Life Insurance 101, Insider Secrets That Save Lots of Cash & Hassle
STOP right now because Life insurance 101 is the BEST resource you have if you’re starting your search for the perfect policy.
Of course, you have no idea what the ins and outs of life insurance are…
So I’m gonna to take a moment to peel back the layers and get down to basics.
How many life insurance articles have YOU read where knowledge is assumed? My guess is way too many…
…and you know what they say about that don’t cha’?
Now get ready because I’m gonna give you the chance to give me the first degree and we’re going to leave no stone unturned.
Disclaimer: YES I'm an independent agent
...but that doesn't mean I wouldn't give the exact same advice to my little sister.
Always consult an independent life insurance agent if you're looking for the best policy at the most affordable rates!
Why? Because shopping around works for YOU.
At Policy Architects we have access to the top life insurance companies in Canada and we'll find the best fit AND prices. You'll find out more about this later - but this tip can literally save you thousands of dollars.
So I'm going to start with some seriously boring stuff!
But I promise to keep it short. Here are a few of my favourite things...
Ok maybe not, but these are words you'll need to know to get the most out of your conversation with an INDEPENDENT agent.
Life Insurance 101: The Jargon
I think this is one of the areas where life insurance agents get a bad rap.
We throw around terminology and sadly a lot of advisors don’t feel compelled to explain to their clients in plain English what the heck we’re talking about! My guess is, we all get used to certain buzzwords and sometimes we forget that not everyone is immersed in the world of life insurance.
So, in my humble opinion, no self-respecting life insurance 101 post would be complete without defining some of the standard lingo you’ll encounter when applying for your policy!
Let’s check it out:
Life Insurance Lingo 101
- Policyholder: The owner of a life insurance policy. The majority of the time the owner and the insured are the same person, although, sometimes an individual will take a policy out on another person’s life.
- Beneficiary: The individual or entity (ie. charity) that gets the cash when the policyholder dies. You can choose multiple beneficiaries.
- Death Benefit or Face Amount: The amount of money paid out when the policyholder passes away.
- Premium: Simply the cost of your life insurance which you can pay annually, quarterly or monthly.
- Underwriting: The process insurance companies use to vet you for coverage. Typically, they’ll look at your age, gender, health status and lifestyle to determine the coverage you’re eligible for.
All of this said, it would be unwise to eliminate all bullshit (or what may seem like bullshit) from organizations. Professionals sometimes need highly technical terms to get their job done. For instance, it would be impossible for a doctor to perform surgery without resorting to some medical jargon.
What Is Life Insurance and Who Needs It Anyway?
Hey James I started to read this Life Insurance 101 post because I honestly think life insurance is a scam!
I KNEW someone would ask me that. Yep there are still people out there that think life insurance is dodgy. Well let me fill you on some facts...
1. Life insurance is NOTHING new. You can trace its roots back nearly 6,000 years!
- The roots of the modern insurance industry go back 6000 years to Babylonian times where a system of merchant insurance was developed known as bottomry. This was the process of a shipowner taking out a loan to fund a trading voyage, using his vessel as collateral. If the ship was lost at sea, the loan didn't have to be repaid. If the voyage was successful, the lender would get his principal back plus interest.
- In ancient Rome, burial associations paid funeral costs for their members from coffers built up through monthly dues. This was the beginning of Final Expense Insurance.
- Hey Starbuck's isn't the original coffee shop 😉 Did you know Lloyd’s of London began as a 17th century coffeehouse frequented by merchants, bankers, and insurance underwriters, eventually becoming the "go to" place to get your mariner's insurance.
- The first insurance company in the world, The Amicable Society for a Perpetual Assurance Office was founded in 1706 under a charter of Queen Anne.
- In 1804, the Phoenix Assurance Company opened up the first insurance company in Canada.
- $12.0 Billion in life insurance benefits were paid out to Canadians in 2016.
Now it that doesn't give ya some confidence that life insurance has a long history - and serves an important need - I am not sure what will!
2. Sadly way too many Canadians are underinsured or completely UNINSURED!
1/3 of Families in Canada Don't have life insurance
Well the other 2/3 are covered right? That's SOME good news.
Ahem - maybe not as good as it could be.
