Life Insurance Q&A - w/ FAQ Section

[starchyk]

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?

If its federal government, you'll get 2x salary as a condition of employment. There is a premium taken off your paycheck, and you can't get out of it (I've checked - I'm a single federal public servant, and I'm way over insured.) If your applying for an "excluded" position - mostly higher level management - you can get an additional 2x - for a total of 4x salary. Its pretty cheap.

Until you have kids, if your spouse works you don't need much insurance. Just enough to pay off debts and maybe a little more to give your spouse the ability to take a bit of time to grieve.

Personally, I wouldn't insure for kids till you actually have one on the way. Because any number of things could delay your plans - your spouse could have a job opportunity that necessitates waiting a little longer, or it could be harder than you expect to conceive... life happens insure for your current needs, and invest the extra.

[starchyk]

I invite you to ask me any questions about Life Insurance, and I will be happy to answer them. Feel free to ask anything about following areas:
- Life Insurance (Term, Universal, Whole)
- Living Benefits (Critical Illness, Disability Insurance)
- Buy/Sell Agreement Funding (Business Related)
- Tax & Estate Planning (In terms of life insurance)

Could you give me a ball-park idea of how much DI would cost for a self-employed lawyer, female, smoker, 31yrs old, with a 3 month waiting period? Looking for 60% coverage, how much per thousand of income insured?

So far the insurance agents I've spoken to have been more interested in arguing about why I need CI than in answering simple questions, lol. I have no interest in CI.

ETA: Asking because I'm planning to become self-employed in the next year. Just looking for a general idea to budget around. Until now I've always had DI through employment.

[akarimov]

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!

Medical requirements depend on the Age and the Amount of coverage you seeking for get.

[akarimov]

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?

If your read my previous post, Term insurance is best used to address temporary needs, such as mortgage, loans, education needs, etc.
In your case, your have an outstanding mortgage on your condo; therefore there is a need for a term insurance.

[akarimov]

Could you give me a ball-park idea of how much DI would cost for a self-employed lawyer, female, smoker, 31yrs old, with a 3 month waiting period? Looking for 60% coverage, how much per thousand of income insured?

So far the insurance agents I've spoken to have been more interested in arguing about why I need CI than in answering simple questions, lol. I have no interest in CI.

ETA: Asking because I'm planning to become self-employed in the next year. Just looking for a general idea to budget around. Until now I've always had DI through employment.

Please check your Inbox.

[Neil]

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.

Anyone that claims bundled insurance is quote "permanent" and term insurance is quote "temporary" is a deceptive salesman.

Term can be bought from birth to death making it permanent, and whole life vaporizes the instant your premiums have been gobbled up, thus making it quite temporary. Anyone that claims different is trying to sneak a commission out of your pocket.

The words 'permanent' and 'temporary' are used to emotionally trick buyers. Some of the experienced salesmen know this but use them anyway, others are just brainwashed by their industry and don't know better.

Anyone that says having (and thus paying) for life insurance in your old age is trying to rip you off. It's much healthier buy life insurance for only the brief period that you need it, and focus instead of eliminating the need for buying it as soon as possible.

Warning to all readers - Akirimov and a lot of other insurance salesmen use this site in a desperate attempt to locate customers. Expect PM solicitations...

[Neil]

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.

You are right that counting on work coverage alone isn't wise as you could change jobs many times during your working life. Buying a simple, low cost term policy now while you are young and healthy and have the need is smart.

You are mistaken about your group policy turning into a whole/life universal life. When you leave, you may have an option to purchase life insurance but generally speaking it will be term at a horrible rate. It's offered to everyone that leaves including people with life threatening conditions, thus they price it for that worst case scenario. If you are in good health you will be vastly overpaying. They also use it as an opportunity to try and sell you other junk.

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?

No you are probably fine. What is the coverage amount though? $200/yr for 2 young people is certainly appropriate for say $100,000-250,000 of term life insurance.

You've bought the right kind at the right time in your life. That's step one.

Now step two is to concentrate on eliminating the need for life insurance as soon as possible. Your deadline is 20 years, but if it takes a few more or a few less, that's OK.

Avoid falling into the housing crash trap that will destroy many Canadians over the coming years. Rent or buy the most minimal housing possible. Get rid of debt, learn to invest, and build up a nest egg.

Do not miss ANY of your premiums. Do not get sucked into ANY form of universal life, whole life, tax shelter life, etc. Do not respond to the PM's from hungry agents that lurk on this web site and will be hitting you up to buy 'better' policies from them.

