Personal Finance

Life Insurance Q&A - w/ FAQ Section

  • Last Updated:
  • Oct 12th, 2017 11:41 am
Newbie
Jan 1, 2007
50 posts
3 upvotes
Toronto
wesboag wrote:
Feb 27th, 2017 5:04 pm
Hello mixas99,

This isn't the first time I have seen these policies sold to unsuspecting individuals by insurance reps either uneducated/inexperienced and/or just out looking to make a quick buck. Joint first to die certainly has its merits in certain cases, but not on a yearly renewable basis (cost) and never with an expected annual return of 10% on the investment portion (this is after fund MER's). As you have illustrated, YRT costs become unaffordable to most as you get older. Reason of course is your statistical likelihood of dying gets that much greater. The problem is, these agents either unknowingly or ignorantly illustrate unearthly rates of return to suggest the policy will "maintain" itself after x amount of years or curb the increasing cost. This is rarely if ever possible.

If you are going to buy a joint first to die (or even a last to die), in my opinion it should be only be as "level" cost of insurance. Don't kid yourself, you will pay for this feature, but at least it’s guaranteed. This way you do not have to worry about sustaining a required rate of return. You are paying for the pure cost of insurance.

To answer your questions:

1) Yes you will pay until the first person passes. Could be tomorrow, could be age 100, you don't know this. Further, once a policy owner reaches age 105, the policy is considered contractually paid up and no further payments are required. The likelihood of this occurring is VERY rare, even more so on a JFTD.

2) The policy will not lapse at 100, unless the first of you die at that point or you cancel the policy. If any remaining cash value is in there (next to impossible), it is yours - taxable of course.

3) Increase in cost looks within range. Clearly it’s going to become unaffordable.

If you still need insurance coverage you should have insurance. If you still have your mortgage and the surviving spouse would be left in a precarious financial position, you need insurance. Your particular circumstances will dictate what you need in terms of coverage (if any) and for how long. I recommend you go through a needs assessment with a qualified insurance advisor - not someone simply looking to sell you the flavor of the month. The needs assessment will look at incomes, debts, other financial needs, etc in helping you determine what your risk is - and how to protect against such.

As unbiased as I am, I would recommend you look into new coverage (either term) or permanent (level) if you have estate planning needs as well or a desire to continue coverage past say age 75-80. If all you want to cover for is your mortgage debt, purchase a term 10, 15 or 20 depending on mortgage amortization (decreasing this amount every 5 years or so as the mortgage is paid down). If you are around age 47 (based on your purchase date and age of current policy) - a term 10 for each of you (for $400k) shouldn't cost more than $85/month, a term 15 - $145/month or term 20 for $155/month. If you reduce the coverage amount every 5 years or so even cheaper.

In any event never cancel your current policy until you have other coverage in force. You don’t know how your insurability may have changed over the past 9 years.
Mixas99,

I agree with wesboag. 10% performance is pretty unrealistic granted even most funds barely break an annual 8% mark on a 10 year performance scale. Unless Manulife gives additional bonuses when you hit a certain %, it's going to be very hard to hit 10% year after year. In terms of your policy, aside from surrendering your policy you can consider the following:
1) Ask Manulife if they can convert it to a Level pay policy. Obviously your premiums will shoot up right away but at least you know what you'll have to pay going forward making it easier to budget your monthly / annual finances. Not all insurance policies allow that, but if Manulife allows that, it might be an option for you.
2) Review your funds and perhaps make some tweaks. 3% annual seems like you've invested in conservative funds. I don't know your risk tolerance so maybe indeed the funds you chose fit your risk analysis at the time.
3) UL policies have a max range above the Cost of Insurance which goes directly into the "investment" portion of the policy. Perhaps you would like to put more per month to the policy so it goes into the investment portion. Obviously this still depends on your fund performances so whatever you decide to put in "additionally" still grows at the 3% (or whatever performance your funds will grow at). By putting more into the policy will allow the cash value to increase at a quicker pace hopefully outpacing the increase in premiums.

