meet your needs.\u00a0<\/strong><\/p>\n

    Term life insurance is extraordinarily affordable because you only pay for coverage over a limited period (the term).\u00a0 Think of it like renting a home instead of buying one outright.<\/strong><\/p>\n

    Also, term insurance is cheaper than ever – 40% of what it cost 30 years ago. Term is also more accessible to seniors!<\/p>\n

    Permanent Life Insurance<\/strong><\/h4>\n

    Permanent insurance provides you with lifelong coverage as long as you keep up with your monthly payments.<\/strong><\/p>\n

    Because it\u2019s designed to last your entire life, it\u2019s much more expensive than term insurance. Permanent insurance products have two parts:<\/p>\n

      \n
    1. Insurance Component<\/strong><\/li>\n
    2. Savings Component<\/strong><\/li>\n<\/ol>\n

      You can use your policy as a savings vehicle to build up cash value, which you can use for any number of things.<\/p>\n

      It suffices to say that, for specific individuals, permanent insurance can be an excellent estate planning and business succession tool. <\/strong>A small permanent policy is ideal for covering\u00a0funeral costs<\/a> so your family doesn’t have to worry.<\/p>\n

      Whole Life, Universal Life, and Term 100 are the three types of permanent life insurance.<\/p>\n

      \n

      “NOTE: Term 100, also known as \u201cTerm-to-100\u201d is misleading because it has the word \u201cTerm\u201d in the title but it’s most definitely permanent insurance. Confused? You’re not alone.”<\/p>\n<\/blockquote>\n

      Step #4: The Application Process<\/b>\u00a0<\/strong><\/h3>\n

      We know the ins and outs of the underwriting processes for Canada’s best life insurance companies. This means savings for you.<\/em><\/p>\n

      Not all life insurance companies are created equal. Some are more lenient than others regarding specific personal and medical conditions,\u00a0and your agent should be knowledgeable about these differences.<\/p>\n

      The next step is applying.<\/em><\/strong><\/p>\n

      We can do this in person, over the phone, or screen sharing on a computer.<\/p>\n

      Some clients want the personal touch, while others want to complete the process quickly. It all depends on your comfort level!<\/p>\n

      Electronic applications are becoming a mainstay of the insurance industry as we speak.<\/strong> The choice is yours.<\/p>\n

      AND Don’t forget – honesty is ALWAYS the best policy!\u00a0<\/strong><\/h4>\n
      \n

      “NOTE *** Honesty is non negotiable.\u00a0Misrepresenting anything on the application or fudging the truth is fraud and your beneficiaries won\u2019t get a dime<\/a>.”<\/strong><\/p>\n

      “In other words, failing to declare something is a sure fire way to have your claim denied if the insurance company catches wind of it. It sounds crazy but there doesn’t have to be a relationship between what you omitted and the cause of death.”<\/p>\n

      For example, if you fail to disclose that you’re an avid scuba diver and you die of a terminal illness, expect to have your claim denied.\u00a0<\/strong><\/p>\n

      “By the way, all communication between you and your life insurance agent is confidential.”<\/p>\n<\/blockquote>\n

      Step #5: The\u00a0Medical Exam<\/b><\/h3>\n

      Life insurance is a business; companies want to know as much as possible about you before setting your premium.<\/p>\n

      A medical exam is part and parcel of this process.\u00a0<\/strong><\/p>\n

      ….and YES, there is non-medical life insurance or simplified issue.<\/em> You can buy life insurance online without a medical exam<\/a> in less than 20 minutes!<\/p>\n

      An agent asks you a bunch of questions over the phone. The life insurance company then reviews available prescription, medical, and motor vehicle records (MVR) to assess your risk. Voila! A policy can be issued in\u00a0less than 48 hours.<\/strong><\/p>\n

      That’s Fast!<\/p>\n

      Sure, this might sound terrific if you’re in a hurry and don’t like needles, but in the end, you pay more money and get less coverage because you’re at a greater\u00a0risk<\/strong>.<\/p>\n

      I highly suggest obtaining a fully underwritten policy, with a medical exam if possible.<\/p>\n

      What to Expect<\/b><\/h4>\n

      Ahhh, the medical exam!<\/strong><\/p>\n

      Everyone’s favorite part of the process!<\/p>\n

      The life insurance company you select arranges a time and location that is convenient for you to have a nurse check:<\/p>\n