Life Insurance Q&A - w/ FAQ Section

[ottawa316]

I'm guessing you meant mortgage life insurance, in which case you made a wise decision.

Yes...mortgage life insurance lol. Obviously I have house insurance.

[Alcor]

I am total dummy in insurance and would like to ask a stupid question. I have term life insurance and accidental death insurance, from different companies. I've heard from someone that if something happened to me only one insurance will be in effect and another will be cancelled. Is it true or not?
Another question: what is your opinion on accidental death insurance? Is it worthless? From one side, it's pretty cheap, from the other side...
Thanks everybody for answer.

[akarimov]

There are many factors that need to be considered before determining a proper level and type of coverage. That’s why recommending a product without the knowing personal situation will not produce accurate results.

Universal Life vs. Term
I’ve noticed that a lot of people are comparing these two products, but the fact is, these products address different needs. Term Insurance is meant to cover temporary needs, such as mortgage, loans, education funds, etc. On the other hand, Universal Life provides lifetime coverage (Term 100), addresses your permanent needs, such as burial costs, estate taxation, charity donations, etc.

People also are not aware that you don’t have to invest through Universal Life. You can choose to pay strictly for insurance coverage. This coverage will last until age 100 at which point the death benefit is paid out tax-free. You also get a guarantee that your premiums will never increase.

I am sorry that some people had to deal with aggressive insurance brokers, but the fact is Universal Life is an excellent product for people that need it. Also, Min. Funded Universal Life is cheaper when it comes to permanent needs compared to Whole Life.

[akarimov]

I am total dummy in insurance and would like to ask a stupid question. I have term life insurance and accidental death insurance, from different companies. I've heard from someone that if something happened to me only one insurance will be in effect and another will be cancelled. Is it true or not?
Another question: what is your opinion on accidental death insurance? Is it worthless? From one side, it's pretty cheap, from the other side...
Thanks everybody for answer.

If the death is accidental then both of policies will pay-out. If death is not accidental, then only term will pay-out. I never recommend accidental death insurance, because number of people dying in accidents is very small, and amount of policies paid out under accidental death is only 2% or so.

[akarimov]

I have an insurance agent trying to sell me Universal Life (I'm single, 29 years old and own a home. No dependants yet). He says its good for an insurance and investment for the long term. Is there any truth to that?

Insurance is not only leaving money for someone else. From what I can tell, you don’t have any LIFE insurance needs. But let me ask you this: How would you pay for your mortgage if you are unable to work? Do you have a disability plan at work? How much of your income does that replace, and for how long?

Another question: What would you do if you get sick? How would you pay for the treatment? Some treatments may not be covered by OHIP, and I don’t have to tell you about waiting times.
Critical Illness coverage can address that issue and by getting this coverage right now you are locking in these rates for life. A lot of people get this type of insurance, but they do it when their health already starts deteriorating and premiums become expensive.

To put it into perspective: 29 year old, male, non-smoker, Critical Illness for $50,000 will cost between $40-50/month. For a 49 year old, male, non-smoker, Critical Illness for $50,000 will cost over $100/month.

[herekittykitty]

What is the difference between whole and universal life? I have one of these type of policies that my parents bought when I was a baby. The premium is only a little over $200 per year but the payout amount is not too large. I've been paying the premiums but not sure if there is any point. Apparently I will need to pay premiums until I die. I thought these types of policies started paying for themselves after so many years.

[akarimov]

Universal Life:
In this type of policy you have two separate components, Insurance and Investment. Universal Life is flexible, because it gives you the option to pay just for Insurance component. If you chose to pay additional premiums, you will be funding the Investment side of the policy. Remember that there is a maximum amount of how much you can put towards investment side. If you go over that max, your policy loses tax-exempt status.

Whole Life:
In this policy, both Investment and Insurance components are combined. There is one premium that cannot be changed. There are two types of whole life: Participating – your investment side receives dividends. Non-Participating – just provides lifetime coverage.

If you are looking just for lifetime insurance coverage, Universal Life is a better option, because it is cheaper than Whole Life. If you are looking for both insurance and investment sides, Universal Life gives you flexibility in terms of premiums, compared to Whole Life.

In other words, Universal Life allows you to control the investment portion of you policy, while Whole Life does not.

[akarimov]

Can a business own and deduct CI premiums?

Yes, Critical Illness can be corporately owned, these policies called Key Person CI. Premiums are deductable, but I would not do that, because deductions will make the benefit taxable.
If you want I can explain how it works in details.

PS: sorry for later reply

[John_In_Vancouver]

Yes, Critical Illness can be corporately owned, these policies called Key Person CI. Premiums are deductable, but I would not do that, because deductions will make the benefit taxable.
If you want I can explain how it works in details.

