Life Insurance Basics 101: Cut Past the Jargon and Save Some Money

STOP right now because Life Insurance Basics 101 is the BEST resource online if you’re starting your search for the perfect policy.

Of course, you have no idea what the ins and outs of life insurance are…

…unless you’re in the business or you bought coverage before. 

So, I will take a moment to peel back the layers and get down to the nitty-gritty.

How many life insurance articles have YOU read where knowledge is assumed? My guess is way too many…

…and you know what they say about that, don’t cha’?

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

Life Insurance Basics 101: The Jargon

I think this is one of the areas where life insurance agents get a bad rap.

We use terminology, and sadly, many advisors don’t feel compelled to explain what they’re talking about in plain English to their clients!

I guess we all get used to certain buzzwords, and sometimes, we forget that not everyone is immersed in life insurance.

No self-respecting life insurance Basics 101 post is complete without defining some of the standard vocabularies you encounter when applying for a policy!

Let’s check it out:

Policyholder:

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’s life.

Beneficiary:

The individual or entity (i.e., charity) that gets the cash when the policyholder dies. You can choose multiple beneficiaries.

Death Benefit or Face Amount:

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.

Premium:

Simply the cost of your life insurance, which you pay monthly, annually, or quarterly.

Underwriting:

Insurance companies’ process to pinpoint your rating class ultimately determines the cost. Typically, they’ll look at your age, gender, health status and lifestyle:

“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.”

If We All Hate Business Jargon, Why Do We Keep Using It?, Harvard Business Review 

What Is Life Insurance and Who Needs It Anyway?

Hey James, I started reading this Life Insurance Basics 101 post because I think life insurance is a scam!

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.

1. Life Insurance is NOTHING New. You can trace its roots back nearly 6,000 years

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

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.

In ancient Rome, burial associations paid funeral costs for their members from coffers built up through monthly dues. This was the beginning of Final Expense Insurance.

Hey, as an aside, did you know Lloyd’s 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?

Yep! They were far ahead of Starbucks!

Feeling better yet?

Now, if that doesn’t give you some confidence that life insurance has a long history and serves an important role, I’m not sure what will!

The first insurance company in the world, The Amicable Society for a Perpetual Assurance Office, was founded in 1706 under a charter from Queen Anne.

In 1804, the Phoenix Assurance Company opened the first insurance company in Canada…

….and an incredible $12.0 Billion in life insurance benefits was paid to Canadians in 2016.

2. Sadly, way too many Canadians are underinsured or completely UNINSURED!

1/3 of Families in Canada Don’t have life insurance

Ouch!

Well, the other 2/3 are covered, right? That’s SOME good news.

Ahem – maybe not as good as it could be.

…only 15% say they have enough life insurance to cover their remaining mortgage balance in the event of their death.

Most people aren’t realistic about their needs. Financial experts in Canada agree that there is a large gap between what people think they should have in terms of protection and what they need.

What would happen to your family if serious, unforeseen circumstances arise? 

I think that the fact that only 25% of Canadians feel they are financially prepared for their death speaks volumes!

3. Those are pretty dismal numbers considering the amount of debt we carry

Canadian debt continues to hit record highs as household income declines.

According to a recent survey, over half of Canadians have a good grasp of managing debt. 

That’s funny because, for every dollar of income, Canadians have $1.71 of debt, which includes credit cards, Lines of Credit, Loans, and Mortgages.

While 64% of Canadians say becoming debt-free is a top priority, only 31% say they consistently reduce their debt.

The sad truth is that 37% of Canadians feel overwhelmed by debt. 

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.

Debts and obligations don’t just evaporate when you reach the pearly gates.  

4. Stuff happens to the best of us at the worst of times

Thinking about real-life scenarios is essential when understanding life insurance basics 101.

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.

What happens to your family now? 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 finances.

Ugh—the scary truth is that those you love may have to cease living the lifestyle they’ve become accustomed to.

Planning is everything!

The only way to avoid this situation is to plan.

A great life insurance policy allows your family to stay in their own home. We all want to keep our promises.

….and life insurance allows us to do precisely that. No matter what the circumstances.

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.

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:

“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.”

Widow urges others to “learn from our mistakes” after husband without life insurance dies, cbc.ca

Unless you’re one of those rare birds who are independently wealthy, you need life insurance.

…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. 

The best news? Term insurance is wayyyy more affordable than you ever thought! 

No one wants to talk about life insurance because it means talking about death: we’re mere mortals floating around on this sphere in space (sorry to get all trippy on you) for a very brief period…

…and for some, it’s a shorter stay than for others.

Life insurance just isn’t sexy, but it’s a necessary evil when it comes to protecting the ones you love. I’d say it’s the only product you buy where you hope never to use it.

So, let’s get on with Life Insurance 101!

Life Insurance Basics 101: Where Do I Start?

OK, I know I need life insurance. Now what? Take a long, hard look at your circumstances. 

