Life Insurance In Canada. How Does It Differ From the US & How to Save CASH!
Life insurance in Canada is very similar to its American counterpart…
…but are there any differences you should be aware of if you have ties in both countries? My wife was lucky enough to work as a marketer for an agent in San Diego. It gave us both some insights into the market and how it compares to ours here in the great north.
The concept of life insurance is the same across the world. A contract is entered between you and a life insurance company.
You pay a premium in return for a payout of a guaranteed sum to your beneficiary/ies if you die during the agreed to term.
There are different ways to achieve this goal but that’s the gist of it.
The question are there any differences between the way life insurance is handled in the US vs. Canada?
A Little Bit About Me!
My name is James Heidebrecht and I’m the founder of Policy Architects. The reason I’m writing this article is that my wife is American and I have many clients with interests in the US who want to know more about the similarities and differences between these two countries.
No matter what your opinion, we’re amalgamating into an increasingly global community.
Which means regulations, laws and our approach to insurance, banking, and business are homogenizing across the board. Prior to the internet, it used to be that other countries seemed far away. Now with Google, we can access international content with the click of a button making everything seem closer than ever.
The US and Canada have always shared a special relationship because of a shared border, history, and language BUT we are also very different.
So let’s explore how this applies to life insurance now!
Life Insurance In Canada: We're a Much Smaller Market
I don’t know if people in Canada really think about the sheer size of the US market compared to the Canadian Market. As of June 4th, 2019 the population of the United States is 317.2 million!
Now that’s a lot of people!
Comparatively speaking the Canadian market consists of 37.6 million people.
Now you may be wondering why I’m starting this article pointing out the vast difference in population…
…that’s because it has a direct impact on how life insurance works in the US.
A Bigger Risk Pool Leads to More Lenient Underwriting
So to give you some insight let’s start with a life insurance definition. Underwriting is the process your application goes through when you apply for a traditional term or permanent insurance policy.
You and your agent go through a number of questions, a medical exam is booked and your height, weight, and vitals are taken along with a urine and blood sample. This is information is analyzed along with your medical records by an underwriter who assigns you a rating based on the risk a life insurance company takes to insure you.
In the US the pool of applicants is clearly larger. Which means there is more money, diversity of health and options for the consumer.
There are also more reinsurers which make the market more competitive. This allows companies to underwrite people who may not be insurable in the Canadian market.
Case Study and Why this is Important
Let’s say you live in Canada but you have family in the US, so you maintain a vacation home in California to visit your family regularly.
You’re 68 years old and want to cover the rest of your mortgage in Toronto so you can leave the family home to your kids. The issue is, not everyone is fit as a fiddle.
Sadly you have a medical condition that makes you uninsurable in Canada.
Well, now that’s some bad news…
Better luck next time! But hold ‘yer horses we aren’t done yet. You may be eligible to apply for coverage in America.
Had you called Policy Architects and familiarized us with your connections to the US we would suggest giving the American market a shot.
We will shop your case out to a number of underwriters to see what they think. In fact, I have some terrific contacts that work specifically with cross border life insurance matters so we may be able to solve this problem. If there’s a policy to be had we will find it.
Sometimes it pays to take advantage of the more lenient underwriting available in the US. So that condition the Candian companies scoffed at may now be insurable at a standard rating!
Don’t get me wrong, if you’re at death’s doorstep this isn’t going to help you. But if you are in fairly good health we may be able to squeeze you in.
Life Insurance in Canada: Is Cheaper?!
Hold the press – life insurance in Canada is cheaper? Pardon my surprise but we pay a LOT more for clothing, books and shoes so this seems a little too good to be true but IT IS!
The thing is you need to really look past the simple face values advertised online. Almost all Candian life insurance is step level term, which means if you have a 20 year term at year 21 you will be ____________________.
Unfortunately, American life insurance is different altogether. Once your life insurance coverage expires you’re typically converted to a level or yearly renewable term. Which means your premiums will skyrocket over the period of coverage to figures similar to guaranteed issue.
So if you look at it from that perspective Canadian Life insurance is a better deal if you want to continue coverage past your term.
Life Insurance in Canada: Taxes
If you’re looking for life insurance in Canada, one of the best perks of getting covered here is that the proceeds are not taxable.
Not so in America. In the United States, the value is added to your estate and may be subject to estate taxes. The threshold for estate taxes changes from state to state. So be sure to familiarize yourself with these numbers.
It’s very important that you evaluate all of the tax implications of a cross border policy before you embark on this path. Sure there may be some advantages but you want to make sure you do things with a view to protecting your assets long term.
Life Insurance in Canada: Choices of Products
Life insurance products vary from company to company – and even more so from country to country. Here are the products that are currently available in the US:
- Traditional Term Coverage
- Increasing and Decreasing Term
- Permanent Insurance (which includes whole life, traditional universal life insurance, variable life insurance)
- Last to Die (Survivorship)
- Final Expense Insurance
- No Medical Exam
- Key Person
How to Apply for Life Insurance in the US from Canada
You can apply for life insurance as a non-US resident. This is increasingly more common. The primary issue insurers have is risk. Thankfully Canada is not considered to be a high-risk country.
Other countries, however, are a different story.
There are two categories for non-US residents. The first category deals with American’s who are living in Canada. You’re considered to be a non-resident if you live outside of the US for more than 3 months of the year and don’t have a full-time permanent residence.
Incredibly citizenship isn’t the determining factor when it comes to assessing this status.
There are many different kinds of circumstances that require a US citizen to live outside the US for a prolonged period such as:
- temporary educational training
- permanent relocation with regular visits to family in the US
- retaining a part-time US residence for business or pleasure
The key is maintaining some sort of minimum link to the US whether it’s your family connections, ownership of real estate or business interests.
Canadians & Life Insurance in the US
The second category deals with Candian citizens and yes we can apply for life insurance as a non-US citizen. This is also true for Mexico. To be perfectly honest the application process can get a little tricky though. All aspects of your application must be completed in the US. This includes:
- The Application Process
- The Medical Exam
- Inspection & Delivery of the Policy
A traditionally underwritten policy takes anywhere from 6 -12 weeks to complete, so we recommend that applicants plan to be in the US for at least 90 days.
Give Us a Call at Policy Architects Today!
If you’re an American and looking for Life Insurance in Canada or a Canadian with interests in the US and you think an American Life Insurance company may view your application more favourably, give us a call today.
We are connected to agents in the US that specialize in cross border life insurance and are happy to help.
Life insurance is a complicated subject at the best of times but if you add the laws of another country it can seem overwhelming.
It doesn’t have to be! If you have the right independent life insurance agent in your corner you will sail through the process in no time.
Hey, you can never go wrong with some free and unbiased advice. Give us a ring now.