Life Insurance FAQs
You've got questions, we've got answers.
Life insurance can be a complex topic. But it doesn’t have to be. Here, we give you straightforward and concise answers to some of the most commonly asked questions.
Life insurance basics
If you’re a complete newbie, you’ve come to the right place! We have all the resources you need to get you up to speed.
This FAQ will run you through the basics of life insurance. Once you’re done reading this, you can head over to this page which has all our most popular posts.
Click here if you want to play around with the quotation tool to get an idea of the cost.
If you have a burning question about life insurance that’s not answered here, please send us an email or call us and we will do our best to answer your question.
Life insurance is a contract between an owner of a policy (usually an individual) and the insurance company. In exchange for a regular stream of payments called the premium, the insurance company promises to pay out a death benefit to the beneficiary upon the death of the life insured.
The owner is the entity who owns, controls, and pays for the insurance policy. This is usually an individual but can also be a corporation.
The life insured is the person whose life is covered by the policy. The insurance company pays out the death benefit when the life insured dies.
The death benefit is the proceeds paid by the insurance company to the beneficiary.
The beneficiary is the party who receives the death benefit. This can be an individual or other legal entities like a corporation, a trust, or a charity.
If you have dependents like a spouse and children who will suffer financially if you die, you need life insurance.
Life is constantly changing and as a result, so is your life insurance needs. You might not need life insurance to replace your income anymore since you’re retired, but that doesn’t mean you don’t need life insurance at all.
If you’re doing estate planning or executing a wealth transfer strategy, then life insurance could help you accomplish these much more easily.
You should read this comprehensive guide to help you decide whether you need life insurance in retirement.
You want enough to replace your income for a number of years. The number ranges but is usually a minimum of 5 years and up to your retirement age.
You can also add in other debts and costs that you want paid off when you die. This includes the mortgage, credit card debt, children’s education costs, funeral expenses, and more.
Typically, you get a flat amount from your benefits plan like $25,000 or $50,000. You might even get a multiple of your salary like 1x or 2x.
Given the amount you need to replace your income alone, it’s safe to assume this isn’t enough.
Plus, you have to keep in mind that your group life insurance ends when you leave your employer, so it’s always better to have your policy that you own and control.
Your age, gender, health, and lifestyle are all factors that affect how much life insurance costs. Besides these, the amount that you buy also matters.
Check out our post on the cost of life insurance for more information.
All insurance companies in Canada are required to be members of Assuris, a not-for-profit organization that provides guarantees for policyholders.
Even if the insurance company becomes insolvent, you can still retain most if not all the benefits.
For example, Assuris guarantees your death benefit for $200,000 or 85%, whichever is greater.
Types of life insurance
The two main types of life insurance are term and permanent.
Term insurance lasts for 10 or 20 years, or whatever term you choose. The premium is guaranteed level for the initial term and renews at the end of the term for a higher premium. It’s the most affordable type of insurance during the initial term.
Within permanent insurance, there are whole life and universal life insurance. Both have different features but share a commonality in that both cover you for your entire life.
Both serve different purposes. For the majority of people, they need life insurance to protect their family’s financial future. They will need the death benefit for income replacement and paying off debts. In this case, term insurance is more suitable.
However, other people may have a permanent need for life insurance. There are also other interesting things you can do with whole life that you can’t do with term (more on that below). For these people, whole life insurance is more appropriate.
Celebrate! But really, people outliving their term is very common. If your health is still good, you can buy another term policy. This will be much cheaper than renewing your current policy. You can also convert it to permanent insurance if you need coverage for your entire life.
Even if your health has declined, it may still be cheaper to get a new term policy. You’ll have to go through underwriting to find out.
Whatever the case, don’t wait until the last minute to act. You should get started at least a few months before your current policy renews. The last thing you want is to have a gap in coverage.
One of the more popular use of whole life insurance is as a source of tax-sheltered investments. Besides paying for the death benefit, a portion of the premium is invested. The policy pays a dividend every year which is reinvested to increase the death benefit and cash value.
After a number of years, the cash value grows to a large amount and can be used as a source of tax-free retirement funding.
Besides that, the increasing death benefit helps offset the effects of inflation.
No medical life insurance is a type of insurance where you don’t have to go through the medical exam. All you have to do to qualify is answer a few questions on the application.
While it’s quicker to get coverage and less invasive than fully underwritten life insurance, it’s also quite a bit more expensive.
There are both no medical term and whole life insurance.
You need to review your current financial situation to answer that question. If you have a young family dependent on your income and a tight budget, you’ll want to get term insurance.
If you want to cover final expenses, do estate planning, charitable giving, or take advantage of tax-sheltered savings, you’ll want whole life insurance instead.
Buying life insurance
As a consumer, you have a lot of choice. You can either go through a local life insurance broker or agent, use an online broker, or buy directly from the insurance company.
When you buy online, you can shop and compare from many insurance companies in Canada. That way, you know you’re always going to get the best deal.
You’re also free to get quotes any time you want and adjust the quote until you find the perfect policy.
