Personal Finance

Life Insurance Q&A - w/ FAQ Section

  • Last Updated:
  • Oct 12th, 2017 11:41 am
Sr. Member
Nov 13, 2013
648 posts
219 upvotes
OTTAWA
SteveDfsin wrote:
Mar 16th, 2017 12:48 pm
You're absolutely right that I do use some industry standards when it comes to insurance planning, you also do see the importance of life insurance. I think where we disagree is the total number recommendation of life insurance. I think you're over estimating the cost of a term life insurance plan if you feel it would have a large impact on a families finances. I will say this and this is just in my experience when people purchase any time of insurance plan, the money that goes towards premiums usually comes out of a person's disposable cash flow. I've never seen someone scale back on groceries, retirement planning or home bills to buy life insurance.

One of the first things I do with people (before getting to insurance planning) is a cash flow exercise. At the end of every month, there is a surplus of cash without an assigned task (unless there is a deficit which is a whole other topic), that surplus is what goes towards the insurance planning. The entire surplus doesn't towards insurance, of course, there are other important financial goals that must be reached. One thing to note, is that after people work cash flow, they started to naturally get a better control of their day to day finances, less money towards things they don't need, and more towards things they do. I've learned that there is a lot of psychology when it comes to managing money.

That's my .02 when people argue that premiums should be kept low because x, y, z.
I really like your response. You make an especially good point about the typical family's cash flow. Most wont even notice a $100 that otherwise would be spent on Latte's etc. Everything is a trade-off.

Personally we max out RESPs (for 2 kids), RRSPs in addition to both my wife and I having a defined pension and we still save 10% of our net income almost every month. This goes directly into an investment account so any additional life insurance would directly reduce the size of this account.

My life insurance adviser was shocked when I said this, but I also know from personal experience that a smaller financial cushion can be a very positive force when overcoming trauma. Being forced back to work can be very beneficial for recovery.
Member
Nov 16, 2013
229 posts
24 upvotes
Mississauga
I am planning to get permanent life insurance for my son who is 14 year old. As I understand it will be much cheaper to get permanent life insurance for him at this age where I will contribute for next 4-5 years and when he starts earning then he can contribute. I am looking at 1 M policy.

Any suggestions?
Member
Sep 23, 2013
230 posts
107 upvotes
Windsor, Ontario
vivmk20 wrote:
Mar 20th, 2017 6:24 pm
I am planning to get permanent life insurance for my son who is 14 year old. As I understand it will be much cheaper to get permanent life insurance for him at this age where I will contribute for next 4-5 years and when he starts earning then he can contribute. I am looking at 1 M policy.

Any suggestions?
Is there any reason for getting the life insurance other than the cost factor of "now vrs later"? A $1 million dollar permanent insurance policy will still cost quite a bit, even at a younger age. Will your son want to take on that kind of premium when he starts working? Where does this insurance plan fit into a bigger financial picture? It's hard to make recommendations on a plan like this without a lot more information.
Member
Nov 16, 2013
229 posts
24 upvotes
Mississauga
You are right the most important factor is cost now and later. Also this would be the minimum amount to provide protection for his future family.
Member
Sep 23, 2013
230 posts
107 upvotes
Windsor, Ontario
vivmk20 wrote:
Mar 20th, 2017 7:56 pm
You are right the most important factor is cost now and later. Also this would be the minimum amount to provide protection for his future family.
If you don't mind me asking a few questions, your son is 14 and still financially dependent on you do you have your own life insurance or critical illness insurance? Do you have any other children? Any Debts? Are your investments being fully utilized? Sons RESP? What's your income, cash flow, cash reserve situation like? What will your son's future income approximately be?

I understand wanting to get a good price on an insurance plan, but everything I listed get's prioritized over a child's life insurance. I'd even pick critical illness insurance for a child before life insurance (or some time of hybrid product).

I also know you only want to know which company has good permanent life insurance for a child, the truth is, a lot do. Sunlife, Desjardins, Canada Life, etc.
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Sep 15, 2009
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Toronto
vivmk20 wrote:
Mar 20th, 2017 6:24 pm
I am planning to get permanent life insurance for my son who is 14 year old. As I understand it will be much cheaper to get permanent life insurance for him at this age where I will contribute for next 4-5 years and when he starts earning then he can contribute. I am looking at 1 M policy.

