How To Choose The Right Life Insurance Policy.
Deciding to purchase a Life Insurance is a very important step in your life planning strategy. It's an investment and a protection, and as any long-term financial commitment should be taken seriously. To decide what kind of Life Insurance you need, you should know what Life Insurance is, what types of Life insurance are available, and how much it cost. Then, you could decide how much of Life Insurance you need and can afford.
CHOOSE THE BEST SOLUTION FOR YOU
The main task of the life insurance policy is to help you cope with problems in a critical situation. The second main purpose of life insurance is the accumulation of certain sums of money, such as retirement, or age, or other events in the life of the insured person .
The insurer does not promise you a higher return. However, in the event of a favorable economic environment, the insurance company is divided into "windfall" to the client, while bank reserves "surplus" at home. In addition, according to most insurance programs, the owners of life insurance are paid an amount several times greater than the one that they sent to the insurance company as premiums.
It is interesting that, for example, after the death of the insured, his relatives, without the months of painful titling, immediately receive the insured sum, specified in the contract of insurance. An important advantage of the insurance policy is its unique character. Taking into account your wishes, the insurer is developing the perfect product for you. Moreover, depending on the age and condition of your health, the amount and frequency of contributions you make. Please remember that the main purpose of the life insurance is not saving money (for that you have retirement plans and saving accounts), but to provide the owner a 'peace of mind' in knowing that the death of the insured person will not result in financial hardship.
There are two major categories of Life-based contracts:
Protection policies - designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance.
Investment policies - where the main objective is to facilitate the growth of capital by regular or single premiums.
Contributions are usually paid regularly (monthly) for a cumulative period. Throughout the whole period, the insurer's money invested in a variety of assets. The insurer pays the insurance coverage is usually in the form of a life annuity . Sometimes the contract may provide for lump sum the entire sum insured, then all obligations of the insurer under the contract ends. In life insurance sold cumulative function of insurance is also developing products in which the long-term life insurance with an investment component.
Let's look at the death benefit first. If one person has $100,000 of one type of life insurance and another person has $100,000 of another type of life insurance and the both die, how much do the beneficiaries receive? In both cases, the beneficiaries receive $100,000. The beneficiaries can't tell what type of insurance they had! The point here is that the death benefit is the same for all the various types of life insurance. It's the premium that differentiates the different types of life insurance.
It's the premium that differentiates the different types of life insurance. How are the premiums different? Life insurance premiums, like all insurance, are based on the concept of risk. Higher risk means higher claims and therefore higher premiums. What makes us a poorer risk with life insurance?
For most of us, it's our age. Younger people generally don't die as often. Claims are less, so costs - and therefore premiums are lower. Larger numbers of people tend to die as we age, so therefore costs are higher. So the life insurance is cheaper when we're younger and gets more expensive as you older.
Life insurance usually is split into two broad categories, term life insurance and permanent life insurance, often referred to as whole life insurance. Term life insurance has premiums that are level for specific periods of time. The period of the time is the 'term'. At the end of the period, most term life insurance policies have premiums that increase to a new level, and then again are level for another term. For example, 5 year term would have premiums that are level for 5 years, increasing every 5 years. You can think of term life insurance premiums as having premiums that look like a staircase, with steps going up every 5 or 10 years. The difference between most term products is how the premiums are structured - not the coverage.
Term life insurance is often referred to as renewable and convertible term life insurance, where the renew ability and conversion are two specific features common to most term life insurance polices in Canada.
Renewable term policies are policies that automatically renew at the end of the term. For 10 year term life insurance, in year 11 the insurance will automatically renew for another 10 years, though at higher premiums.
Conversion however, is still an important feature in today's term policies. Convertible term life insurance offers a policy provision where up to a specific age you can swap your term policy for a permanent policy, without a medical exam. You can think of this provision as a 'waiver of medical evidence' option. While this may not be a feature you intend to use, it's a must-have provision to be used in some worst-case scenarios. For example, if you have a term life insurance policy and later develop a medical condition that renders you uninsurable, a convertible term life insurance policy allows you to swap your term policy for a permanent life insurance policy with no medical exam. Conversion is offered by most Canadian life insurance companies for free with their term policies.
Term policies also have an expiry date, a date past which the coverage is no longer available.
With increasing premiums over time and an expiry date, term insurance is a viable option for those seeking life insurance for a specific period of time, say 10,20, or 30 years. Term life insurance will provide lower cost insurance over those periods of time than other alternatives.
Term life insurance products are available in a variety of terms. Common terms are 5 year insurance, 10 year term insurance, 20 year term insurance, and 30 year term insurance.
Ideally the best term to choose is the period that best reflects how long you expect to keep the insurance. The underlying cost of all life insurance goes up every year as we get older. Term life insurance smooths that process out by leveling our premiums over periods of time called 'terms'.
Examples
Young family in their late 20's with young children, seeking insurance to look after children and cover mortgage. 30 year term life insurance should be a consideration
Family in their late 30's and 40's with younger children, looking for insurance coverage while children are dependents and until income earners are close to retirement. 20 year term life insurance would be a consideration.