...only 15% say they have enough life insurance to cover their remaining mortgage balance in the event of their death.
The thing is, most of us aren't realistic about our needs. Financial experts in Canada agree there is a large gap between what people think they should have in terms of protection and what they actually need. What would happen to your family if serious, unforeseen circumstances arose?
I think that the fact that only 25% of Canadians feel they are financially prepared for their death speaks volumes!
3. Those are pretty dismal numbers considering the amount of debt we carry.
Families & Debt
Canadian debt continues to hit record highs as household income declines.
According to a recent survey, over half of Canadians say the have a good grasp on how to manage debt.
That's funny, because for every dollar of income, Canadian's have $1.71 of debt which includes credit cards, Lines of Credit, Loans and Mortgages.
...and while 64% of Canadians say becoming debt-free is a top priority, only 31% say they manage to reduce what they owe consistently.
So what does that mean for families that lose a primary breadwinner unexpectedly? It can send them into a tailspin they may never recover from.
Debts and obligations don't just evaporate when you reach the pearly gates.
4. STUFF happens to the best of us at the worst of times.
It's Time to Accept That We Don't "Plan" Accidents
Imagine this scenario! You leave your house one morning and as you walk along the sidewalk talking on your cell, you’re struck by a garbage truck and killed instantly.
What happens to your family now? Are you the person that brings in the big bucks? What if you also have a mortgage and debt? Things can get VERY sticky. Funeral costs, settling debts and continuing to pay bills could completely destroy your families finances.
Ugh – the scary truth is – those you love may have to cease living the lifestyle they’ve become accustomed to.
The only way to avoid this situation is to plan ahead.
A great life insurance policy could keep your family safe and sound in their OWN home. All of us want to keep our promises...
....and life insurance allows us to do exactly that. No matter what the circumstances are.
Contact Policy Architects right now, because we can help!
Meh, what are the chances of me getting hit by a bus?... Seriously.
Well I guess you could look it at it that way...or you could acknowledge that none of us know what the future holds. BUT if you need a cold hard reality check - take a look at this:
“It’s morbid to think of the worst case scenario, your spouse being gone, nobody wants that but you really have to put things into perspective and say, this can actually happen.” Widow urges others to “learn from our mistakes” after husband without life insurance dies, cbc.ca
Hey, wait a minute, what if I live 'til the end of my policy - what a waste of money!
Absolutely not, it's a win-win! You were covered for pennies on the dollar during your most vulnerable years. No other product provides this sort of security. Living 'til the end is just a bonus!
Unless you’re one of those rare birds who’s independently wealthy, you need life insurance.
…AND even if you happen to have an estate, life insurance works especially well to offset taxes for your beneficiaries. To be honest with you it’s just one of those great tools.
The best news? Term insurance is wayyyy more affordable than you ever thought!
No one wants to talk about life insurance because it means talking about death: we’re mere mortals floating around on this sphere in space (sorry to get all trippy on you) for a very brief period of time...
...and for some, it's a shorter stay than for others.
Life insurance just isn’t sexy, but it’s a necessary evil when it comes to protecting the ones you love. I'd say it’s the only product you buy where you hope to never use it.
So let's get on with Life Insurance 101!
Life Insurance 101: Where Do I Start?
OK, OK I know I need life insurance, now what?
Step #1: Take a LONG HARD look at your circumstances.
…and no, I don’t mean estimate. Get a pen and paper and figure out how much money your family or loved ones will need if you were to die suddenly.
You’d be surprised by how many people are not in a relationship with this at all!
Break it down:
- What are your outgoings? Rent/ mortgage, utilities, insurance, groceries, entertainment, subscriptions, clothing, etc… get the idea?
- Do you have a mortgage? Would having that obligation paid off relieve a lot of financial stress on the people you leave behind?
- What about debt? Do you have outstanding loans, lines of credit, etc that need to be taken care of?
- Did you make promises? Maybe you want to help put your kids or grandchildren through university or possibly you’re in a business partnership that relies on your input.
- Where do you see yourself, 10, 15, 20, even 30 years for now? Chances you’ll be better off, or at least that’s the plan!
Bet you’re in shock now that you know just how much you REALLY need to keep this show on the road. It knocks a lot of my clients for a loop…
…and it’s one of the main reasons I’m writing this Life Insurance 101 post!