PS: sorry for later reply

A company CAN own and deduct CI premiums and have the benefit paid tax free to the insured. They can also add return of premium.

This is known as a grouped CI arrangement under a health and welfare trust. Very easy to set-up. A company needs a minimum of 2 people earning salary to be eligible.

[herekittykitty]

That is helpful thanks. Just wondering are term policies pretty much the same between companies or are they very different? Do most term policies require medicals? Thanks!

[xg3]

Universal Life:
In this type of policy you have two separate components, Insurance and Investment. Universal Life is flexible, because it gives you the option to pay just for Insurance component. If you chose to pay additional premiums, you will be funding the Investment side of the policy. Remember that there is a maximum amount of how much you can put towards investment side. If you go over that max, your policy loses tax-exempt status.

Whole Life:
In this policy, both Investment and Insurance components are combined. There is one premium that cannot be changed. There are two types of whole life: Participating – your investment side receives dividends. Non-Participating – just provides lifetime coverage.

If you are looking just for lifetime insurance coverage, Universal Life is a better option, because it is cheaper than Whole Life. If you are looking for both insurance and investment sides, Universal Life gives you flexibility in terms of premiums, compared to Whole Life.

In other words, Universal Life allows you to control the investment portion of you policy, while Whole Life does not.

The above is true. I think some people are confused about Universal and Whole Life insurance. It is different. You don't have to invest in universal and it can act just like a Term life.

I just got Universal Life recently, (25, live at home). So i figured I will start Universal life, since it is cheap. In universal life, you can make it like a term life...

Pay low now and forever low. Meaning today if i am quoted $25/month for 150K insurance. I can pay $25 for the REST of my life at this rate. For term life, if you are 35 and start insuring, you are looking at proberly $50-70 plus it is only Term 10 or 20, and 20 years later... and 20 years, chances are is a big fat premium.

OR

You pay what they call a Term gaurantee, for lets say $25 additional a month. The universal payment is done after 20 years. Never pay a dime again.

----------------- FOR THE OTHER PART ----------------

Investment, Yes universal life comes with a tax free proportion which is approximately 3x your monthly. If you pay $50/month, you can invest up to $150 per month tax free. However, if you withdraw within the first 7 years, your insurance company may take % off your withdrawal. Like RRSP and TFSA, you can choose from many type of funds. This is completely optional.

Also, if one day your investment portion is enough and capable of growing.. it can pay your insurance part off monthly.
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As for crunching numbers, to see which one make more sense. Financially, paying a premium in later year of your life when you have liabilities is probably cheaper. (ASSUMING: you are perfectly healthy and age is not 50). For people who got money to put aside EARLY and do not want to deal with this later in life. Buy now!

[vickysf]

I'm guessing you meant mortgage life insurance, in which case you made a wise decision.

I'm so glad to read that. When my husband and I got our mortgage, the BofM rep said "Now, here's where you'll initial to indicate that you want the mortgage life insurance." We said "Well, we don't, so never mind that." Her jaw dropped and she said "Um ... why not? EVERYONE gets that!" "We don't need it. We already have good life insurance that, should it come to that, is more than enough to cover our mortgage." "BUt it's only $x a month ..." "No, thank you." "But ..."

I honestly thought she was going to cry!

[Jungle]

I believe in insurance for only the period of time you need it, then you get out of it when the need stops. Buy cheap term insurance.

If I could ask, at what point in time does it make good sense to buy term. And then what point in time does it make sense to cancel it.

Just wondering.

Thank you.

[xg3]

If I could ask, at what point in time does it make good sense to buy term. And then what point in time does it make sense to cancel it.

Just wondering.

Thank you.

Logic is ... At x age to y age, you don't need insurance, because you do not have mortgages and liabilities to worry about.

At y age to z age, you start to have a family and probably has some mortgage. You buy life insurance at this time incase you die; your beloved one will still be fine.

At z age to dead, it is assumed you have built enough asset and paid off majority of your mortgage. Thus, you don't need insurance.

That is the theory in buying TERM life insurance

[Jungle]

EDIT..

At first, I was against getting Term Life. I have a group policy through my work that paid double my salary. My salary is not large, but not small. Problem is, if I leave my job, the group policy is cancelled UNLESS I extend it. From there I believe it becomes like a whole/universal life product, with expensive rates. Anyway, I have been qualified for a job with the Gov. Just waiting for an offer, still in the pool waiting. (hopefully). SO if I leave soon, my group policy is done.

Anyway, I am newly married. We have a condo, rental property and small debt from buying a car.
We plan to have kids in 1-2 years.
I bought term 20. Got Gold rates because of good health. $200 year. I am late 20's.
Was this really necessary? Did I get scammed a year early in paying for life ins?