I'm usually hesitant in telling my clients in surrendering policies unless it's absolutely the last resort. Insurance policies get more expensive as you grow older. So whatever you're currently paying, and the coverage you get at the moment will more than likely be cheaper than if you were to get a quote a few years later. Aside from that, Insurance policies in general do get rate adjustments here and there (e.g. two policies with the exact same criteria - same age, underwriting etc. from early 2016 and now would show the policy in 2016 being cheaper). So while surrendering your policy and getting a term insurance might make sense from a cost of premium point of view, but don't forget if you ever choose to get life insurance again in the future it's hard to foresee what your medical history would be like and your age might cause you to pay the same amount but with much less face amount.

I suggest you to revisit your portfolio with your advisor (or go to a new one) and make some changes. Ultimately, it boils down to what you're looking to do with the life insurance policy. Is it just to cover the balance of the mortgage in case anything happens or are you looking for more e.g. estate / retirement planning? Depending on your needs (Needs Analysis), your advisor can then make changes to your portfolio as needed.
Member
Oct 3, 2008
209 posts
10 upvotes
If there's any life insurance brokers that can deal with BC please message me
Deal Addict
User avatar
Sep 15, 2009
2696 posts
1002 upvotes
Toronto
xGoodwillx wrote:
Mar 7th, 2017 10:23 pm
Is it possible to get a loan against my whole life insurance policy?
Yes, using the cash value as collateral. It's often cheaper through a bank than going directly to the insurer for the loan. If you absolutely need a loan my first suggestion would not be to go this route. It may seriously impact the death benefit down the road. No line of credit? No other liquid assets? Only take a policy loan if you are out of options OR if it was part of a larger plan from the get go.
Deal Addict
Apr 11, 2006
4691 posts
885 upvotes
Mississauga
Does it make sense for parents to buy whole life insurance for their newborns, since premiums will be dirt cheap and their child will be set for life from a life insurance perspective?

Let's assume you get $300+K coverage or something to account for inflation by the time they get older.
Newbie
Mar 7, 2017
29 posts
1 upvote
Hi,

Is this Teacherslife plan any good?

I have just read all the 140 post and still not sure what to do?

Age :
Wife 33
Me 34
4 year old.

Income :
Wife 50k Me: 72k

Mortgage 140 000
Already have Life insurance with work at X2 salary for both of us.
Have 100k in RRSP and TFSA
Live in Ontario
Newbie
Jan 1, 2007
50 posts
3 upvotes
Toronto
kenchau wrote:
Mar 8th, 2017 9:42 am
Does it make sense for parents to buy whole life insurance for their newborns, since premiums will be dirt cheap and their child will be set for life from a life insurance perspective?

Let's assume you get $300+K coverage or something to account for inflation by the time they get older.
Generally speaking, if one were to purchase whole life insurance the younger they start the better it is. So purchasing a WL policy on a new born will likely get you the cheapest rate possible (from a whole life policy point of view) while having the comfort of paying level premiums and a steady increase in cash value. As you know however, WL policies are more expensive in general so this puts your premium at a higher "bracket" so to speak from the get go.

Assuming Permanent insurance (Universal or Whole Life) is the only type of insurance they are looking to get, another option would be to get a quote on Universal Life with the option of (YRT to Level). This is basically to renew premium rates on an annual basis and eventually convert to a Level premium (Year to chosen by you & Advisor). This will provide a premium at a MUCH MUCH lower cost of insurance in the beginning years and then eventually switching back over to a level premium for the peace of mind. Technically speaking, your parents can put the difference in premium between the WL and UL policy, into the policy within the investment portion of the UL and have that portion grow for X number of years. Switch it over at X Year mark to Level and then just let the csv grow on its own.
E.g. If a WL policy for the newborn were to cost 500 dollars a year, versus the same coverage or a UL policy costs 200 a year. Your parents can still still put 500 into the UL policy (granted the policy has a maximum limit above 500). This way 300 dollars go towards investments. By the 10th year (when the kid is 10 years old), switch it over to a Level premium which should still be very affordable and continue to pay the Level premiums there after.