People in their late 40's and 50's seeking coverage until their mortgage is completely paid off, children are through post-secondary school, and they are close to retirement. 10 year term life insurance would be a consideration.
People in their 60's looking to cover a short term debt such as a line of credit. 5 year term life insurance may be a consideration.
Mortgage Life Insurance
Mortgage life insurance is required by many banks as part of the mortgage process. However, while they can request, that you buy a life insurance to cover the debt, they cannot require you get that insurance with them. You have the flexibility to shop for mortgage insurance to get better products and better rates.
True mortgage life insurance is actually what is known as decreasing term life insurance. Your premiums stay level, but your insurance coverage declines as your mortgage goes down. This is the type of mortgage life insurance you would find through the bank.
Rather than getting mortgage life insurance through the bank, you may find that a 20 year level term insurance policy is a better purchase. Level premiums and level death benefit more options, and probably lower premiums.
Many banks won't require from you to have a life insurance if you borrow less than a certain amount, it can vary between 50-70% of the house value. Even if you are not obliged by the bank to have a life insurance, you might consider purchasing it anyway for your own piece of mind. Especially, if you think that death or disability of one member of the family will unable you pay your mortgage. In case you don't have a life insurance and something happens to one of the spouses, the family could loose the home. If you have life insurance coverage, in case of death of one of the insured mortgage payers, the remaining mortgage will be closed.
Before you sign a contract with the insurer:
Bet on GOODWILL AND EQUITY
In this form of insurance, as in any other, is crucial to the reliability of the insurer. It's one thing if you make a mistake when choosing a company for car insurance. If the insurer would be unfair or goes bankrupt, your losses will be felt. But they will be negligible compared with the losses that may occur in the event of an unfortunate choice of the company, which specializes in life insurance. And all because the contract for this type of insurance is a long term and assumes that you will make contributions at least for 10-20 years. However, the accumulated capital will be a mirage if the insurance company as a result will not be able to answer for its liabilities.
To avoid this, just look at the history, experience and reputation of the insurer. With them, as well as licensed and registered capital of the insurance company should be all right. Find out also the flexibility of the policy of the insurer: you can not or change the terms of the contract. And of course, examine rates of the insurer.
REFER TO THE FINANCIAL ADVISER
To predict the future is difficult. However, in the case of a contract of life insurance your vision will play an important role. When you purchase a life insurance you should decide what are you trying to achieve: to protect you and your family in difficult times, to ensure you a comfortable old age or to collect the necessary sum for a major purchase. If you search for the answers to these questions leads to problems, contact the insurer. A specific contract may include protection against multiple risks with a set of options to be selected to meet your goals in life, marital status, age and health.
UNDERSTAND WHAT POLICY YOU REALLY NEED
One type of a life insurance is risk insurance. Pure risk insurance does not include a savings component. This policy will protect loved ones from financial problems, if a person that affects the welfare of the family, seriously ill or prematurely withdraw from life. In case of insurance under "pure risk" insurance will stop with the insured reached the age of pre-determined about the insurance agreement (e.g. 65).
The other - Endowment insurance- will allow you to generate a significant amount by a certain date or to accumulate the required amount, for example, to teach a child to college. Endowment insurance combines the benefits of risk and insurance savings. Life insurance combines the element of risk with savings element, the way - generally accepted to determine an equivalent amount of savings at the end of the risk component of insurance and cover a case of death before the insured acquired the full redemption value (full compensation) under the policy
CLARIFY
It is important to be clear on what exactly you are insured, what is the procedure when the insured event and which provides for exceptions to the contract. It will deprive you of any illusions about the type of insurance, which can then lead to irreparable errors.
Life Insurance quotes
- When you run your life insurance quotes online, assume a health class of regular if you are in good health. While you can get lower quotes, they are just that - quotes. Final rates are subject to underwriting by the insurance company. Regular rates are what most people in good health receive so it's the most realistic quote. You can get lower quotes, but you are less likely to receive those lower rates. Assuming regular health class does not mean you won't get lower or preferred premiums should you qualify - it is however the most realistic quote for most of us. In other words, you can get lower quotes - but you are unlikely to receive these rates.
- Take your medical exam first thing in the morning. If you're able to, don't have anything to eat or drink prior to the medical exam. This gives the insurance company clean blood work as well as the lowest blood pressure reading for most of us.
- Answer all medical questions completely and exhaustively. Be verbose, detailed, and complete. Doing so is counter-intuitive to most of us; we want to hold things back that may bias our case. In practice however, the more you disclose the better your chance is of receiving the best rate you can get. For example, underwriters are naturally conservative in their jobs. If they are on the fence about giving you better rates, they will feel more confident about giving someone the better rates if they have a detailed application. If they are on the fence and have what they perceive as an application that's light on details, they will naturally take the more conservative (and higher for you) rate class.
- Get quotes from more companies. Individual brokers don't impact any specific company's rates. You should see the same premiums from a company no matter what broker you work with. If you see lower quotes, it's probably because brokers have assumed a preferred health class, see above. So the way a broker can get lower premiums is by shopping more companies. This ensures that you see the companies that have the lowest premiums for you.