Finally, you don’t have to deal with sales pressure of a local agent which can be a huge turn-off for many people.
The premium you pay depends on your health, medical history, lifestyle, and more. When you buy directly from the insurance company, they don’t take the time to gather all that information. Without a clear picture of you, they don’t know if you represent a high risk or low risk. As a result, to err on the side of caution, they assume everybody buying direct is a high risk and charge them a high premium.
Besides that, the maximum coverage you can buy is relatively low. This protects the insurance company and limits its risks.
A high premium combined with low coverage make buying direct a poor choice.
You can use the quotation tool to find a quote. Simply input your date of birth, gender, and smoking status and pick the type of insurance you want. The tool will compare all the insurance companies in Canada and automatically sort them from lowest cost.
Keep in mind this premium is not finalized until underwriting is done to determine your risk. Your final premium may be higher or lower depending on your medical history, health, and lifestyle.
Send us an email or give us a call and we can complete the application together online.
For the application, we can meet via video conferencing. The entire process usually only takes between 30-45 minutes.
You will need to provide basic information like your legal name, date of birth, address, phone number, and employment information. You’ll also need to provide full details of your medical history, health, and lifestyle.
If you choose a no medical life insurance product, you will only have to answer a few medical questions ‘yes’ or ‘no’ without going into detail.
It usually takes a few weeks to over a month to place the coverage in force. The less complicated your medical history, the quicker the process.
With no medical life insurance, it can take as little as 24 hours.
You have the option of paying monthly or annually. There’s usually a finance fee of 8% if you pay monthly.
You can pay the premium by cheque or EFT. Some companies also accept credit card for the first payment.
Absolutely. You’re not locked in to the policy forever. At any time, you can give notice to the insurance company to cancel your policy. Whether your needs have changed or you’re having second thoughts, the insurance company makes it painless to cancel.
If you’ve already paid for the entire year, you will receive a refund once you cancel for the unused portion.
If there is cash value inside the policy, the insurance company will pay it out to you. However, you may have to pay tax depending on the adjusted cost base of the policy.
Underwriting and medical exam
Underwriting is the process the insurance company goes through to determine if the premium is suitable for your risk.
Traditional life insurance is fully underwritten which means the underwriter will obtain detailed information about your health, medical history, and lifestyle.
No medical life insurance skips most of this and only requires a few questions answered. Although quicker and less invasive, no medical life insurance is more expensive than fully underwritten life insurance.
With many insurance companies, you can buy a large amount of death benefit (up to $1,000,000) up to age 50 without a mandatory medical exam.
A health professional will measure your height, weight, blood pressure, and pulse rate. He/she will also collect blood and urine samples.
The insurance company is interested in biomarkers like cholesterol, glucose, cotinine, and much more. All of these are important to give the it a snapshot of your current health.
To get the best results, you want to be prepared. This includes sleeping well the night before, avoiding alcohol, caffeine or heavy exercise prior to the exam. It also helps to be relaxed so your home is typically the best place to do it.
Here are several more tips to help you get the best results on your medical exam.
Buying from an insurance company that lets you buy a large death benefit without a mandatory medical exam is a good way to avoid it. It’s not foolproof though because the insurance company can still request it during underwriting.
Buying a no medical life insurance policy is the only way to guarantee that you don’t need to do the medical exam.
Besides the medical exam, the insurance company will also gather a lot of information from the application. During the exam, you’ll have to answer the questions about your lifestyle and medical history.
If you’re not doing the exam, you will answer those questions via a telephone interview.
If the underwriter still isn’t satisfied, it can contact your family doctor for a report for more information.
Death benefit and beneficiary
No, the death benefit is received tax-free.
If you name your minor children as beneficiaries, the proceeds won’t go directly to them. Instead, the Public Guardian and Trustee will manage the funds until they reach adulthood.
That’s why you should either name a trust or your estate as the beneficiary to manage the funds for minor children.
If you don’t name a beneficiary, the death benefit will go to your estate. It will be used according to the terms of your will. If you pass away without a will, your estate will be distributed according to the laws of the province in which you live.
You can name a contingent beneficiary who will get the proceeds of the death benefit if the primary beneficiary predeceases you.
Yes, major life events occur, prompting you to change the beneficiary. The insurance company understands this and lets you change the beneficiary as necessary.
Didn’t get your question answered? Shoot us an email at info@briansoinsurance.com or give us a call at 604-928-1628 and we will do our best to answer your questions.
While we make every effort to keep our site updated, please be aware that timely information on this page, such as quote estimates, or pertinent details about companies, may only be accurate as of its last edit day. Brian So Insurance and its representatives do not give legal or tax advice. Please consult your own legal or tax adviser. This post is a brief summary for indicative purposes only. It does not include all terms, conditions, limitations, exclusions, and other provisions of the policies described, some of which may be material to the policy selection. Please refer to the actual policy documents for complete details which can be provided upon request. In case of any discrepancy, the language in the actual policy documents will prevail. A.M. Best financial strength ratings displayed are not a warranty of a company’s financial strength and ability to meet its obligations to policyholders.