*Note: the numbers above are just examples and do not reflect actual cost of any policies*

You / your parents will need to look at the illustrations provided by their Advisor and determine what's the best plan suitable.
One thing to note is that WL is generally for those who don't like monitoring their funds and just want a piece of mind while UL is for those who want to be a little more involved with their investments.
Newbie
Jan 1, 2007
50 posts
3 upvotes
Toronto
Allaboutthedeals wrote:
Mar 8th, 2017 10:24 am
Hi,

Is this Teacherslife plan any good?

I have just read all the 140 post and still not sure what to do?

Age :
Wife 33
Me 34
4 year old.

Income :
Wife 50k Me: 72k

Mortgage 140 000
Already have Life insurance with work at X2 salary for both of us.
Have 100k in RRSP and TFSA
Live in Ontario
Hi Allaboutthedeals,

Are you asking if you and your wife should get additional life insurance coverage?

Without knowing the full picture, it's hard to say e.g. if you plan to have kids or leave a portion for any other dependents. I can only tell you based on the info you've provided.

Assuming RRSP / TFSA are reserved strictly for retirement and you are contributing annually, if all you're worried about is just the mortgage portion, then i believe it's "alright". Obviously there's room for improvement, your wife can purchase about 40k coverage to ensure if anything happens to her that the mortgage can be paid off.
However, from a Critical Illness or Disability Insurance point of view, it seems to be lacking. It's probably an area you'd want to look into.
Deal Addict
Apr 11, 2006
4691 posts
885 upvotes
Mississauga
postclean wrote:
Mar 8th, 2017 10:26 am
Generally speaking, if one were to purchase whole life insurance the younger they start the better it is. So purchasing a WL policy on a new born will likely get you the cheapest rate possible (from a whole life policy point of view) while having the comfort of paying level premiums and a steady increase in cash value. As you know however, WL policies are more expensive in general so this puts your premium at a higher "bracket" so to speak from the get go.

Assuming Permanent insurance (Universal or Whole Life) is the only type of insurance they are looking to get, another option would be to get a quote on Universal Life with the option of (YRT to Level). This is basically to renew premium rates on an annual basis and eventually convert to a Level premium (Year to chosen by you & Advisor). This will provide a premium at a MUCH MUCH lower cost of insurance in the beginning years and then eventually switching back over to a level premium for the peace of mind. Technically speaking, your parents can put the difference in premium between the WL and UL policy, into the policy within the investment portion of the UL and have that portion grow for X number of years. Switch it over at X Year mark to Level and then just let the csv grow on its own.
E.g. If a WL policy for the newborn were to cost 500 dollars a year, versus the same coverage or a UL policy costs 200 a year. Your parents can still still put 500 into the UL policy (granted the policy has a maximum limit above 500). This way 300 dollars go towards investments. By the 10th year (when the kid is 10 years old), switch it over to a Level premium which should still be very affordable and continue to pay the Level premiums there after.

*Note: the numbers above are just examples and do not reflect actual cost of any policies*

You / your parents will need to look at the illustrations provided by their Advisor and determine what's the best plan suitable.
One thing to note is that WL is generally for those who don't like monitoring their funds and just want a piece of mind while UL is for those who want to be a little more involved with their investments.
Thanks.

Personally, I am of the mindset that I want to keep insurance distinctly separate from investments. Furthermore, I just don't feel like the investment options you typically have access to, within a UL policy plan, are that great to begin with.

Also, I was asking "parents" as hypothetical. My parents are most certainly not expecting another child haha. But point taken. :)
Newbie
Mar 7, 2017
29 posts
1 upvote
Hi,

Thanks for the reply

Sorry I have 170K in mortgage

Yes I am asking if I should get additional coverage?
No more kids

I have HomeProtector® Insurance with My RBC Mortgage

Should I cancel my HomeProtector insurance and get insurance somewhere else?
postclean wrote:
Mar 8th, 2017 11:49 am
Hi Allaboutthedeals,

Are you asking if you and your wife should get additional life insurance coverage?

Without knowing the full picture, it's hard to say e.g. if you plan to have kids or leave a portion for any other dependents. I can only tell you based on the info you've provided.