20 years from now if you've cleared your debt and have a nice retirement account shaping up, there may not be much reason to keep buying life insurance. But if at that time you still have younger kids living at home, you may need to extend the term for another 5 or 10 years. That's OK, your policy is probably guaranteed renewable and at 40-something it should still be reasonably priced. However you will be at the sweet spot age where hungry agents will prey on your greedy side and your fear of the tax man to try and trick you into buying some kind of amazing sounding insurance product that is actually designed to fatten the salesman and the insurance company. Resist them, and you should be fine.

[akarimov]

You are making pretty strong claims without having a solid foundation. What credentials do you have to make statements like this? And some of the things you said do not make sense at all. I’ll go in order:

Term can be bought from birth to death making it permanent, and whole life vaporizes the instant your premiums have been gobbled up, thus making it quite temporary. Anyone that claims different is trying to sneak a commission out of your pocket.

Term insurance that covers you from birth till death (assuming that you will pay scheduled premiums) is a T-100 or Minimum Funded Universal Life Insurance, which I discussed previously. You are strictly paying for insurance portion (no investment!), which covers you until age 100. At this point your death benefit is paid-out. Whole life ‘vaporizes’?? What does that mean?

The words 'permanent' and 'temporary' are used to emotionally trick buyers. Some of the experienced salesmen know this but use them anyway, others are just brainwashed by their industry and don't know better.

Permanent and Temporary are two different categories.
Example: When someone needs to be covered for next 20 years because of the outstanding mortgage, then it is a temporary need. Let’s say someone wants to leave certain amount of money to his children when he/she passes away, that’s a permanent need. Which part of it is ‘tricking’? Pretty straight forward.

Anyone that says having (and thus paying) for life insurance in your old age is trying to rip you off. It's much healthier buy life insurance for only the brief period that you need it, and focus instead of eliminating the need for buying it as soon as possible.

Unfortunately, most Canadians don’t have enough saved up to ignore the benefits of getting insurance, or completely eliminate the need for it. In addition, when saying ‘permanent’ and ‘temporary’ I mean the coverage, not the length of time premiums must be paid. There are options that allow you to pay-off your whole insurance within 20 years or by the time you are 65, so you don’t have to worry about paying the premiums when you are older.

[akarimov]

You are right that counting on work coverage alone isn't wise as you could change jobs many times during your working life. Buying a simple, low cost term policy now while you are young and healthy and have the need is smart.

You are mistaken about your group policy turning into a whole/life universal life. When you leave, you may have an option to purchase life insurance but generally speaking it will be term at a horrible rate. It's offered to everyone that leaves including people with life threatening conditions, thus they price it for that worst case scenario. If you are in good health you will be vastly overpaying. They also use it as an opportunity to try and sell you other junk.



No you are probably fine. What is the coverage amount though? $200/yr for 2 young people is certainly appropriate for say $100,000-250,000 of term life insurance.

You've bought the right kind at the right time in your life. That's step one.

Now step two is to concentrate on eliminating the need for life insurance as soon as possible. Your deadline is 20 years, but if it takes a few more or a few less, that's OK.

Avoid falling into the housing crash trap that will destroy many Canadians over the coming years. Rent or buy the most minimal housing possible. Get rid of debt, learn to invest, and build up a nest egg.

Do not miss ANY of your premiums. Do not get sucked into ANY form of universal life, whole life, tax shelter life, etc. Do not respond to the PM's from hungry agents that lurk on this web site and will be hitting you up to buy 'better' policies from them.

20 years from now if you've cleared your debt and have a nice retirement account shaping up, there may not be much reason to keep buying life insurance. But if at that time you still have younger kids living at home, you may need to extend the term for another 5 or 10 years. That's OK, your policy is probably guaranteed renewable and at 40-something it should still be reasonably priced. However you will be at the sweet spot age where hungry agents will prey on your greedy side and your fear of the tax man to try and trick you into buying some kind of amazing sounding insurance product that is actually designed to fatten the salesman and the insurance company. Resist them, and you should be fine.

Based on your previous post (above), I don’t think you have enough expertise or knowledge about products to make any recommendations.

[WalnutCrunch]

Based on your previous post (above), I don’t think you have enough expertise or knowledge about products to make any recommendations.

Care to explain?

Let’s say someone wants to leave certain amount of money to his children when he/she passes away, that’s a permanent need. Which part of it is ‘tricking’? Pretty straight forward.

Perhaps it's because there are more cost-effective ways to achieve this "permanent need"... such as buy term and invest the difference.

[Wing Nut]

Warning to all readers - Akirimov and a lot of other insurance salesmen use this site in a desperate attempt to locate customers. Expect PM solicitations...

