Personal Finance

Life Insurance Q&A - w/ FAQ Section

  • Last Updated:
  • Feb 11th, 2018 11:05 am
Newbie
Nov 13, 2017
2 posts
SteveDfsin wrote:
Nov 28th, 2017 11:15 am
Q1. I'm just curious, what brought you to the number $500,000 for life insurance? It might be accurate for your current needs, just make sure you have a financial needs analysis done when deciding on a total need. As for the 30 year term, it's hard to say. The only reason I can see a 30 year term making sense is if 1) you take out a mortgage with a 30 year horizon 2) you want to make sure you have income replacement for your wife into your 70s. In this case, I'd play around with numbers to compare the cost of a 20 year term and a term to age 65 and compare to a 30 year term.

Q2. "Normally" no, but I feel it should be. Any time I recommend life insurance to someone, I explain the importance of CI and the different ways to add it in. I'm not a fan of blended products that have a CI that is attached to life insurance, meaning if you had $500,000 of life and suffered a CI, your CI payment ($50,000 for example) comes off the life insurance portion., dropping your life insurance payout by $50,000. So while it's important to have both, make sure they're not bundled in a hybrid product.

Q3. Most of these companies are solid with claims. I'm not a fan of RBC for life and CI, because of their products, not so much the claim process.


Thanks for reply steve,
whats your advise about joint term with wife for T20 or T30,
as wife is part time worker.

please suggest
Newbie
Oct 1, 2017
4 posts
1 upvote
SteveDfsin wrote:
Nov 30th, 2017 11:34 am
That's a legit question, In the first five years of a term 10 or 20, you can convert it to a longer term (20 or 30) here's a breakdown of the exchange option:

Please Note: Premiums listed aren't exacts, merely estimates

30 Year old man purchases T10 for $500,000 for $25/Month (has to go through medical and underwriting).

At age 34 he wants to exchange it for a T20. The T10 for $500,000 no longer exists.

34 Year old man's policy is now a T20 for $500,000 for $35/Month (No medical questions or underwriting). The price is what any 34 year old of average health would have to pay for a $500,000 T20 even if you've been diagnosed with some kind of illness, you are still eligible to exchange for a T20 at this price. In total, this person would still have $500,000 of life insurance, it's just a T20 now instead of a T10.

He can't get more than $500,000 on the new policy without applying and going through underwriting. The new T20 starts from day 1 and is in place the next 20 years, meaning you'd get a full 20 years after the exchange. There is also the option for a Guaranteed Insurability Rider when applying for your T10, this just gives you the option to add more insurance at a later date with no medical questions asked. It does cost extra but would be useful knowing that you will need more insurance down the line to cover a mortgage, this rider can be put in place even if your health has taken a serious turn for the worse, you'd be eligible for healthy rates on a certain amount of life insurance (depending on what you choose for the rider).

That makes sense thanks for clarifying.
Member
Sep 23, 2013
263 posts
129 upvotes
Windsor, Ontario
tech2017 wrote:
Nov 30th, 2017 9:53 pm
Thanks for reply steve,
whats your advise about joint term with wife for T20 or T30,
as wife is part time worker.

please suggest
Joint products serve a very specific purpose, in terms of household insurance planning, I have never recommended a joint product. The main thing you need to do is figure out why you need life insurance.

Things to consider:
1) Replacing income if you pass away. Since your wife is working part time, you may need to have a larger policy on yourself, assuming you're the main breadwinner. If you pass away, the household income drops quite a bit, will your wife be able to keep up on part time work?
2) Part of life insurance planning is covering debts, so that if you pass away your partner won't have the burden of dealing with it all alone.
3) Illness protection, if you become ill or disabled, will the bill start to pile up?

The more information you give, the more accurate the recommendations will be. Before looking at products and terms, look at getting a Financial Needs Analysis done on you and your wife as a starter, from there you can work towards a product.

Hope this helps.
Newbie
Feb 22, 2008
15 posts
1 upvote
Spruce Grove
To Stevedfsin or anyone else, are you aware of a major insurer that won't rate a male as a smoker for the grave error of having one cigarillo with a buddy a few months ago? Most insurers will rate him as a smoker. He's otherwise not a smoker.
Member
Sep 23, 2013
263 posts
129 upvotes
Windsor, Ontario
wrothe wrote:
Dec 8th, 2017 12:52 pm
To Stevedfsin or anyone else, are you aware of a major insurer that won't rate a male as a smoker for the grave error of having one cigarillo with a buddy a few months ago? Most insurers will rate him as a smoker. He's otherwise not a smoker.
Unfortunately the question is "Any nicotine or tobacco product in the past 12 months". As far as I'm aware, all companies will count you as a smoker. I've only had one experience with a very infrequent cigarillo smoker we just waited until he was over a year free before applying. In that case we got lucky because he had been off it for 10 months anyways. Hopefully someone else on here has some insight to provide with regards to a company that might overlook one cigarillo because I have nothing, sorry.
Newbie
Dec 9, 2017
2 posts
What a great and informative thread! Hoping some of the knowledgeable folks can opine on my situation:

Me:
-34 years old
-~175K annual gross income
-Basic LTD coverage through employer for $28,000 (work pays for this)
-Critical illness insurance coverage for $150,000 (I pay for this through work coverage at $199 annual cost)
-Life insurance for 1x my salary through work so essentially coverage for $175k (work pays for this)
-Accidental death and dismemberment insurance coverage through work for $500k (I pay for this through work coverage - $84 annual cost)
-I have a defined contribution pension at work which I contribute 8% to (that's the max I can do) and employer matches half.