It’s no secret that the value of $1,000 changes pretty dramatically when you start visiting different places in the world. Though apparently, this is even true for when you are traveling within your own country! It makes sense considering the more popular cities of Canada such as Toronto, Vancouver and Montréal are definitely more expensive to live in than others.
Man, that’s a lot of work, I don’t know if I have the time, why don’t I just pick a figure?
Because you want to make sure your family is protected! Read on...
Ok, let’s say you buy a policy with $200K of coverage! Sounds like a lot of money to most people.
BUT when you pay off some debts, take care of the funeral and continue with the daily machinations of your family…
…it’s not a lot of money at all.
In fact, it could leave you terribly underinsured. That’s why it’s SO important to speak with an independent agent who can give you a starting point.
I go through a full needs analysis with all my clients. This process involves using a formula to come up with an accurate amount of protection. If you’re in a pinch, 7 to 15 times your gross income is a good place to start.
Remember there’s a gap between the protection people THINK they need and what they actually need. Trust me, you don’t want to be caught in a bind when something bad happens and there’s not sufficient coverage in place.
OUCH! This life insurance 101 post is an eye opener! I feel pretty certain that I need $500K of coverage - but I'm not 100% sure how long I'll need it for!?
Step #2: Choose your term.
Let’s say you’re in your late 20s and you’ve decided to buy a life insurance policy while you’re young and healthy. First of all kudos to you! I'm impressed that you're taking care of business.
Because If you're starting a family, you can get a 30 year term policy for the cost of your daily coffee! This coverage will carry you through your childbearing years into your children's adulthood. Wow! Now that's an awesome deal. Think about it - no matter what happens to you health-wise, you're covered.
Don't get me wrong a 30 year term isn't for everyone. Maybe you just want to cover some short term debt or business expenses, then a 10 or 20 year term might be more suitable.
The key is to really be honest about your needs and meet with an independent life insurance agent to make you sure you get the policy that's right for you! Call Policy Architects today! 1.888.501.9583
I want a whole life policy, my buddy told me it's a great investment.
Step #3: Select the type of life insurance YOU need.
Hold 'yer horses partner! I'm glad your looking to secure your family's financial future, but I'm not so sure whole life is your best bet.
You basically have two main categories of life insurance to choose from. Whole life falls under the umbrella of Permanent Life Insurance.
Now while Whole Life is a GREAT product it may not be a fit for your circumstances.
To be frank, most people don't benefit from holding whole life or cash value life insurance. I typically recommend this product for those who have estates and disposable income who need somewhere to put their money because they've exhausted other outlets.
I also don't really look at life insurance as a traditional investment. There are better places to put your money if you want to see some good returns.
This is why you need an independent life insurance agent, like those at Policy Architects. We can go through all your options so you pick the right type of life insurance for your situation.
So here'a basic description for the two main types of life insurance:
Term Life Insurance
Term life insurance is the cheapest and best-known type of life insurance AND the most suitable for 90% of people.
It really is the purest form of coverage. Basically, a client purchases protection for a set period of time which is referred to as a “term”, thus the name.
These terms can be locked in for 10,20, 25 or 30 year periods (give or take). If the insured dies before the term is over, their beneficiary will receive the coverage amount or death benefit tax-free. Typical coverage is for $50K, $100K, $250K, $500K and $1Million – although you can customize these figures to meet your needs.
Term life insurance is extraordinarily affordable because you’re only paying for coverage over a limited period (the term). Think of it like renting a home instead of buying one outright.
Also, term insurance is cheaper than it’s ever been – 40% of what it cost 30 years ago. Term is also more accessible to seniors as well!
Permanent Life Insurance
Permanent insurance provides you with lifelong coverage as long as you keep up with your monthly payments.
Because it’s designed to last your entire life, it’s much more expensive than term insurance. Permanent insurance products have two parts:
- Insurance Component
- Savings Component
You can use your policy as a savings vehicle to build up cash value which can be used for any number of things. It suffices to say, for certain individuals, permanent insurance can be an excellent estate planning and business succession tool. In fact, a small permanent policy is an ideal way to take care of your funeral costs so your family doesn’t have to worry.
