Life Insurance: Your Questions Answered

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*** This life insurance post is sponsored by GoLife.ca ***

Life insurance is a tricky thing, there are so many options so many opinions out there it is hard to know what you need for your own individual situation. It can be tricky trying to figure out all the ins and outs to make sure you are getting the coverage that you and your family need.

That is why you need to have someone in your corner that you can trust, and who knows what they are doing. Thankfully I have Chad from Golife to help answer some of the questions you lovely readers had!

Why do I need additional/separate life insurance if I have some provided through my work?
Work place benefits are great and an important part of ones financial plan. The issue for most individuals is that the life insurance provided at work usually only covers 1-2X ones annual income. Most individuals require 10-15X their income to protect income and eliminate debts (including the mortgage), which means a potential shortfall in protection if one only has coverage through work. 
 
The biggest risk to solely relying on coverage at work is if you leave your plan. Changing jobs and employers is common and every time you switch jobs you run the risk of ending up with no coverage or having to apply for new personal plan at an older age, resulting in higher costs. An even bigger risk is if your health changes, you may not qualify for future coverage at all. 
 
Work place coverage gives you the option to get more life insurance than the minimum 1-2X offered (usually maxed at $500,000 of coverage) but you will have to go through underwriting.  
 
If you are going to complete underwriting anyways it makes sense to get a personal plan that allows you to:
  • Have control and ownership of the policy, it goes where you go
  • Apply for the right amount of coverage you need, not limited to $500,000
  • Have the option to pay less and qualify for discounted premiums (not available at work)
Given the financial protection that is at stake for those you love, in most cases a personal life insurance policy makes sense. 
Is there a way to get private life insurance if your spouse engages in “risky sports“ like rock climbing or backcountry skiing?
Yes, but this one topic you should discuss with an advisor, here is why:
  • For those who engage in “riskier” sports and hobbies there is usually an additional questionnaire that is required with your application. This helps provide disclosure about the activities and to see if a modified price is required or not.
  • Insurance company’s will often have different views on certain activities and hobbies, so it is important to apply with the one that will give you the best offer given the riskier activity.
  • For activities like “Rock Climbing or Back Country Skiing” some companies will increase the premium given the higher level of risk, others may exclude the activity, meaning you won’t be covered if you died doing the listed sport or activity.

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I have seen policies with an investment portion and I’m wondering if it’s growth is worth it, will I get pay out  when I’m ready to retire. How do I find out how it’s performing?
Life insurance policies that have an “investment” or “cash value” competent to them are permanent or participating policies. The first question to ask yourself is “Why am I getting life insurance?” It’s important to always make sure you are getting the right amount of coverage and then find which type of policy best meets your needs.
If you are wanting to pay of debts and protect income then Term insurance is often the better choice.  Permanent life insurance can be very effective for estate planning and tax efficiency, though needs to be carefully considered and set up properly given premiums are significantly more than term insurance. The cash value or investment growth inside a permanent policy can be worth it, especially for those individuals looking for a more “conservative” investment approach. Most permanent policies are designed to be “long term” investments so only consider them as an “investment” if you have at least a 15-20 year time horizon.
There are basically two categories of permanent life insurance, Universal Life or UL and Participating or Whole Life insurance. The government made changes to these policies last year and participating policies are looking more attractive than Universal Life but it is recommended to speak with an advisor before making a decision.
Investment returns and performance of the policy are reported in an annual statement that is required to be sent to you. Each insurance company will also have additional information, often online, that you can access.
Will we need to pay taxes on the money paid out, if it is paid out?
Life insurance proceeds are paid out as a tax free, lump sum payment to your named beneficiary. Life insurance benefits are also paid out quickly, often within 7 business days of the paper work being completed. The promptness is due to the fact that underwriting, at least for a personally owned policy, is completed upfront at the time of the application.
When we hear “insurance” we are often skeptical if the insurance company will try to find a way not to pay. Personal life insurance is not like other types of insurance like auto, home or electronics. Life is simple and clear for a few reasons:
  • Underwriting is completed up front, at the time of your application. Underwriting for Creditor insurance, like with the bank, is often done at the time of claim, obviously not ideal. Watch In Denial 
  • Single claim: “alive or not”

There are only a few reasons a claim would be denied:

  • Act of War – you go into a war
  • Active Crime – you are invoking and participating in a crime
  • Fraud – you purposefully lied on your application or intent or reckless disregard of the truth
  • Material Misrepresentation in the first 2 year of an inforce policy
  • Suicide – within the first two years of the policy
Would it be better to have the money go to me if there are tax implications for non-spouse beneficiaries?
Life insurance benefits are still tax free even when paid to a beneficiary who is not a spouse. Benefits are tax free even if they are paid to child, spouse, friend or other family member.
How does one decide if purchasing life insurance for their child is beneficial? I have considered it but unsure it’s worth the extra money – if they were diagnosed with a chronic illness in the future would the cost change? Would the plan be valid for their entire life or only until they are 18?
Great question and often on the minds of many parents. For what it is worth, as a parent and advisor, I have a policy for each of my children.
Juvenile life insurance is for the child and their financial future.  Here are a few reasons why you may want to consider a policy:
  • Think of life insurance for a child to be like a  “Swiss army knife” – you may use it for education, travel, down payment or financial protection.
  • Securing the future insurability of our children is a good thing. Our health can change, it can be out of our control and having some coverage could be helpful to those we love in the future. Most premiums for permanent life insurance for children are guaranteed at the time of the policy is purchased. This means that even if the health of the child changes premiums will remain the same. Permanent plans for children stay in affect past age 18 and usually go till age 100.
  • Juvenile insurance plans are one of the only financial tools that you can transfer from parent to child with no tax implications. Parents can be the owners of the life insurance policy for as long as they want. Parents control when it is the right time to give ownership over to the child.
  • Life insurance policies for children give parents the control of when they see it being the right time to give their child financial control.  With  “in trust for accounts”, at age 18 the child gets control of the savings account.  With juvenile insurance plans, parents get to decide when the right time to hand over the money is!
  • RESPs are still the best way to save for education so don’t be talked into a juvenile policy to be the main funding source for education. The plan may supplement education but RESPs will be the primary source. A rough guide I have always used is that 75% of my kids savings goes towards RESP and other savings and 25% towards a juvenile policy. So if I was saving $100 – $75 RESP and $25 life insurance policy. Remember, what you set up for your first child you may need to do for more children in the future!

With so many different people, families and needs out there it is essential to make sure you are talking to someone who is knowledgeable. Checking out the experts over at Golife.ca is a great first step. Life insurance is important, it isn’t the most glamourous or interesting part of adulthood but it is essential to make sure you and your family are taken care of.

No matter what the universe throws at you, with a little preparation and some insurance and you will make it through with a smile.

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