Wife:
-31 years old
-~175K annual gross income
-Critical illness insurance coverage for $150,000 (I pay for this through my work at $226 annual cost)
-Disability insurance that pays out $1500 / week tax free ($38 monthly premium - wife is in the medical field and this was what was sold to her when she first started practicing). I think we may want to look to increase this down the road as her earnings ramp up.
-No life insurance at this time

We don't have any debt other than our mortgage (approx $900k remaining as we basically just bought a house). We have about $300k in RRSP/TFSA.

No kids at the moment, but hoping to start a family in the next couple of years.

I am thinking term insurance for 20 years, but unsure of the amount of coverage I should be getting. My initial thoughts are $1 million for each of us.

Would welcome any thoughts or if any experienced brokers want to PM me, that's fine too.

Thanks!
Member
Sep 23, 2013
263 posts
129 upvotes
Windsor, Ontario
htkhtk wrote:
Dec 10th, 2017 3:07 pm
What a great and informative thread! Hoping some of the knowledgeable folks can opine on my situation:

Me:
-34 years old
-~175K annual gross income
-Basic LTD coverage through employer for $28,000 (work pays for this)
-Critical illness insurance coverage for $150,000 (I pay for this through work coverage at $199 annual cost)
-Life insurance for 1x my salary through work so essentially coverage for $175k (work pays for this)
-Accidental death and dismemberment insurance coverage through work for $500k (I pay for this through work coverage - $84 annual cost)
-I have a defined contribution pension at work which I contribute 8% to (that's the max I can do) and employer matches half.

Wife:
-31 years old
-~175K annual gross income
-Critical illness insurance coverage for $150,000 (I pay for this through my work at $226 annual cost)
-Disability insurance that pays out $1500 / week tax free ($38 monthly premium - wife is in the medical field and this was what was sold to her when she first started practicing). I think we may want to look to increase this down the road as her earnings ramp up.
-No life insurance at this time

We don't have any debt other than our mortgage (approx $900k remaining as we basically just bought a house). We have about $300k in RRSP/TFSA.

No kids at the moment, but hoping to start a family in the next couple of years.

I am thinking term insurance for 20 years, but unsure of the amount of coverage I should be getting. My initial thoughts are $1 million for each of us.

Would welcome any thoughts or if any experienced brokers want to PM me, that's fine too.

Thanks!
Great post, I'll give you what insights I can as you have given a lot of good information. I've decided to post on here just so anyone else reading in a similar situation can pick up a few bits of information. I'll give you some information and also things to consider if you do indeed end up sitting across from an insurance professional for a conversation.

If you'd like follow up information, you can PM myself or any of the other life and health insurance advisors who post on here.

One thing I notice off the bat is a discrepancy between your income and LTD benefit. Your disability income would be less than 1/3rd of your net tax income (approximately), you should definitely consider supplementing your work coverage to make up for that gap. Your wife seems to have more disability coverage, which is great, but again there is a slight drop in disability income vs net income. Is your wife self-employed.

Looking at your total household income, without children it's easier to lean on a partner's income if you or her were to become disabled. With children and large debt, a loss in income is harder to manage which is why you both might want to consider upping your individual disability coverage. For your wife's plan, what type of coverage does she have? Is it a term or until retirement? Are there waiting periods? Based on both of your incomes, a longer waiting period might be a good idea just to save money on premium dollars. Also what type of riders does your wife's plan have? There are so many ways to build a disability plan, a lot of it's worth will come in the riders. One of the most important options in my opinion is an extended "own occupation" or "regular occupation" rider.

As for your CI coverage, you both have adequate coverage. Generally you want to cover 75-125% of your yearly income and $150,000 would do that. On an apples to apples comparison, the plan you have through work is good (compared to a 10 year term for example). The problem with a work plan is that you have no control on the plan, there are no guarantees and some work plans may have increasing premiums, depending on the plan. Your employer can one day decide to scrap the critical illness benefit on you and you'd have no say.

If you were to look at replacing your work plan with a personal plan, look into options with either a T100 with return of premiums on death or a T65 with return of premium on expiry. This way you can lock in a plan, whether you find a new job, retire, or your work decides to one day scrap your CI work benefit. Keep in mind the costs do go up when you lock in longer term plans and add a refund of premium option, but at least you know you'll get something back if you don't end up using it.