Whole Life, Universal Life and Term 100 are the 3 types of permanent life insurance on offer.
NOTE: Term 100, also known as “Term-to-100” is misleading because it has the word “Term” in the title but it’s most definitely permanent insurance. Confused? You’re not alone.
Life Insurance 101: The Application Process
Great so I need a 30 year term policy with $500K in coverage. Can you help me?
Step #4: The Application Process - and I sure can!
It’s simple, find yourself an independent advisor, such as Policy Architects and get real.
We know the ins and outs of the underwriting processes for all the best life insurance companies in Canada. This means savings for you.
All life insurance companies are NOT created equal. Some are more lenient than others for specific personal and medical conditions and your agent should be knowledgeable about these differences.
The next step is filling out and submitting an application.
We can do this in person, over the phone or screen sharing on a computer – whatever your comfort level is. I have some clients who want the personal touch while others want nothing more than to get this whole process over as quickly as possible. Electronic applications are becoming a mainstay of the insurance industry as we speak. The choice is yours.
Don't forget - honestly is ALWAYS the best policy!
NOTE *** Honesty is non negotiable. Misrepresenting anything on the application or fudging the truth is fraud and your beneficiaries won’t get a dime.
In other words, failing to declare something is a sure fire way to have your claim denied if the insurance company catches wind of it. It sounds crazy but there doesn’t have to be a relationship between what you omitted and the cause of death.
For example, if you fail to disclose that you’re an avid scuba diver and you die of a terminal illness, expect to have your claim denied.
By the way, all communication between you and your life insurance agent is confidential.
Life Insurance 101: The Dreaaded Exam
Did you say health exam? ...I haven't been eating that well lately or really going to the gym. Hmm...can I get out of this?
Step 5: The Medical Exam! Yeah, the medical checkup freaks everyone out a little bit...not to worry though.
Exam Or No Exam
Life insurance is a business and companies want to know as much as possible about you before they set your premium in stone.
A medical exam is part and parcel of this process.
….and YES there is non-medical life insurance or simplified issue. Heck, you can buy life insurance online without a medical exam in less than 20 minutes!
An agent will ask you a bunch of questions over the phone. The life insurance company will go through available prescription, medical and motor vehicle records (MVR) to assess your risk and voila! A policy can be issued in less than 48 hours.
Sure this might sound terrific if you’re in a hurry and don’t like needles – but in the end, you pay more money and get less coverage because you’re a greater risk. I highly suggest obtaining a fully underwritten policy, with a medical exam if at all possible.
What to Expect
Ahhh the medical exam!
Everyone’s favourite part of the process!
The life insurance company you selected will arrange a time and location that is convenient for you to have a nurse check:
- your vitals
- take your height & weight
- draw blood
- ask some questions
- take a urine sample
Typically that’s it – but there are times when additional tests are required.
It's as simple as 1,2,3. Nearly all my clients that were nervous are surprised by how easy this process is.
Remember, it’s completely natural to feel a little bit of anxiety, but the good news is there are steps you can take to get the best result:
- Lay off sugar, salty food, booze, and fried treats the week before you have your exam
- Don’t drink caffeine 24 hours before the nurse arrives
- Avoid strenuous exercise 24 hours before the medical
- Stay well hydrated for a 48 hour period
- Take a cold shower the day of your exam
- Get a good night sleep
- Request a morning exam
- Practice meditation the week before
No Excuses Please
…and whatever you do, don’t use getting in better shape as an excuse to not move forward with life insurance.
It’s always a bad idea because it exposes you to risk.
Seriously, no one plans to kick the bucket! It usually happens on its own timeline and you don’t want to leave your family in need.
Hey, if you don’t get the health rating you think you deserve, your life insurance can always be reviewed.
It’s not uncommon, for example, to be re-tested for high cholesterol or high blood pressure and have your insurance premiums come down when you’ve been stabilized with medication. The most important thing is to get SOME coverage in place!
NOTE* If you are worried about your health and haven’t been to the doctor for a couple of years, it’s not a bad strategy to secure a no medical exam policy first. It will give you peace of mind that no matter what your lab results are, your family is protected.