Any suggestions?
I agree with what Steve has mentioned above. While down the road it may have been a smart move to get your son started on a permanent life insurance policy today, you need to consider cash flow and priorities. If after all is taken into consideration and it is still your intention to set your 14 year old son up for a permanent policy, there are a few things to consider before you can even get coverage on him. Do you and your spouse have coverage on yourselves? if so, how much? If not, why not? Doesn't matter if it is term or permanent but the insurance company is without a doubt going to take this into consideration. There are restrictions as to how much one can purchase for a child/minor/dependent relative to the amount of coverage the adult owner/parent has on their own lives. Its a multiple in most cases. It should come without question or surprise as to why they have these measures in place.

The other issue is: what if your son doesn't want to take over the premium? What if he is incapable financially? The cost of a $1,000,000 permanent policy will run you a fair bit (especially if it is participating and/or paid up whole life). Do you plan to purchase a "life time" pay policy? meaning you would continue to pay premiums for life, or would you purchase a "paid up" policy that is contractually paid for over a number of years? Most common is 20 year.

While setting your children up with permanent coverage now is indeed cheaper than it will be years down the road for the same coverage, not withstanding the cost, does your child really need $1,000,000 today? If your son is 14 and likely will not have a family of his own (so nobody dependent on his income) until 10-20 years from now, you might as well purchase a lower amount that has the potential to grow over time - when the child really needs it. The death benefit should not be what is important now, but what it will be years down the road.

For a Life pay you are looking a minimum of $300/month and for a 20 pay, closer to $500/month + depending on company, type, guarantees, etc.
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Mar 21, 2017
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Vancouver
vivmk20 wrote:
Mar 20th, 2017 6:24 pm
I am planning to get permanent life insurance for my son who is 14 year old. As I understand it will be much cheaper to get permanent life insurance for him at this age where I will contribute for next 4-5 years and when he starts earning then he can contribute. I am looking at 1 M policy.

Any suggestions?
In addition to the great advice from SteveDFSin and wesboag, I did a bit of digging through various life insurance underwriting guidelines. Because they do not allow me to copy the text, I have attached a bunch of clippings from Manulife, Empire, Equitable and SunLife. Bottom line is that they need very good reasons why the insurable interest for a child is $1 million. If you're going down this road, you might want to consider a base amount of insurance and a guaranteed purchase option rider that allows for additional purchases in the future without medical evidence.
Images
  • Empire.PNG
  • Equitable.PNG
  • Manulife.PNG
  • Sun Life.PNG
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Mar 21, 2017
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Vancouver
vivmk20 wrote:
Mar 20th, 2017 6:24 pm
I am planning to get permanent life insurance for my son who is 14 year old. As I understand it will be much cheaper to get permanent life insurance for him at this age where I will contribute for next 4-5 years and when he starts earning then he can contribute. I am looking at 1 M policy.

Any suggestions?
Hello again - I came across the attached graphic that I find very useful in anticipating the changes we go through in various insurance needs over a lifetime. This is only an example and everyone has a different story.
Images
  • Risk Management Framework.PNG
Member
Nov 16, 2013
229 posts
24 upvotes
Mississauga
SteveDfsin wrote:
Mar 21st, 2017 11:24 am
If you don't mind me asking a few questions, your son is 14 and still financially dependent on you do you have your own life insurance or critical illness insurance? Do you have any other children? Any Debts? Are your investments being fully utilized? Sons RESP? What's your income, cash flow, cash reserve situation like? What will your son's future income approximately be?

I understand wanting to get a good price on an insurance plan, but everything I listed get's prioritized over a child's life insurance. I'd even pick critical illness insurance for a child before life insurance (or some time of hybrid product).

I also know you only want to know which company has good permanent life insurance for a child, the truth is, a lot do. Sunlife, Desjardins, Canada Life, etc.
Thanks,

All these are great questions and I am considering all of them to decide about his insurance. Yes I have insurance for me and spouse. We have done RESP for him. Debt is only the mortgage.

Thanks again.
Member
Nov 16, 2013
229 posts
24 upvotes
Mississauga
wesboag wrote:
Mar 21st, 2017 3:07 pm
I agree with what Steve has mentioned above. While down the road it may have been a smart move to get your son started on a permanent life insurance policy today, you need to consider cash flow and priorities. If after all is taken into consideration and it is still your intention to set your 14 year old son up for a permanent policy, there are a few things to consider before you can even get coverage on him. Do you and your spouse have coverage on yourselves? if so, how much? If not, why not? Doesn't matter if it is term or permanent but the insurance company is without a doubt going to take this into consideration. There are restrictions as to how much one can purchase for a child/minor/dependent relative to the amount of coverage the adult owner/parent has on their own lives. Its a multiple in most cases. It should come without question or surprise as to why they have these measures in place.

