Life Insurance

Many of us have life insurance through group plans with our employers, with a benefit that is usually between 1 and 3 times our annual salaries. Typically it isn't an option; it is mandatory. It is mandatory because it is important. Most of us don't give it much thought, but is 1-3 times your annual salary actually enough protection for your family? The answer to that question is more involved and personal than this website can answer properly for you. It may seem like a lot of money, but if you go through the process of "allocating" those proceeds to the bank, the credit cards companies, and other debts outstanding, how long will the rest last?

Remember: You don't buy life insurance to protect yourself; you buy it to protect the ones you love. Life insurance is not all that expensive or difficult to obtain.

Term Insurance

Term is life insurance that provides coverage for a set length of time, at a level cost. Once the term has expired, so does the protection. In Canada, the most common term insurance offered is guaranteed renewable. This means, up to a set age, the insured can renew their coverage for the same term without proving that they are still healthy, but at a higher cost.

Sometimes the cost of term insurance would be lower if a healthy person completely reapplied for insurance, instead of taking their new, higher rate. This may be true for you, but never cancel coverage until new coverage is in place.

The most common term insurance sold in Canada is 10-year and 20-year renewable policies. Annual renewable term, where the cost goes up every year, used to be sold widely across the country, but is less common today. Many companies also offer you the right to convert all or some of your term life insurance policy into a permanent policy. Although you don’t have to prove that you are medically fit, you would pay the permanent insurance rates based on your current age, not the age at which you bought your policy.

Term insurance starts out as the most cost effective way to get the highest coverage for your hard earned dollars. However, as you get older (subject to the renewal periods explained above) the term insurance can become prohibitively expensive. Often, term insurance is used more with young families who need to stretch their budget to cover the needs of young children. As children grow up and leave home, the need for larger amounts of term coverage declines. Planning then moves into how much long-term coverage you would like to ensure a benefit to your spouse, to provide an inheritance to your children, or to make your mark by leaving a legacy gift to a charity.

To see how much term insurance can rise as you get older refer to the table below (monthly premiums for $500,000 of 10 Year Renewable Term insurance if you are a healthy, non-smoker as of September 13, 2012):

10 Year Renewable Term Monthly Premium Rates
Age Male Female
20 $26.10 $17.55
30 $25.65 $19.35
40 $30.78 $23.49
50 $71.42 $52.47
60 $225.45 $158.40
70 $679.50 $476.10

As you can see, the closer you get to collecting your life insurance, the higher the rates go. When the cost gets too high, many people cancel their coverage. It is important to review your life insurance coverage with your financial planner every few years, so you do not end up in a situation where you need coverage, but the term insurance is too expensive for you.

Permanent Insurance

Unlike term insurance, this type of insurance is designed to be around as long as you are. It is more expensive to purchase today than the same amount of term insurance, but these policies are designed to ensure that you can maintain coverage for your entire life, at a reasonable cost.

These policies typically build up some form of "cash value". The higher cost one pays today (over the cost of term insurance) stays within the permanent policy and earns interest. In future years, your premiums and the cash accumulated within the policy should offset the higher cost of your protection (versus term insurance). In effect, permanent insurance gives you the option of setting a level average premium by paying more today for your coverage, but a lot less for that same coverage in the future.

There are two types of permanent insurance, whole life and universal life. Whole life insurancepolicies take the excess premium and invest the funds back into the insurance company. If the insurance company prospers, your policy will gain greater "cash value".

Universal life insurance (sometimes called "variable life insurance") allows the policy owner to choose how the excess premiums are invested. Options available can vary widely, but virtually all offer options that are linked to market performance (stocks and bonds) and most also have GIC-equivalent options. Ask a lot of questions, as not all of these products guarantee that your premiums will never go up in the coming years.

There is no one insurance philosophy that fits all situations, and insurance isn't a "buy once, and forget it" product. As your situation changes, so do the needs of your family. Your insurance may need to be changed several times during your lifetime to meet those needs. Working with a qualified insurance agent, who discusses all types of insurance available, will ensure the ongoing insurance needs of you and your family are given proper care now, and well into the future.

Disability Insurance

Did you realize that your ability to earn income is a more valuable asset than your car or even your home?

Did you know that 1 in 3 working Canadians will experience a disability of 90 days or longer before age 65? (And, if you are disabled for 90 days, the average disability lasts 2.9 years).

Do you know how long your group plan at work covers you for a disability? Do you even have group disability coverage?

If you answered 'no' to any of these questions, you should probably take a close look at how a disability might impact your income. A personal disability plan that works with your existing plans (group, Worker's Compensation, employment insurance, and/or Canada Pension plan disability benefits) is an inexpensive way to ensure that you aren't forced back to work strictly because you can no longer afford not to work.