…and no, I don’t mean estimate. Get a pen and paper and figure out how much money your family or loved ones need if you were to die suddenly.

You’d be surprised how many people are not in a relationship with this!

Step 1: Let’s Break It Down! How Much Coverage Do You Need?

1. What are your outgoings? Rent/ mortgage, utilities, insurance, groceries, entertainment, subscriptions, clothing, etc… get the idea?
2. Do you have a mortgage? Would paying off that obligation relieve financial stress on the people you leave behind?
3. What about debt? Do you have outstanding loans, lines of credit, etc., that must be paid off?
4. Did you make promises? Maybe you want to help put your kids or grandchildren through university, or you’re in a business partnership that relies on your input.
5. Where do you see yourself in 10, 15, 20, or 30 years? There are chances you’ll be better off—or at least that’s the plan!

Ca-ching!

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

…and it’s one of the main reasons I’m writing this Life Insurance  Basics 101 post!

The Cost of Living Is Crazy!

“It’s no secret that the value of $1,000 changes 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 Montréal are definitely more expensive to live in than others.”

Here’s How Much Money You Need To Make To Be Considered Rich In Each Of Canada’s Major Cities, Narcity.com

Man, that’s a lot of work. I don’t know if I have the time. Why don’t I pick a figure?

Because you want to make sure your family is protected! Read on…

Let’s say you buy a policy with $200K of coverage! It sounds like a lot of money to most people.

But when you pay off some debts, take care of the funeral, and continue with your family’s daily machinations…

…it’s not a lot of money at all.

It could leave you underinsured. That’s why it’s important to speak with an independent agent who can give you a starting point.

I go through a complete needs analysis with all my clients. 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.

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

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!

Step #2: Choose Your Term 

Let’s say you’re in your late 20s and decided to buy a life insurance policy while young and healthy. First of all, kudos to you! I’m impressed that you’re taking care of business.

This is a financially savvy decision. 

Why?

Because if you’re starting a family, you can get a 30-year term policy for the cost of your daily coffee! This coverage carries you through your childbearing years into your children’s adulthood.

Wow! Now, that’s a fantastic deal. You’re covered no matter what happens to you health-wise. 

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.

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

Step #3: Select the Type of Life Insurance YOU Need 

You have two main categories of life insurance to choose from. Whole life falls under the umbrella of Permanent Life Insurance.

Now, while Whole Life is a GREAT product, it may not be a fit for your circumstances.

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.

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.

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:

Term Life Insurance

Term life insurance is the cheapest and best-known type of life insurance AND the most suitable for 90% of people. 

It is the purest form of coverage. A client purchases protection for a set period, referred to as a “term,” hence the name.

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.

Typical coverage is for $50K, $100K, $250K, $500K, and $1 Million, although you can customize these figures to meet your needs. 

Term life insurance is extraordinarily affordable because you only pay for coverage over a limited period (the term).  Think of it like renting a home instead of buying one outright.

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

Permanent Life Insurance

Permanent insurance provides you with lifelong coverage as long as you keep up with your monthly payments.

Because it’s designed to last your entire life, it’s much more expensive than term insurance. Permanent insurance products have two parts:

1. Insurance Component
2. Savings Component

You can use your policy as a savings vehicle to build up cash value, which you can use for any number of things.

It suffices to say that, for specific individuals, permanent insurance can be an excellent estate planning and business succession tool. A small permanent policy is ideal for covering funeral costs so your family doesn’t have to worry.

Whole Life, Universal Life, and Term 100 are the three types of permanent life insurance.

“NOTE: Term 100, also known as “Term-to-100” is misleading because it has the word “Term” in the title but it’s most definitely permanent insurance. Confused? You’re not alone.”

Step #4: The Application Process 

We know the ins and outs of the underwriting processes for Canada’s best life insurance companies. This means savings for you.

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

The next step is applying.

We can do this in person, over the phone, or screen sharing on a computer.

Some clients want the personal touch, while others want to complete the process quickly. It all depends on your comfort level!

Electronic applications are becoming a mainstay of the insurance industry as we speak. The choice is yours.

AND Don’t forget – honesty is ALWAYS the best policy! 

“NOTE *** Honesty is non negotiable. Misrepresenting anything on the application or fudging the truth is fraud and your beneficiaries won’t get a dime.”

“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.”

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. 

“By the way, all communication between you and your life insurance agent is confidential.”

Step #5: The Medical Exam

Life insurance is a business; companies want to know as much as possible about you before setting your premium.

A medical exam is part and parcel of this process. 

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

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 less than 48 hours.

That’s Fast!

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 risk.

I highly suggest obtaining a fully underwritten policy, with a medical exam if possible.

What to Expect

Ahhh, the medical exam!

Everyone’s favorite part of the process!

The life insurance company you select arranges a time and location that is convenient for you to have a nurse check:

• your vitals
• take your height & weight
• draw blood
• ask some questions
• take a urine sample

Typically, that’s it – but there are times when additional tests are required.