As for the life insurance, at the very least cover the mortgage so that if one of you were to die, you wouldn't have to worry about that. If I were to do an financial needs analysis for your life insurance right now, it'd only include covering the mortgage. You both make a great income and without the mortgage to worry about, that income would be more than enough to manage the week to week expenses.

If you were to do a financial needs analysis with a child, you insurance needs do go up as children have tend to be quite the financial black hole. In any case, because of the dual income, the income replacement wouldn't be that much, as one income (without mortgage payments as that'd be already covered) will carry the family through quite a bit. That being said, I can't give a definitive answer here, as I don't know know too much about you but you both may be able to get away with looking at a 25-50% income replacement after the mortgage is covered. It really depends on your life style, how you'd manage a family without your spouse (babysitters required, home maintenance, surviving spouse going from full time to part time etc).

Also, based on your income and investments, you might want to consider looking at PAR whole life insurance plans as part of your life insurance plan. It's a great product for those who maximize their RRSPs/TFSA and still disposable income at the end of every year to play around with. I don't want to get into PAR right now as I feel I've given you quite a bit of information and it's something that should have it's own post or be done in person.

I hope this helps, I know it's a long write up with a lot of moving parts and I imagine a few grammatical errors and typos. If you have any questions feel free to post them. Cheers.
Newbie
Jan 30, 2017
95 posts
13 upvotes
Hi everyone

My wife and I have decided to get insurance.. and we're pretty clueless

Someone tried to explain it to us and he didn't really do a good job. I guess in order to decide what insurance is the right coverage you have to see what ur life is now and what u hope it'll be in the future.

Now: wife 28 and I am 29 her income is 50k and mine is 110k. The residence we live in is paid off and we don't plan on buying another house.. (only a real estate investment) I have disability insurance through my work. but don't really know for how much.
Future: a big family

So when someone explained to me term Insurance I thought it was so dum..
I think the best option is pay 20 right? We are thinking 300k each.. is that enough? Who knows if 300k in 20 years will be enough right?

Also is critical insurance a good idea.. it's cool cause they give u the money back if u don't fall sick to 25 dieseases...

Thanks

Please advise thanks
Member
Sep 23, 2013
263 posts
129 upvotes
Windsor, Ontario
Eaglesfan99 wrote:
Feb 10th, 2018 7:28 pm
Hi everyone

My wife and I have decided to get insurance.. and we're pretty clueless

Someone tried to explain it to us and he didn't really do a good job. I guess in order to decide what insurance is the right coverage you have to see what ur life is now and what u hope it'll be in the future.

Now: wife 28 and I am 29 her income is 50k and mine is 110k. The residence we live in is paid off and we don't plan on buying another house.. (only a real estate investment) I have disability insurance through my work. but don't really know for how much.
Future: a big family

So when someone explained to me term Insurance I thought it was so dum..
I think the best option is pay 20 right? We are thinking 300k each.. is that enough? Who knows if 300k in 20 years will be enough right?

Also is critical insurance a good idea.. it's cool cause they give u the money back if u don't fall sick to 25 dieseases...

Thanks

Please advise thanks

In past, I would have said buy life insurance when you need it and based on your situation there isn’t an overwhelming need right now. That being said, I’ve run across quite a few higher risk 30-45 year olds who ended up with declines or high rates because of illnesses (diabetes, cancer, etc..). So I’ve jumped on the bandwagon of buying it when you’re young and healthy.

In terms of your current situation, I’d say a term insurance plan would make a lot of sense. I’ll try to explain it and hopefully I have better luck than the person you met with. Before I explain anything, always have a financial needs analysis done before deciding on how much life insurance to buy. You mentioned $300,000, an advisor should be able to give you an exact dollar amount and be able to explain why they chose that amount.

You plan on having children and every year those children will cost a lot of money (food, clothing, recreation) on top of all of your existing bills. Life insurance is meant to cover these expenses if one or both of you were to pass away. To make sure your future children would always have food on the table.

Here are some reasons why Term would make sense:
1. Less need for insurance as your kids get older as they become financially dependent. So if you needed $900,000 of life insurance to financially support your kids for the next 20 years, you might only need $450,000 10 years from now as there is less time needed to cover the children until they’re working.
2. Less expensive and budgeting. Kids are a financial black hole, the lower premiums of a term are why it makes a lot of sense.
3. You can always convert your term to a permanent plan at a later date.

Now, there’s nothing wrong with getting a little bit of permanent insurance on the side. Generally I recommend this when someone has higher incomes, lower debts and a nice RRSP / TFSA cushion built up.
I’m a big believer in Critical illness insurance, but only if people have the appropriate disability coverage. Find out what DI you have through work to see if it’s adequate. You’re a lot more likely to file a claim for critical illness, so it will cost more money. If you get it, you generally want to cover 75-125% of a year’s income. The return of premium option is great, but you have to make sure it makes sense budget wise. It’s an additional benefit so it does cost more money.

I hope this clarifies things.

Top