Pick your life insurance wisely

Plan ahead and shop around before settling on a life insurance policy

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Term-life policies can vary hugely in cost, so check out quotes from rival firms at term.ca or term4sale.com before you buy.

An insurance broker can help steer you through the competing choices.

9 comments on “Pick your life insurance wisely

  1. MISTAKE: Failing to buy enough insurance while you are still healthy.

    Medical evidence is required when you buy life insurance. This evidence usually consists of a list of questions to elicit your medical history, a brief exam by a nurse, a blood and urine specimen and possibly a report from your doctor. If at a later date you decide that you really need more coverage, the process begins again. If your health has changed you may have to pay higher premiums.

    MISCONCEPTION: Cheapest is the best.

    That term policy premium might be cheap in year one. But most term policies renew at regular intervals (every 10,20 years) and the renewal premium rises at each interval because it reflects your new age.

    In general, a 10 year term policy is the cheapest but by year 13 it is actually more expensive than buying Term 20. In other words, if you think you need coverage beyond 10 years, it is better to chose a 20 year term now.

    Reply

  2. @Brian…Agree 100%. We found this out the hard way last year when it was time to renew our 10 yr term life policies for the second time and the cost had more than doubled! When our supposedly caring, professional broker finally called us back to explain his answer was simly, "they count on you not wanting to switch and go though re-applying due to increased age and health issues". Translation: they raise it because they CAN and they have you. We felt completely misled by our broker after many years of loyalty. We now strongly advise others, especially those younger, to look at term insurance but as you say in longer terms from the start. It's more expensive up front but FAR CHEAPER in the long run. THIS is an issue I wish more of the mainstream media would bring awareness to consumers of life insurance. Especially with the current economy!

    Reply

    • Marie,

      Though my tips are for term insurance (which is like renting…nothing wrong with that!).

      If you have the right kind of permanent life insurance, you can get all your premiums back, with interest! Yes, this costs more, but when was the last time you got your home or auto premiums back with interest after twenty years?!

      Reply

  3. MISTAKE: Failure to understand your options

    So on each renewal the premium rises at each interval as stated above. But you do have options. Most term policies include a free option to convert your policy to permanent coverage before age 65. Converting to permanent coverage make sense especially if you have had a change in health. Even better, you will not require a medical to convert.

    The types of permanent coverage eligible for conversion usually include whole life and universal life but these also vary by company. If you buy term coverage do so with a company that offers several options for the converted policy.

    Reply

  4. More tips

    MISTAKE: buying coverage because no medical evidence is required.

    This might sound appealing but in actual fact you will pay more for this insurance and the amount of coverage available will be limited. If you are healthy, take the time to prove it and pay premiums that truly reflect the good risk that you are.

    MISCONCEPTION: the premium I see on the internet is what I get.

    Insurance companies offer several classes of standard rates. Those in the top physical condition and with no risk factors will get the best rate. Premiums on the internet usually default to the top preferred category (the cheapest). However, keep in mind, only a certain percentage of applicants will actually qualify for the best rates.

    MISCONCEPTION: waiting until you lose weight or stop smoking in order to get the best rate.

    This is just procrastination. Yes, you may pay higher rates now but did you know that if you quit smoking or if you keep the pounds off for one year, you can apply to have your rate reassessed.

    Reply

  5. Common Misconceptions and Mistakes when buying term insurance
    (more information)

    MISTAKE: failure to understand that buying term is like renting life insurance.

    Permanent (whole life) plans are more expensive in the early years but the premium stays the same for the duration of the contract. Because you pay more in the early years, you have some equity (cash value) in the policy. If you decide to cancel the contract you get the cash value back. However, you have no equity in a term policy. You pay premiums applicable to your age and this rate rises at every scheduled renewal. Because you are paying the true cost of coverage, there is no equity in the policy. If you cancel the coverage 10 years down the road because the renewal rate is too expensive, then you walk away. Bottom line, you are renting coverage briefly and won’t have it when you need it or more importantly when your family needs it!

    .

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  6. MISCONCEPTION: Association insurance has cheaper rates.

    Associations include organizations such as universities, credit card companies and consumer groups like CAA. Sometimes association rates are cheaper but in many cases the rates go up every five years. Associations are like groups where several insureds are lumped together and pay a premium relative to the group being covered. Even where limited medical questions are asked, the premiums reflect the inability for the insurance company to fully assess individuals and the group like rates is charged. Association groups also may offer very limited conversion opportunities. Therefore if you cancel your credit card or if you are no longer a CAA member your coverage is cancelled.

    As a smart consumer, obtain an individual insurance quote and compare the products for price, renewal options and conversion options.

    Reply

  7. MISCONCEPTION: Buying through the internet is cheaper (no commissions to be paid)

    Insurance comparison services on the internet say “buy direct and save money”. The fact is, you cannot receive a discount in the price of life insurance by avoiding a life insurance agent. Sales charges and costs (such as commissions) are built into the premium that you pay for any life insurance policy that you buy. You will be paying those built-in charges regardless of where you buy the insurance. Finding and using a local life insurance agent will not cost you more than dealing with someone in another city or province by telephone or mail.

    We use term 4 sale as a guide only. There is some pit falls to what you see on the internet.

    Reply

  8. MISTAKE: buying coverage because no medical evidence is required.

    This might sound appealing but in actual fact you will pay more for this insurance and the amount of coverage available will be limited. If you are healthy, take the time to prove it and pay premiums that truly reflect the good risk that you are.

    RBC, BMO and Independent brokers (like myself offer this). If you are healthly get the good stuff. Even if one is overweight, highblood pressure, yes you will be rated, but it will still be less expensive and you get more coverage not less.

    Reply

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