What is insurance?
A life insurance policy is a contract that you make with an insurance company where you agree to pay a premium and in exchange the insurance company will pay a lump-sum payment, to the named beneficiary at your death if you are the insured.
The most important thing to understand about life insurance is that you may need insurance OR you may want insurance. There is a great difference between need and desire. You should never buy the insurance that you want unless you have bought all of the insurance that you need. Why?
If you need insurance this means that your death will adversely impact the financial future of those you loved leaving them to cope with your debts or an inadequate income. You are an important part of the financial well being of those you love and this does not cease upon death.
Life insurance is the only cost efficient product that provide the financial security for you and your family in the event of a death thereby protecting the financial future of your family. Life insurance provides your beneficiaries with a tax-free benefit upon your death, when they need it, and this need is the result of:
Most Canadians don't have the amount of insurance they need. I am left to wonder why so many life insurance agents try to convince these Canadians to buy the insurance they want. Is this about commission?
- The NEED to provide the financial resources that are needed for your family to maintain their standard of living
- The NEED to pay off debts and outstanding loans
- The NEED to provide for the children. This can be education or any other needs; particulary important if any of the children have an handicap
- The NEED to pay expenses such as funeral expenses
While a need is temporary in most cases, wanting insurance is usually permanent. When you want insurance and you purchase this insurance as the result of this desire; since there are no needs, there will be no one whose financial security and future will be jeopardized if you do not buy that insurance. For example, your estate is worth $500,000 and the tax owed will be $250,000. You could take the insurance to pay the tax since this will be more cost efficient. If you don't, your heir's financial security will not be in danger. They just won't inherit as much as you wanted. Wanting insurance can be for:
- WANTING the estate not to be reduced by taxes
- WANTING to give a gift to a charity
- WANTING to spend your wealth without worrying about spending what you want to give your children...
Who offers insurance?
Most consumers and even those who work in the insurance industry do not know there are four categories of insurers offering insurance in Canada. Most consumers are only aware of the traditional Canadian insurer because of their ads on TV or because of the presence of their agents and representatives in every cities and towns of Canada. However there are other insurers which are available to you…
WARNING: As a DIYer, it is important to know this since most web site quotations will only show traditional insurers since these web sites want to refer you to an agent as this is the way they make money. As a result, the price quotes may not be the best price as these sites exclude the other insurers.
Federal supervision applies to insurers incorporated under the Insurance Companies Act as well as foreign insurers who have been granted an order to insure risk in Canada. OSFI which is the federal regulator is mainly preoccupied with the financial soundness of the insurers, while the provinces regulate the licensing of insurers operating within their jurisdictions as well as the marketing of insurance products.
The four types of insurers are:
- Canadian Insurers (40 insurers)
- Foreign Insurers (32 insurers)
- Canadian Fraternal Benefit society (9 insurers)
- Foreign Fraternal Benefit society (5 insurers)
A fraternal benefit society is an institution that is operated for fraternal, benevolent or religious purposes, including the insurance of members, or the spouses/common-law partners or children of members, against accident, sickness, disability or death.Learn more about these insurers and fraternal societies
How is insurance offered?
There are basically three ways to get insurance from an insurer or fraternal society. This again is not shown on most web sites where you can shop for insurance quotes. Also a comparison provided to you by an agent usually will only compare prices of products that can be offered by agents. It will not include products that are sold directly by the insurer or through an institution such as a university. The 3 ways to get insurance are:
- Directly through the insurer without the help of an intermediary See our report on direct sales of life insurance
- Through a non-licensed intermediary See our report on non-licensed intermediaries...
- Licensed intermediary See our report on licensed intermediaries...
In addition the insurance offered through these different distribution channels can be applied and issued differently. There are 3 categories:
- Guaranteed issue: The application process does NOT require a medical exam and there are NO health-related questions.
- Simplified issue: The application process does NOT require a medical exam but there are health-related questions ranging from 3 to 15+ questions
- Traditional issue: The application process MAY require a medical exam and there are health-related questions (15+ questions).
Types of insurance products
Insurance products can be put in 2 categories. The categories are temporary insurance and permanent insurance.
1. Temporary Insurance: Term insurance is designed to provide financial protection for a specific period of time and they come with a variety of durations. Durations can be 1 year, 5 years, 10 years, 20 years, and to age 65...
Basically the premium payment amount remains the same for the duration period of the Term insurance. After this duration, if the Term contract allows it, the Term may be renewed at a substantially higher premium based on your current age without having to submit any underwriting.
If the contract allows it, some Term policies have a conversion provision allowing the conversion of the term insurance to permanent insurance at attained age without having to submit proof of insurability.
Basically Term Insurance is used to insure a temporary or a permanent need (rare and where the cash flow is restricted). The good news is that term insurance is cheap and there are no reasons for not buying the insurance that you need!
2. Permanent Insurance: Permanent life insurance will offer life insurance protection over your entire lifetime. This type of insurance can be very simple (T100) to be extremely complex (Universal Life). There are four types of permanent life insurance:
- T100: This is the simplest of permanent insurance. It offers insurance over your lifetime and in exchange you pay a LEVEL premium which does not change to the earliest of your death or age 100. If you live past age 100, the insurance is considered paid-up.
- Whole Life Non-Participating:Whole life insurance is a type of permanent life insurance designed to provide lifetime coverage. The premium payment is usually fixed and guaranteed. It is different than a T100 because it allows you to pay the coverage over a fixed period. The premium for that period is guaranteed. The policy will also offer guaranteed cash values reflecting the amount of prepaid premiums. Unlike the Universal Life, you do not get to control and invest the prepaid portion of the premium.