It’s as simple as 1,2,3!

Remember, it’s completely natural to feel a little bit of anxiety, but the good news is there are steps you can take to get the best result: 

• Lay off sugar, salty food, booze, and fried treats the week before you have your exam
• Don’t drink caffeine 24 hours before the nurse arrives
• Avoid strenuous exercise 24 hours before the medical 
• Stay well hydrated for 48 hours 
• Take a cold shower on the day of your exam 
• Get a good night’s sleep 
• Request a morning exam 
• Practice meditation the week before 

No  Excuses Please!

Whatever you do, don’t use getting in better shape as an excuse not to purchase life insurance.  

It’s always a bad idea because it exposes you to risk.

Seriously, no one plans to kick the bucket!  

If you don’t get the health rating you deserve, your life insurance can always be reviewed.

It’s not uncommon, for example, to be re-tested for high cholesterol or high blood pressure and have your insurance premiums come down when you’ve been stabilized with medication.

Life insurance basics 101 tips? The most important thing is to get SOME coverage in place! 

Using No Medical Life Insurance as a Tool

“NOTE* If you are worried about your health and haven’t been to the doctor for a couple of years, it’s not a bad strategy to secure a no medical exam policy first. It will give you peace of mind that no matter what your lab results are, your family is protected.”

A word to the wise? Most people overestimate the impact of their condition on the rates they get. You are not the best judge of your health and chances are you have no idea how life insurance companies underwrite potential clients. You’d be surprised by the people I’ve gotten fully underwritten coverage for. 

Now, Let’s Wait for the Answers!

Life Insurance Basics 101: You’re approved, congratulations!

The insurance company you select issues your policy, which becomes effective once you sign on the dotted line and pay your first month’s premium.

Now you can sleep at night knowing if the worst-case scenario happens, your loved ones are protected…

…trust me, it’s a good feeling.

Life Insurance Basics 101: You’ve been rated…now what? 

It’s not fantastic, but good news—you’ve got coverage, albeit at a higher cost. Your rating is probably due to a health issue or your penchant for skydiving or wrestling alligators.

Ratings can range from 125% to 300% or more. For example, if you applied for insurance for $100 per month, a 150% rating means you’ll pay $150 per month. What are your options?

You can accept the insurance, but try your luck with another carrier.

Or you can stop wrestling alligators and hope the insurance company lowers your rating upon review! 

Your final option? Try your luck with no medical coverage. Sometimes, depending on your situation, you may get more affordable coverage.

Your life insurance application is postponed; that can’t be good

It’s not good, but it’s not an absolute decline either. This means the insurance company still thinks you have a shot at being underwritten.

They’re just waiting on some missing information or an incomplete test.

You’re in a holding pattern and might have to wait six months to a year for them to review your file pending positive test results. Consult your agent (hopefully, it’s Policy Architects!)

Ouch! You’ve just found out that you’ve been declined

There’s no way to sugar coat it, that’s bad news.

Try not to take it personally or think that there’s something wrong with you; it happens.

Health conditions are the number one reason people are declined, followed by things like a poor driving record, financial instability, and previous insurance denials.

Take heart, there’s still hope, give Policy Architects a call we can go through your situation and target more lenient carriers who will give you a second look. 1.888.501.9583

This is When No Medical Simplified Issue Comes in Handy

Failing that, you still have the Simplified Issue, No Medical Exam route, a viable alternative to traditional underwriting.

This is an increasingly popular side of the life insurance business.

Why is this good?

More competition means the threshold for applying is lowered, and more conditions are covered than ever before.

Not long ago, if you mentioned the word “cancer,” it was a flat-out decline.

Now, depending on the type of cancer, the treatment, and the period you’ve been in remission or cancer-free, you may be eligible for coverage that people would only have dreamt about a decade ago.

I’m just scratching the surface on this subject here; there’s lots more to say. Learn more about how to buy life insurance online without a medical exam. 

Final Thoughts: Life Insurance Basics 101

Well, as you can see, there’s much to discuss regarding life insurance basics 101. 

There are many considerations when setting up your policy. A great independent agent will take some time to conduct a needs analysis to determine what sort of coverage you and your family require.

The face value, length of term, and type of life insurance are just the first steps to getting an affordable yet comprehensive policy with a top-of-the-line carrier.

Remember, as I said, insurers aren’t all created equally.

So you need an independent agent that knows their stuff – ahem – Policy Architects! 

Life Insurance Basics 101: Why Policy Architects?

Life Insurance Basics 101 is a big subject to understand. You can get quick and easy online quotes, but this isn’t the whole story.

Far from it!

Don’t risk getting “Analysis, Paralysis”! Call the independent life insurance agents at Policy Architects today. 

We identify the right product for you – at the best possible price. This simple call can save you thousands over the term of your policy! 

Best of all, our boutique approach won’t cost you a dime. Save TIME, MONEY & HASSLE!