How much insurance do you need?

We’ve made this extremely simple. The amount of term insurance you need should be equal to your net income. You don’t get to spend or save the taxes that you pay, and life insurance death benefits are tax free so we can match the amount of insurance you buy to the present value of all of your future paycheques. Go to the insurance needs calculator to determine how much you need.

How much should you pay for a policy?

A 20-year, $500,000 term life insurance policy costs around $35 per month for someone in their 30s. For a lot of people, that’s enough to keep their families protected.Factors that will determine your life insurance rate include;

• The amount of insurance you want to be covered for
• Policy type 
• Your age
• Health issues
• Whether you smoke
• Driving record and hobbies
• Some foreign travel
• Family medical history

What is term life insurance?

Term life insurance pays a death benefit if the person insured dies within a specific period of time or before you reach a certain age.  Most term life contracts expire at age 80.The length of your coverage can be either for:

• a fixed period of time, such as a term of 10, 20 or 30 years
• Some companies offer “pick a term” but these can be pricey due to lack of market competition
  
• until you reach a set age, such as 65 years old
  

If you die while the policy is in force, your beneficiaries will be paid the death benefit. Once the term ends, the coverage ends and your beneficiaries don’t receive any payment or cash value.

If you don’t pay your premiums, your insurance company will cancel your policy after a 30 day grace period.

Term life insurance premiums are generally less expensive than permanent life insurance premiums when you first buy the policy because they expire prior to life expectancy.  This plan is meant to cover a risk for a short period of time.

What is universal life insurance?

Universal life (UL) insurance is permanent life insurance that was born out of Whole Life from consumers demanding transparency and more flexibility.  With UL you have the ability to invest in a tax-sheltered cash or fund value, the premium payments above insurance costs are deposited to the tax-sheltered investment account, which can then be invested in cash, GIC’s, or bond, balanced or equity mutual funds, which can be determined based on your risk tolerance.  This requires active management of the investment portfolio and there is risk if your life insurance agent doesn’t do that job well.  The key to UL is:

• transparency; you know exactly where your money is going,
• flexibility; you can adjust your planned premiums at any time, and
  
• Plan structure; you can change a lot of aspects of these plans to suit your needs
  

UL is good for people who want life insurance to help their children pay estate taxes, for charitable gifts, in an estate freeze situation, or for corporately owned situations like funding buy-sell agreements, or taking advantage of some additional tax savings available to business owners of private companies for investment purposes. If you are considering a permanent plan and you are a business owner, it warrants a conversation with a seasoned professional and we can help you with that. Please let us know if you need to discuss your particular situation and get the appropriate advice. If it’s not right for you, we will let you know!

What is whole life insurance?

Whole life (WL) insurance is more of a black box, you don’t really get a clear look under the hood.  But it comes with some perks that UL doesn’t have.

It contains a savings component that is already included in what is referred to as the cost or premium.  But you can make additional deposits if you want to put more of your savings in this tax-shelter.  And you don’t have to manage the funds, the portfolio is actively managed by the insurance company and doesn’t require any investment decisions by you.  It’s very much like a pension plan.  But even pension plans don’t have access to three things Whole Life does:

• Tax-sheltered growth
  
• Smoothed returns
  
• The CDA credit
  

The tax sheltered growth is written into Section 148 of the income tax act, the same way you’re able to invest in RRSPs and TFSAs, these are gifts from the Canadian federal government that have been in place for decades. The smoothed returns feature allows insurance companies to choose a dividend rate that is an average of 4-7 years of market performance, which has resulted in conservative positive returns for more than 100 years.  The CDA credit is a gift in the income tax act that allows business owners to use low tax corporate income or savings to invest in permanent insurance and unlock that investment to personal beneficiaries without any tax.  This is a very high level summary of truly complex sections of the act, so please get advice from an experienced insurance and tax professional when contemplating this.

The Canadian way

A long-standing debate continues about the benefits of the two types of life insurance available in Canada: term and permanent. In fact, both have their merits.