- Whole Life Participating: Participating life insurance is a type of permanent life insurance coverage where your policy is eligible to receive dividends from the pool of money managed by the insurance company on behalf of the policy owners of participating policies. While your coverage and premium are guaranteed for life, you can use the dividends to buy more coverage, reduce your insurance cost or receive the dividends in cash.
- Universal Life: Universal life insurance is another type of permanent life insurance designed to provide lifetime coverage. Universal Life is designed to provide control and flexibility to the policy owner. For example, you can decide where you want to invest the amount of premium you are prepaying. It is important to note that while the Universal Life provides flexibility and control, this product also transfer back to the policy owner many of the risks associated with managing a life insurance policy.
What is the application process?
- Find out how much insurance you need. To do this you have to do a need analysis. There are a variety of need analysis life insurance calculators on the web. However we have developed the most comprehensive calculator despite its simplicity. Use our calculator
- Determine what type of underwriting you want or qualify for. If you are not insurable, you’ll have to select a guarantee issue product where there are no medical questions or underwriting. If you are very healthy, you should select traditional underwriting to qualify as a preferred risk. If you want insurance quickly, simplified underwriting will be your option.
- Determine how you are going to get the insurance. Are you going to use an agent or are you going to get your insurance directly through an association where you are a member?
- Shop around. This is where you will compare the pricing of various insurance products of different insurers to select the product with the best pricing and best benefits. If you have selected to go with an agent, he will do this for you.
- WARNING: Most price comparisons only compare the products offered by Canadian insurers through licensed intermediaries excluding fraternal societies or any product offered directly to the public by the same insurers.
- Submit application and decide if you will submit multiple applications. This is critical if you have a health issue such as a heart problem for example. In many situations underwriting is an art and not a science. As a result, uncerwriting decisions will differ between companies. Getting multiple underwriting decisions from different insurers could save you a lot of money if done correctly. Learn more about underwriting...
- Proceed with medicals if medicals are required.
- Decision is made. Policy is delivered. Please review the policy.
Learn more about insurance
Commission are you getting the real story?
A client met an agent in reference to his insurance needs. The need analysis revealed a need of $500,000. Instead he was convinced to buy a Universal Life for $50,000. In this transaction the advisor revealed a commission of $550. Did the client get the whole story?
First the client should have bought a Term 10 policy of $500,000 for the same premium of $1,000. The commission to the agent would have been $300.
The advisor did not disclose the bonus. His bonus was 130%. This means his commission bonus on the Universal Life was $715.
By selling the Universal Life, the advisor met his sales quota and now qualifies for moving up on his commission bonus scale to 150%. This 20% increase is worth $110.
This 20% increase is retroactive to all sales previously made to the beginning of year. Based on the sales quota of $30,000 premium, the retroactive bonus is worth $6,000.
The advisor now also qualifies to a trip paid by insurer disguised as a conference. Value of trip: $6,000
The advisor also qualifies for “cash for marketing”. Value is $1,000.
For selling the wrong product and for committing an infraction, the advisor has:
In the end, it comes down to choosing the right advisor and we can help you do this through our ADVISORIGHT program
My agent and the insurer are saying my T100 has no value. Is this true?
It is absolutely not true. You have been prepaying the cost of insurance of your T100. The amount of prepayment that you have made is hidden in what they call reserves. The insurer wants to keep this money for itself. It's very profitable to keep something that has been prepaid. The real value of your T100 is called Fair Market Value (FMV). To access the FMV of your policy you must enter into a life settlement. Life settlements are not viatical settlement. Viatical settlement is a life settlement since it is a type of life settlement. Life settlements include any benefits secured and based on the value of the death benefit of a life policy instead of its cash value. In includes loans and the receipt of a sum in cash.
Life settlement may or may not result in a change of ownership. For example a loan against the death benefit would result in a policy assignment instead of a change of ownership with the beneficiary receiving the death benefit less the outstanding loan balance.
All life policies have a Fair Market Value which is always higher than the cash value of the policy. For example a T100 policy with no cash value could easily be worth $50,000…
There are billions dollars worth of life insurance policies lapsing every year and the insurers are buying back these policies through their surrender at LESS than Fair Market Value.
Insurers have convinced the provincial governments except Quebec and Nova Scotia to create a monopoly giving the rights to insurers to be the only one allowed to buy back life insurance policies therefore giving these insurers control over the value of life policies.
It is legal to sell your life policy everywhere in Canada. However the problem is to find someone other than the insurer to buy back the life policy because of the prohibition for buyers to organize a market for such policies.Use our calculator to determine the FMV of your life policy. Don't trust your insurer! Your policy could be worth a lot of money!×
Who can get paid to service my insurance policy?
In all provinces except Quebec, anyone who is NOT licensed can get paid to service your policy!
This means that a financial advisor who has committed fraud and who was sanctioned by having his license cancelled can still continue to receive the commission of service associated with your policy and be listed as the servicing advisor.
If an advisor dies, the estate of the advisor can continue to receive the commission of service and be listed as the one who will service your policy. This means the trustee of the estate who can be the wife, uncle, parent, child, friend or anyone really can be responsible for the service or your policy.
A NUMBER corporation linked to organized crime can receive the commission of service associated with your policy and be listed as the servicing advisor!This is why we have instituted the program AdvisorRight where we only recommend advisors that gurantee continuity of service through a licensed advisor. AdvisorRight ×