Personal Finance

Life Insurance Q&A - w/ FAQ Section

  • Last Updated:
  • Dec 11th, 2017 1:13 pm
Member
Sep 23, 2013
248 posts
120 upvotes
Windsor, Ontario
tech2017 wrote:
Nov 14th, 2017 10:41 pm
Hi all,

see lots of good discussion in this forum,
need some info for life insurance ...

my age 38 yr Male, non smoker, salary 85 k , Life insurance employer - 2 times , LTD - Maximum 100K.
wife part time working , salary 15K --- son 10 yr old.
No loan so far, but house purchase and mortgage is planned in next 2 yrs.

Q1 - Planning for term insurance of 500K, 30 year term for myself. is this sufficient?
Q2 - Critical illness is normally part of Term life insurance ?
Q3 - Got quotes from Manulife, GW, Sun life and TD , RBC, Banks ----- which one would be less troublemaker , if claims...
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.
Member
Sep 23, 2013
248 posts
120 upvotes
Windsor, Ontario
seemslegit wrote:
Nov 28th, 2017 2:35 am
Hello, I have spent some time reading through some of the pages and I have to say this a great thread and thank you to the super knowledgeable/ helpful people contributing.
I would like some advice..

37 year old male, married no kids, wife is 36
Healthy although I am an occasional smoker, wife is a non smoker
I am self employed wife helps me part time, gross income is variable as I am incorporated but approx 70K
Have student loan approx $120K but I pay a monthly insurance premium with my loan payments (approx $30/month).
No mortgage or car loan although we do plan to add those in the near future

We are looking to start a family and I am considering a term-20 or longer life insurance policy for $500K and also possibly disability insurance or critical illness insurance since I am self employed and in case I am unable to work.

Based on above info would $500K be enough coverage?

What are your thoughts on Critical Illness and Disability Insurance?

What sort of insurance premiums can I expect?

Thanks!
If you're comfortable answering the following questions here, more concrete advice could be given:
Is your wife earning income anywhere else and if you passed away would she have income?
Occasional smoker, meaning cigarettes? Or are we talking cigars, marijuana?
Is that student loan insurance premium for life insurance? Or is it life and critical illness?
What do you expect your home to be worth when you purchase it?
Newbie
Oct 1, 2017
4 posts
1 upvote
SteveDfsin wrote:
Nov 28th, 2017 11:24 am
If you're comfortable answering the following questions here, more concrete advice could be given:
Is your wife earning income anywhere else and if you passed away would she have income?
Occasional smoker, meaning cigarettes? Or are we talking cigars, marijuana?
Is that student loan insurance premium for life insurance? Or is it life and critical illness?
What do you expect your home to be worth when you purchase it?
Wife works part time elsewhere earns prob less than $15K. As it stands now she wouldn't have income if I passed away but that may change in the next 5 yrs or so as she gets her career on track

Occasional smoker meaning cigarettes once or twice a month

I believe student loan insurance is life and critical illness as well but will have to confirm

House probably worth 700K when purchased

Thanks!
Member
Sep 23, 2013
248 posts
120 upvotes
Windsor, Ontario
seemslegit wrote:
Nov 28th, 2017 5:04 pm
Wife works part time elsewhere earns prob less than $15K. As it stands now she wouldn't have income if I passed away but that may change in the next 5 yrs or so as she gets her career on track

Occasional smoker meaning cigarettes once or twice a month

I believe student loan insurance is life and critical illness as well but will have to confirm

House probably worth 700K when purchased

Thanks!
So as of right now there is a huge wage gap discrepancy, that needs to be covered for your wife. On the life insurance side of things, I'd recommend getting a financial needs analysis done to figure out total life insurance needs and put in place with a 10 year term. A 10 year term will keep the costs low initially and within the first 5 years you can exchange it with a 20 year term, no questions asked. The price will only change based off your age and product. The reason I recommend doing this to start, is because your wife's situation will change, but the exchange will keep things open for when you have larger debts and a child.

Unfortunately, being an occasional smoker will still get you smoker rates, you need to be smoke free for a year before you can receive non-smoker ratings.

I'd recommend taking whatever insurance you have on your student loan and wrapping into an individually owned insurance plan. Once your updated plan is in place, you can cancel the insurance that is attached to the loan. "Insurance" plans that are attached to loans are generally not the best types of insurance, for both price and product reasons.

A 700,000 debt will really add to your life insurance needs in the future, you might want to factor that into your financial needs analysis today. Waiting until you buy a home in the future might make it more difficult. Something like diabetes, a cancer diagnosis, an accident, etc may make it harder to apply for insurance in the future

As for Disability insurance and Critical Illness insurance, in your situation it's much more important to start with disability insurance planning first. Once you have a solid life and disability insurance plan, then you can start to see what's left in your budget for insurance before deciding on a critical illness plan. While CI is important, you have to make sure you can afford it and it doesn't impact your ability to pay the bills.
Newbie
Oct 1, 2017
4 posts
1 upvote
SteveDfsin thanks for taking the time to read through and respond to my query. Your advice has been very helpful.

Could you please clarify.. you say getting a term-10 and converting to a term-20 five years down the line the rate would only change based off age and product.. So my age at that time and if I wanted to add additional coverage (increase payout amount)? So an accident or health problems diagnosis wouldn't matter is that correct?

But at the end of your response you say it makes sense to factor future debt into insurance now... So my question is can the policy only be converted from term-10 to term-20 at the 5 year mark?
If not wouldn't it be better to wait a few years or even 5 years down the line to incorporate the future mortgage debt and coverage for a child into the insurance?

Also another question and sorry if this sounds stupid but converting a term-10 to a term-20 five years down the line will change the remainder of the term from 5 years to 15 years? or from 5 years to 20 years?

Thanks!
SteveDfsin wrote:
Nov 29th, 2017 3:41 pm
So as of right now there is a huge wage gap discrepancy, that needs to be covered for your wife. On the life insurance side of things, I'd recommend getting a financial needs analysis done to figure out total life insurance needs and put in place with a 10 year term. A 10 year term will keep the costs low initially and within the first 5 years you can exchange it with a 20 year term, no questions asked. The price will only change based off your age and product. The reason I recommend doing this to start, is because your wife's situation will change, but the exchange will keep things open for when you have larger debts and a child.

A 700,000 debt will really add to your life insurance needs in the future, you might want to factor that into your financial needs analysis today. Waiting until you buy a home in the future might make it more difficult. Something like diabetes, a cancer diagnosis, an accident, etc may make it harder to apply for insurance in the future
Member
Sep 23, 2013
248 posts
120 upvotes
Windsor, Ontario
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).
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
248 posts
120 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
14 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
248 posts
120 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
1 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
248 posts
120 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.

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