A word to the wise? Most people overestimate the impact of their condition on the rates they’ll get. You are not the best judge of your health and chances are you have no idea how life insurance companies underwrite potential clients. You’d be surprised by the people I’ve gotten fully underwritten coverage for.
To find out more click below to read about High Risk Life Insurance:
Ok, I've answered all the questions, done the medical...now what?
It's a waiting game...it takes approx. 4 to 6 weeks for the insurance company to process your application.
Behind the scenes, an underwriter will use all the information gathered to decide what premium you’re eligible for. This can take a while or it can happen quickly - but I always tell my clients to plan on 6 full weeks.
You’ll then be approved, rated, postponed or declined.
Let's find out what that means now!
You're approved, congratulations!
The insurance company you selected issues your policy! Once you sign the dotted line and pay your first month’s premium, it's in force! Now you can sleep at night knowing if the worst-case scenario happens, your loved ones are protected...
...trust me, it’s a good feeling.
You've been rated...now what?
Not fantastic news but good news - You’ve got coverage albeit at a higher cost. Your rating is probably due to a health issue or your proclivity for skydiving or wrestling alligators.
Ratings can run the gamut from 125% up to 300% or more. For example, If you applied for insurance at a cost of $100 per month, a 150% rating will mean you’re going to pay $150 per month. What are your options?
You can accept the insurance, try your luck with another carrier...
...or you can stop wrestling alligators and hope that upon review, the insurance company will lower your rating!
Your final option? Try your luck with no medical coverage. Sometimes, depending on your situation, you may get more affordable coverage.
Your life insurance application is postponed, that can’t be good
...well no, it’s not good but it’s not an absolute decline either. This means the insurance company still thinks you have a shot at being underwritten.
They’re just waiting on some missing information or an incomplete test of some kind. You’re in a holding pattern and might have to wait 6 months to a year for them to review your file pending positive test results. Consult your agent (hopefully it's Policy Architects!)
Ouch! You’ve just found out that you’re declined.
There’s no way to sugar coat it, that’s bad news.
Try not to take it personally or think that there’s something wrong with you, it happens. Health conditions are the number one reason people are declined followed by things like a poor driving record, financial instability, and previous insurance denials.
Take heart, there’s still hope, give Policy Architects a call we can go through your situation and target more lenient carriers who will give you a second look. 1.888.501.9583
This is When No Medical Simplified Issue Comes In Handy
Failing that, you still have the Simplified Issue, No Medical Exam route which is a viable alternative to traditional underwriting.
This is an increasingly popular side of the life insurance business.
Why is this good?
More competition means the threshold for applying is lowered and more conditions are covered than ever before.
Not long ago, if you mentioned the word “cancer” it was a flat-out decline. Now, depending on the type of cancer, the treatment and the period of time you’ve been in remission or cancer-free, you may be eligible for coverage that people would only have dreamt about a decade ago.
I’m just scratching the surface on this subject here, there’s lots more to say, learn more about how to buy life insurance online without a medical exam.
Final Thoughts: Life Insurance 101
Well as you can see there’s a lot to talk about when it comes to life insurance 101.
The truth is there are tons of considerations when you set up your policy. A great independent agent will take some time to go through a needs analysis to find out what sort of coverage you and your family require.
The face value, length of term and type of life insurance are just the first steps to get an affordable yet comprehensive policy with a top of the line carrier.
Remember as I said, insurers aren’t all created equally – so you need an independent agent that knows their stuff – ahem – Policy Architects!
…AND whatever you do please, please don’t jump into the first company you see advertised. This sort of impulse purchase could cost you thousands over your term. Life insurance is one of the biggest investments of money you and your family will make. So please take the time to do it justice.
Why Policy Architects?
Life Insurance 101 is a big subject to get your arms around. Sure you can get quick and easy online quotes – but this isn’t the whole story.
Far from it!
Don’t risk getting “Analysis, Paralysis”! Call the independent life insurance agents at Policy Architects today.
We will identify the right product for you – at the best possible price. This simple call can save you thousands over the term of your policy!
Best of all, our boutique approach won’t cost you a dime. Save TIME, MONEY & HASSLE!
…and the best part? You’re a client for life, as your needs change, we’ll be there to provide ongoing guidance and support.
Get in touch with Policy Architects Today!