I don't know Akirimov but he's the insurance agent who posts a lot here that I most respect. I don't disagree with him but I'm open minded to know that he's entitled to his opinion and to consider his point of view, unlike you who is extremely closed minded. Not all advisors who post here are here to get business. No one here has ever received a PM from me sent with the intention of getting business. I've received some PMs from people with questions or wanting a referral to someone in their area of residence and I've handled those appropriately. Neil, we're not the evil scum you say we are. There are many good, client-centred advisors. Many of your assumptions and the nonsense you peddle as facts are just that, nonsense.

[Timo]

I bought life insurance last year, and I feel like I'm paying too much. When I bought it I don't think I understood everything involved in life insurance. I received my first yearly statement recently and upon review I'm wondering if my coverage is "good enough" or a "good deal". Here's what I'm covered for:

$50,000 "Level" (not sure what that means)
$250,000 "20 Year Renewable & Convertible Term Rider" (what does Term rider mean?)

I'm paying ~$38.xx per month, and I'm rated Standard, Non-smoker, Male. I'm currently 27 years old. I bought my insurance through a broker and I am insured with Transamerica Life Canada.

I also did a quick quote from http://www.lifeinsurancequote.com/ and it looks like my monthly payments should be in the low 20's. What are my options? Can I re-work my plan or get a re-quote? Or am I stuck with what I have?

Any help or comments on my coverage would be appreciated. Thanks.

[Sweet Cheeks]

I bought life insurance last year, and I feel like I'm paying too much. When I bought it I don't think I understood everything involved in life insurance. I received my first yearly statement recently and upon review I'm wondering if my coverage is "good enough" or a "good deal". Here's what I'm covered for:

$50,000 "Level" (not sure what that means)
$250,000 "20 Year Renewable & Convertible Term Rider" (what does Term rider mean?)

I'm paying ~$38.xx per month, and I'm rated Standard, Non-smoker, Male. I'm currently 27 years old. I bought my insurance through a broker and I am insured with Transamerica Life Canada.

I also did a quick quote from http://www.lifeinsurancequote.com/ and it looks like my monthly payments should be in the low 20's. What are my options? Can I re-work my plan or get a re-quote? Or am I stuck with what I have?

Any help or comments on my coverage would be appreciated. Thanks.

You may have a $50,000 whole life policy with a term rider added onto the WL policy. The broker made a commission from the sale. Part of the rate you're paying is for that. You can but it on your own without a broker but the broker is there to help you with deermining the right kind and amount of insurance. YOu say you didn't understand about insurance; if the agent helped you with that, maybe it's worth it to you. You may feel you don't need that, in which case you can certainly rework the policy. If you do that and just go with the amount the agent has recommended, he's done the work and hasn't been comped for it. You're certainly not tied into this policy. It can be cancelled, no problem. No one will be able to give you an accurate insurance amount with so little information. I hope this helps.

[Jungle]

If your read my previous post, Term insurance is best used to address temporary needs, such as mortgage, loans, education needs, etc.
In your case, your have an outstanding mortgage on your condo; therefore there is a need for a term insurance.

Universal Life provides lifetime coverage (Term 100), addresses your permanent needs, such as burial costs, estate taxation, charity donations, etc.

What your saying is universal is a VERY expensive way to reduce your wealth by paying your entire life for burial costs and estate tax?

[akarimov]

What your saying is universal is a VERY expensive way to reduce your wealth by paying your entire life for burial costs and estate tax?

Perhaps it's because there are more cost-effective ways to achieve this "permanent need"... such as buy term and invest the difference.

There are a few reasons why it is easier to get an insurance policy compared to your strategy.
First, investment growth within insurance policy is tax-sheltered. The withdrawals from the policy are taxable, but there is a strategy to get around that.

Let say you want to withdraw money from the investment portion of the insurance policy. Most Canadian financial institutions will provide you a secured line of credit. In this case, you collateral will be your insurance policy. You will be able receive a loan up to 90% of the face value of the policy. Because the loan is secured interest rate will be around Prime plus 1-2%. Compare that to your strategy where growth is always taxable, unless investment is within RRSP where any withdrawals are taxed as an income.

Upon death the loan is paid out with death benefit. In addition, the difference between the death benefit and amount of the loan can used to cover you final expenses.

At this point, insurance benefits have ability to bypass estate and be creditor proof. Upon death the funds will flow directly to the beneficiary. This means no probate costs.

To address the need for things like burials costs, this coverage is relatively inexpensive.

For example: $25,000 Min. funded UL policy for a 30 year old, non-smoker male costs $20.
If you wish not to pay this premium later in your retirement, you can choose 20 Pay policy, which allows you to pay the premiums for only for first 20 years and receive lifetime coverage. This policy will cost $25.


The strategy that I described above is a general overview. This strategy also depends on the client, and investments you picked within the policy.