I can understand why everyone is so high on life insurance. Imagine you’re a 30-something guy, who lives a pretty normal life. You’re got the average 2.3 kids, along with a wife who only works part time because she’s busy taking care of the kids and the house. You’ve got a mortgage and a car payment, even though you should really be saving up to buy your cars in cash. Basically, if you live a normal middle class existence, you’re pretty much screwed if you kick the bucket. You wouldn’t really care, because you’re, you know, dead. Still, it would be a bummer for your wife.

So, like so many others, you buy life insurance. Because you’re intelligent, (probably from reading this blog) you buy term life insurance, since having insurance attached to an investment product is generally a bad idea. Since everybody already knows that term insurance is best, let’s move on to a slightly different topic, one that’s rarely discussed. There are certain people who shouldn’t have life insurance. Just who are they?

Single, No Dependants

Since you guys clearly care about my life so much, let me give you some more details. I do this under the assumption that none of you will track me down and stalk me. I don’t want to have to get a restraining order. Again.

I’m a single guy, since the ladies keep rejecting my awkward advances. I own a house, along with some RRSPs, individual stocks, and some other investments that I’ll keep vague. If I were to get hit by a bus tomorrow, it would be a bummer for at least a few people. While people would care if I were to die, it wouldn’t affect them financially at all.

I easily have enough liquid cash to cover the cost of a funeral. I have a will, which gives directions on how my estate would be divided if I were to die. I have given power of attorney to the executor of my estate, meaning they could withdraw the cash needed to give me the fancy casket. Hey, I want a comfortable eternity.

The point is, as long as nobody cares financially (that’s the key word here) about your untimely death, then why would you insure your life? To give money to people who either don’t need it or should be making it themselves? I’d argue that’s a pretty poor use of insurance.

Besides, the chances of me kicking the bucket even in the next decade is pretty slim. Because of that, I’d have a pretty small insurance premium. I’d rather pay nothing, and then reevaluate in the future.

Underage Children

This one isn’t as cut and dry as my argument about single, no dependent people, but I still wouldn’t buy life insurance for a child.

This isn’t because I don’t value children. It’s because, strictly from a financial standpoint, they’re liabilities. They eat your food and maybe even drink your beer when you’re not looking, if they’re older kids. While it’s always a tragedy when a young person passes prematurely, it actually lessens the financial burden on the parents. No longer do they have to feed, clothe and entertain the child. The parents would obviously still like the kid around, that much is certain.

There is a legitimate argument for buying a small term policy for a child. Losing a child is a horrible thing that no parent wants to go through. If there’s a financial buffer (provided by insurance) the parents can take a few weeks off work and not have to worry about money as they recover. While I’d rather see someone have enough in savings to get through a rough patch, insurance can serve as a welcome reprieve.

Life Insurance Isn’t For Everyone

For the majority of readers out there, life insurance is a good idea. Even though the event of your untimely death may be unlikely, it’s a good idea to make sure your dependants are taken care of in case it ever happens. The benefits can far outweigh the costs, which is sort of the whole point of insurance.

But, if you’re a single person with nobody to take care of, maybe you should reconsider your decision to get life insurance, at least for a little while.

Related Posts:

• Insurance You Can Do Without – Mortgage Life Insurance
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Not Everyone Needs Life Insurance originally appeared on Canadian Finance Blog on November 3, 2011.

Luckily, the insurance industry has you covered. For a nominal cost, you can purchase wedding insurance that will insure your investment. What do you need to know about wedding insurance and do you really need it?

Actually, wedding insurance does have a change of heart clause but unless your future spouse decides that you’re not the one at least 6 months before the big day, you might be stuck with a broken heart and a broken wallet. Wedding insurance actually covers expenses of a more practical nature.

One wedding insurance website lists events like a tornado destroying the wedding venue, stolen rings, a seamstress losing the bridal gown, the caterer going out of business, and the tuxedos somehow being rented twice. (Wouldn’t you like to hear the explanation for that?)

These aren’t low dollar losses. The tuxedos, for example, were a $2,300 mistake and those stolen rings were $15,000. How do you tell your future spouse that you think wedding insurance is a good idea? Remind them that a wedding is a complicated and expensive event with a lot of people being trusted to provide the perfect event. Just one mishap could be very expensive.

What not to do

First, tell your wedding party not to do anything fun because your insurance doesn’t cover it. If anybody is injured in your wedding party that causes the event to be postponed, your wedding insurance won’t cover it. What are they not allowed to do? Hunting, skiing sledding, racing of vehicles, sky diving, and other aquatic events are just a partial list.

Next, don’t schedule your wedding at or near a nuclear power plant. If your pictures or videos are damaged as a result of nuclear action or war, you aren’t going to collect any money from your wedding insurance. Last, if your car was unlocked and your rings were stolen, you’re out of luck. Keep your car locked if you’re going to keep thousands of dollars worth of jewellery in it.