The other issue is: what if your son doesn't want to take over the premium? What if he is incapable financially? The cost of a $1,000,000 permanent policy will run you a fair bit (especially if it is participating and/or paid up whole life). Do you plan to purchase a "life time" pay policy? meaning you would continue to pay premiums for life, or would you purchase a "paid up" policy that is contractually paid for over a number of years? Most common is 20 year.

While setting your children up with permanent coverage now is indeed cheaper than it will be years down the road for the same coverage, not withstanding the cost, does your child really need $1,000,000 today? If your son is 14 and likely will not have a family of his own (so nobody dependent on his income) until 10-20 years from now, you might as well purchase a lower amount that has the potential to grow over time - when the child really needs it. The death benefit should not be what is important now, but what it will be years down the road.

Thanks for the excellent advice . This is really of great help. I will consider above points.

For a Life pay you are looking a minimum of $300/month and for a 20 pay, closer to $500/month + depending on company, type, guarantees, etc.
Member
Nov 16, 2013
229 posts
24 upvotes
Mississauga
RichardVetter wrote:
Mar 21st, 2017 6:37 pm
Hello again - I came across the attached graphic that I find very useful in anticipating the changes we go through in various insurance needs over a lifetime. This is only an example and everyone has a different story.
Thanks Richard,

I was not aware that it has to be certain % of our insurance. Probably I have to reduce the amount of insurance for him

Thanks for the screen shots.
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Mar 21, 2017
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Vancouver
vivmk20 wrote:
Mar 21st, 2017 8:31 pm
Thanks Richard,

I was not aware that it has to be certain % of our insurance. Probably I have to reduce the amount of insurance for him

Thanks for the screen shots.
You're welcome. Bottom line is that a case needs to be made for the degree of need that there is for the coverage. The argument for buying coverage to cover future needs is a valid one but there are limits to which a carrier is willing to go. Best approach is to work with your insurance advisor to build a solid case.
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User avatar
Mar 21, 2017
20 posts
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Vancouver
vivmk20 wrote:
Mar 21st, 2017 8:31 pm
Thanks Richard,

I was not aware that it has to be certain % of our insurance. Probably I have to reduce the amount of insurance for him

Thanks for the screen shots.
You're welcome. Bottom line is that a case needs to be made for the degree of need that there is for the coverage. The argument for buying coverage to cover future needs is a valid one but there are limits to which a carrier is willing to go. Best approach is to work with your insurance advisor to build a solid case.
Deal Addict
Feb 4, 2015
2466 posts
406 upvotes
Canada, Eh!!
Had my cousin ask me for insurance advice past weekend and while I gave my opinion based on how I understood... I nevertheless strongly advised he see an insurance adviser or financial planner. He is 42.

Thought to get some additional feedback here.
  • His parents own a 50k whole life policy where he is the insured [bought many decades ago].
  • Presently a roughly 20k guaranteed cash value plus roughly 6k accumulated dividends so about 26k cash value presently.
  • Accumulated dividends are used to pay annual premium of about $400/year so parents have not been paying any premium for number of years.
  • If dividends stay as is then insurance policy will lapse by 2051 unless pay premium at that point or they can pay starting now [7 annual payments of $400] and then policy good until age 99 if dividends do not decrease [Note: dividend scale have been decreasing for many years now]
  • If dividends decrease then insurance policy will lapse way before 2051 [like around 2034]

What to do:
  • Do nothing and revisit in 2050 or so [or 2033 if dividends decrease]?
  • Start now paying annual premium out of pocket of $400 for next 7 years?
  • Cash out policy and invest in good dividend stock?
  • Cash out policy and buy a term 20 policy?
  • Question: The cash out amount received is equal to the cash value of $26k or just 20k guaranteed cash value?
  • Question: Presume there will be a capital gain component to this that parents will have to report?

Thanks.
Member
Dec 5, 2002
226 posts
37 upvotes
vivmk20 wrote:
Mar 20th, 2017 6:24 pm
I am planning to get permanent life insurance for my son who is 14 year old. As I understand it will be much cheaper to get permanent life insurance for him at this age where I will contribute for next 4-5 years and when he starts earning then he can contribute. I am looking at 1 M policy.

Any suggestions?
My 30-second suggestion? Don't buy it. I don't think permanent life insurance makes sense, because our need for life insurance changes drastically over our lives.

No kids or spouse? No life insurance needed.
A spouse and no kids? Term insurance to replace some of your income to cover some of the mortgage.
A spouse and kids? Lots of term insurance to replace your income to cover the mortgage and the cost of raising kids through to university.
Kids are done university and the mortgage is paid off? No life insurance needed.

Remember, it's typically not cheaper overall to buy permanent insurance at a young age. It just costs less per year. Big difference.

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