Personal Finance

Life Insurance Q&A - w/ FAQ Section

  • Last Updated:
  • Mar 6th, 2024 2:02 am
Jr. Member
Jul 27, 2009
116 posts
74 upvotes
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.
Jr. Member
Jul 27, 2009
116 posts
74 upvotes
John_In_Vancouver wrote: 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
Member
Oct 25, 2006
219 posts
6 upvotes
akarimov wrote: 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.
Member
Aug 12, 2010
380 posts
172 upvotes
Calgary
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!
Sr. Member
Nov 10, 2003
798 posts
261 upvotes
Concord
akarimov wrote: 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.
-------------------------------------------------------

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!
Newbie
Oct 1, 2008
72 posts
4 upvotes
[QUOTE]I'm guessing you meant mortgage life insurance, in which case you made a wise decision. [/QUOTE]

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!
Deal Fanatic
May 31, 2007
5018 posts
2175 upvotes
Wing Nut wrote: 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.
Sr. Member
Nov 10, 2003
798 posts
261 upvotes
Concord
Jungle wrote: 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
Deal Fanatic
May 31, 2007
5018 posts
2175 upvotes
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?
Sr. Member
Jul 18, 2009
679 posts
103 upvotes
Jungle wrote: 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.
Sr. Member
Jul 18, 2009
679 posts
103 upvotes
akarimov wrote: 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.
Jr. Member
Jul 27, 2009
116 posts
74 upvotes
herekittykitty wrote: 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.
Jr. Member
Jul 27, 2009
116 posts
74 upvotes
Jungle wrote: 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.
Jr. Member
Jul 27, 2009
116 posts
74 upvotes
starchyk wrote: 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.
Deal Addict
Aug 24, 2002
3569 posts
40 upvotes
Sask
akarimov wrote: 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...
Deal Addict
Aug 24, 2002
3569 posts
40 upvotes
Sask
Jungle wrote: 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.

Jungle wrote: 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.
Jr. Member
Jul 27, 2009
116 posts
74 upvotes
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.
Jr. Member
Jul 27, 2009
116 posts
74 upvotes
Neil wrote: 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.
Deal Addict
May 20, 2003
2864 posts
25 upvotes
akarimov wrote: 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?

akarimov wrote: 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.
Deal Addict
Jul 8, 2009
2028 posts
482 upvotes
Edmonton
Neil wrote: 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.

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