Term is a fairly inexpensive form of insurance that provides protection over a pre-defined time period and gets more expensive every time that time period “renews”. Renewal prices are predetermined and built into your contract, it’s not something the insurance company can change after your contract is issued. Renewal prices are intentionally exorbitant expensive, you are meant to cancel your term contract after the initial period, which is why it’s crucial to get the term right, or you might be facing a renewal at a time when you are no longer insurable and are forced to pay the renewal prices.

Permanent life insurance costs are guaranteed for life and the contract never expires, which means it is considerably more expensive than term but you are guaranteed to have the insurance at life expectancy as long as you pay the premiums.

But these are only the basics. How can you decide which type is right for you? Key differences that need to be considered include length of coverage; cost of premium; cash value (term does not accumulate cash value); convertible policies (terms can be converted into permanent policies); and death benefits.

Term insurance is for a short term need that expires.  Permanent insurance is usually purchased for estate planning and most often done on a joint last-to-die basis versus on a single life basis.

What can be worse financially for you than dying is suffering a disability or critical illness and not being able to work as a result. You might want to consider buying critical illness and disability insurance along with life insurance, in case you can’t work for several months or longer.

Buying in Canada

Buying life insurance means entering into a long-term relationship with the provider and that insurance is only as good as the company behind it. The provider should be strong, stable, and able to support their guarantees. Fortunately, Canada’s major life insurance companies have solid track records of financial integrity.

Life insurance companies do not accept applications directly. There is a process that requires everyone in Canada to go through a licensed advisor. And every licensed advisor must process those applications through a Managing General Agency or MGA who acts as an intermediary between the consumer and the insurance company. Insurance companies are not equipped to handle inquiries from people wanting to purchase life insurance. They only have customer service representatives to assist policyholders with existing coverage.

So your options are:

• Try to find a licensed individual you like and hope they can shop the market for you, or
• Purchase insurance online through an independent broker like Policy Ninja

When to buy?

Will your loved ones be financially impacted if something happens to you? If the answer is yes because of marriage, having children or buying your first home, then insurance is a must.

The question that follows is, when is the best time to buy?

Simple answer: there’s no time like the present! The younger you are, the more affordable your insurance will likely be, and the low monthly rate you secure will stay the same for the entire length of your policy.

Helpful Hint: if you pay annually you can save 7-8% per year in cost for the exact same insurance coverage.

Divorce or Separation Insurance

According to Statistics Canada, over 40 percent of Canadian marriages end in divorce, but up until recently there was no recourse for couples seeking insurance to soften the financial strain associated with breakups.

If you or your ex is on the hook for spousal or child support, and your agreement requires you to insure the amount of all future payments, we can shop the market and match an insurance plan to your specific timeline and obligations.

Disability Insurance

Studies show that one in six Canadians will be disabled for three months or more before turning 50 – and a typical 30-year-old has a four times greater chance of becoming disabled than of dying before reaching 65.

Therefore, insurance against accident or disease is just as important, if not more important, as life insurance. The best quote we’ve ever heard from a disability specialist is that disability insurance should be as important to you as you next paycheque. It’s not something we sell, it’s something you need.

If you work for a large company, you likely already have long-term disability insurance through your group employee benefits plan. But group insurance usually comes with restrictions most people we talk to are unaware of. Such as; capped coverage amounts especially if you have taxable income above $80,000, and a change in definition after two years that protects the insurer from paying longer term claims. A personal disability policy complements group insurance and fully protects you and your family.

Critical Illness Insurance

Illness can strike at any time and be devastating to your financial security. In fact, life-altering illnesses reportedly affect one in three Canadians in their lifetime. As an essential part of any financial plan, critical illness insurance provides financial support when you’re sick and want to focus on healing, without worrying about money.

Your contract defines all of the conditions you can receive tax-free payments for, the most common illnesses that result in a claim include cancer, heart attack, and stroke. Many plans in Canada now have standardized illness but every company has customized bells and whistles to attract business. Shopping the market for critical illness insurance can be like comparing apples to oranges. We specialize in understanding these differences.