Assuming RRSP / TFSA are reserved strictly for retirement and you are contributing annually, if all you're worried about is just the mortgage portion, then i believe it's "alright". Obviously there's room for improvement, your wife can purchase about 40k coverage to ensure if anything happens to her that the mortgage can be paid off.
However, from a Critical Illness or Disability Insurance point of view, it seems to be lacking. It's probably an area you'd want to look into.
Newbie
Jan 1, 2007
50 posts
3 upvotes
Toronto
kenchau wrote:
Mar 8th, 2017 12:17 pm
Thanks.

Personally, I am of the mindset that I want to keep insurance distinctly separate from investments. Furthermore, I just don't feel like the investment options you typically have access to, within a UL policy plan, are that great to begin with.

Also, I was asking "parents" as hypothetical. My parents are most certainly not expecting another child haha. But point taken. :)
Haha... I figured but you know... sometimes life happens. :)

Typically the investment options you have access to within a UL policy are seg funds which are essentially similar to mutual funds. I take it that you have other investment strategies in mind which is perfectly fine.

The example I provide is more of a comparison between WL and UL kind of like an apples to apples comparison. If you were willing to pay X amount, you could pay the same amount technically speaking but on a lower cost of insurance.
Just an option for you to consider.
However, if you don't like the investment options within a UL policy then that's a different story. :)
Newbie
Jan 1, 2007
50 posts
3 upvotes
Toronto
Allaboutthedeals wrote:
Mar 8th, 2017 12:41 pm
Hi,

Thanks for the reply

Sorry I have 170K in mortgage

Yes I am asking if I should get additional coverage?
No more kids

I have HomeProtector® Insurance with My RBC Mortgage

Should I cancel my HomeProtector insurance and get insurance somewhere else?
I'm not familiar with RBC products, but did you have to do underwriting (medical check) prior to being approved for the insurance? Do you know what their claims process is?
Typically Banks simplify the process by having you answer yes / no questionnaires about past health history and approve the mortgage insurance. When you submit a claim, they then look at your medical history to determine whether or not to approve the claim. There's a chance they will reject your claim due to pre-existing health conditions. I'm not saying RBC will do this, you'll need to inquire about their claims process in such scenarios.

Insurance companies perform underwriting first to determine your health and past history, adjust the premiums if necessary and then issue the policy. So they'll know what health condition an individual is at when they issue the policy. Essentially assessing their risk to take on an individual before they agree to it.

In terms of cost wise, it's best to run a few quotes to determine which would be cheaper whether through an insurance company or through RBC's mortgage insurance.
As always, don't cancel until you have alternatives in place.
Sr. Member
Jan 8, 2006
932 posts
228 upvotes
postclean wrote:
Mar 8th, 2017 2:11 pm
Typically Banks simplify the process by having you answer yes / no questionnaires about past health history and approve the mortgage insurance. When you submit a claim, they then look at your medical history to determine whether or not to approve the claim. There's a chance they will reject your claim due to pre-existing health conditions.
There is excellent story on this check it out how Bank has scams many customer with such a scheme CBC Marketplace - In Denial - Mortgage Insurance Canada
Newbie
Mar 7, 2017
29 posts
1 upvote
Hi,
I am paying 38.50 weekly.
No Medical Check was asked. I think I am better off finding my own Life insurance for my and myself.
Should I get Term insurance for 30 year until I am 65?
postclean wrote:
Mar 8th, 2017 2:11 pm
I'm not familiar with RBC products, but did you have to do underwriting (medical check) prior to being approved for the insurance? Do you know what their claims process is?
Typically Banks simplify the process by having you answer yes / no questionnaires about past health history and approve the mortgage insurance. When you submit a claim, they then look at your medical history to determine whether or not to approve the claim. There's a chance they will reject your claim due to pre-existing health conditions. I'm not saying RBC will do this, you'll need to inquire about their claims process in such scenarios.

Insurance companies perform underwriting first to determine your health and past history, adjust the premiums if necessary and then issue the policy. So they'll know what health condition an individual is at when they issue the policy. Essentially assessing their risk to take on an individual before they agree to it.

In terms of cost wise, it's best to run a few quotes to determine which would be cheaper whether through an insurance company or through RBC's mortgage insurance.
As always, don't cancel until you have alternatives in place.

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