A personal disability insurance plan provides 24 hours/day coverage (not just for work related accidents) and can be customized to coordinate with your unique employee benefits plan, government benefits and personal needs. If you are self-employed, or your employer does not offer group disability insurance, you are even more at risk. If you are a business owner coverage is available to ensure that your business keeps running, even when you can't.

Critical Illness Insurance

A critical illness is a "life-altering" illness. Problems like cancer, stroke, heart attack, Alzheimer's, and multiple sclerosis are common critical illnesses that can it any of us. What would you do if you were diagnosed with a critical illness and survived? Advances in medical science have shown that, every year, more people are living longer after suffering one of these traumatic illnesses.

Unfortunately, living longer does not always mean living well. Frequently, there are costs associated with diagnosis, treatment and ongoing care. As the population ages and our provincial health care systems are stretched to their limits, people are finding that our "universal" health care system means "coverage for everyone" and not "coverage for all expenses".

This is where critical illness insurance might make a difference, both in the quality of your life and maybe even how long you live. Critical illness insurance pays a lump sum to you, often in the range of $50,000 to $100,000, if you survive 30 days after diagnosis of a covered critical illness.

While not all potential critical illnesses are covered, the ones that will affect the majority of us are covered: heart attack, stroke, life threatening cancer, Alzheimer's, MS, Parkinson's, and coronary artery bypass surgery, to name a few. Most companies in Canada will cover the common critical illnesses (about 24-25 of them), with a few extra for children's critical illness plans (cerebral palsy, cystic fibrosis, muscular dystrophy, congenital heart disease, and Type 1 diabetes mellitus).

Unlike disability insurance, critical illness only requires a diagnosis and 30 day survival of the illness. How you use your benefit is entirely up to you. You may find that you need to add a wheelchair ramp to your house, or you want to fly to another country to see a doctor who specializes in your particular condition. Sometimes your work disability policy will not consider your critical illness a disabling illness and require that you go back to work, or benefits will stop. Having critical illness insurance means that you can take a leave of absence from work and not worry about cashing in all of your investments and possibly putting your retirement at risk.

Critical illness coverage can usually be bought as a renewable level term product (10 year or 20 year terms), or with level premiums to set ages (like 65, 75 or age 100). If you don't make a claim...well, congratulations, you have lived a long and healthy life. But, you generally don't get any of your money back either. (Think of it like house insurance where you don't get a refund if you never make a claim). Some companies offer refunds of your premiums, but these policies are expensive.

Having some critical illness insurance can havea huge impact on your long-term financial picture. But then again, having no critical illness coverage in place might have an even larger impact.

Long Term Care Insurance

As baby boomers enter their golden years, many are concerned about the negative impact that future health care costs may have on their hard earned nest eggs. The costs of personal health care and personal care homes have been escalating and provincial health care plans have increased the amounts we are expected to pay for this care.

Having the peace of mind that is offered through long term care insurance means that your nest egg doesn't get cracked when you find yourself needing home care or facility care. The process of requiring care is usually a gradual one and it may be difficult to imagine losing your ability to look after all of your own daily living and health care needs.

Long term care insurance provides help for things as minor as doing laundry and preparing meals, to major care such as rehabilitation, therapy and nursing care. Depending on your personal needs, you can choose to have this coverage provide help in your own home or at a long term care facility.

Business/Corporate Buy-Sell Insurance

Life insurance isn’t just for personal needs. If you own a business, you have extra risks to consider and more assets and people to protect. What happens to your business and your employees if you die? If you have business partners, what happens to them and your half of the business?

Business continuation insurance can help keep your business operating and provide for your family after you die. For example, if you have three children, but only two are actively involved in the business. You can choose to leave half of the business each to your two involved children and buy a separate insurance policy to provide equal funds to your third child.

Some businesses choose to buy key person insurance, if the owner or one employee is vital to the operations of the business. Losing this key person cold mean a significant loss of income, at least temporarily. Having key person insurance in place ensures funds will be available to keep the business operating while new plans are made.

Buy/sell agreements are an important piece of any partnership. Having an agreement in place ensures that your family receives their full value of your business after you die and they ensure your surviving partner(s) can keep operating the business without outside influence. All proper buy sell agreements will include the following:

  • A guaranteed purchaser for your part of the business, usually your business partner
  • A guaranteed sale, to match the guaranteed purchase. (Your estate must sell the business according to the terms of your buy/sell agreement)
  • A set purchase price
  • Guaranteed funding, either though insurance, borrowed funds or personal assets