Although it’s easy to joke about such events, it can’t be denied that a wedding may be the largest single event you ever pay for and for everybody but possibly the English monarchy, wedding expenses can’t be replaced if something goes wrong. Consider insurance for those unforeseeable events and if you have your wedding at a nuclear power plant, don’t say we didn’t warn you!

Related Posts:

• Insurance You Can Do Without – Mortgage Life Insurance
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• Insurance You Can Do Without – Life Insurance For Your Child

Have You Considered Wedding Insurance? originally appeared on Canadian Finance Blog on October 10, 2011.

The only problem with Employment Insurance is that they aren’t going to chase you down to make sure that you are taking advantage of their benefits. You have to know their regulations, play by their rules, and jump through their hoops. If you do so, however, you can get yourself covered while you take care of yourself, your relative, or while you are looking for work. As my wife and I have gone through this lately, here’s what you have to do in order to get EI.

Check EI Qualifications

Even if you have lost your job, you have to lose your job in a specific way to qualify for Employment Insurance. Setting your place of employment on fire (purposefully) while emailing your boss how much you hate him will most likely disqualify you. Check this link for more specific details as to who, exactly, can apply for EI. My wife and I had absolutely no idea that she might qualify for EI until one of our friends mentioned it to us. I guess they had known someone else who was able to apply, so asked if we were going to. This, of course, led us to actually look into it and see if it was true – which it was. So we applied!

Apply For Employment Insurance

That’s the second step to getting EI. You actually have to start filling out paperwork. Make sure you apply as soon as you stop working. The quicker you get your application in, the sooner they can process it and get the money flowing into your bank account. You can’t apply until you are done work, but make sure you have everything ready to apply the day you are done. Otherwise you will be stuck in limbo without any cash flow while you wait for papers to show up and get processed. Something strange happened with our application, for example. We were waiting for my wife’s work to send us her Record of Employment so that we could show Services Canada that she was, in fact, done work. We waited three weeks before phoning to see what had happened to it. Apparently they had not processed it yet (has to be delivered within 15 days by law), but would now do it because we had asked. So that put us over three weeks behind schedule in terms of our application. It had been so delayed, in fact, that my wife had to go through the entire application process over again because of the delayed ROE. So make sure that you have all the necessary documents in place ahead of time (see this website), make sure they get delivered to Services Canada so that you can be sure that you get your money as soon as possible!

Report

The one thing that Employment Insurance requires is a report every two weeks. They just want to make sure that you are still unemployed, and that you are still employable and looking for work. In order to complete these reports, my wife has been writing down every single job that she has been applying for. That way she can prove, should the government ask, that she is still looking for work and not just waiting for her EI to run out. These reports will also ask if you have worked during the two week period, received training, or became unavailable for work. Simply fill out the report (it is all online) every two weeks per their request, and then EI will send you your next cheque (direct deposit).

Thankfully, that’s all there is to EI. Like so many other benefits, however, you have to know about it, and you have to pursue them in order to take advantage of them. Even if you think you don’t qualify for EI, but are unemployed, it is worth double chequing to see just in case you are actually eligible for EI. If you are able to apply, be sure to play by their rules to ensure a smooth transition from your job into unemployment, and hopefully back into employment!

Have you ever applied for Employment Insurance? How did it go?

Related Posts:

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All About Employment Insurance (EI) originally appeared on Canadian Finance Blog on September 21, 2011.

Ask for a Compulife(R) quote. Compulife is a software company that provides insurance companies and brokers with a database of insurance company premiums. That way you’ve got most of the companies available to you, sorted by premium. Otherwise you’re starting with the foregone conclusion of just working with your agent’s favourite 3 companies. Most brokers have the ability to shop the market, but not all will unless you specifically ask. And if you’re being sold on other factors like large companies, then don’t you want the cheapest, large company? Or maybe you like the savings of a smaller company (aside: there’s no correlation between size and competitiveness. Large and small companies both frequently have competitive premiums.) Compulife maintains a free online life insurance quote system for consumers at www.term4sale.ca. I also run the same database on my website at www.insurecan.com. Same numbers on both sites, my website has nicer pictures though.

Size doesn’t matter. Unless you’re shopping for some huge amount of life insurance, a small company is as good (or as bad, depends on your perspective) as a large company. If you’re concerned about stability, there’s no correlation in Canada between company size and stability that I’ve seen. Plus, the entire industry belongs to an organization called Assuris, where they all guarantee all the other companies’ life insurance policies within certain limits. So if a smaller company is cheaper, it’s probably as good as a more expensive ‘big’ company. Either way, if you’ve got a Compulife(R) quote, and you do want a larger company or a brand name, you’ll be able to define how much extra it’ll cost you to deal with a specific company just by looking at the quote.

Quit smoking – anything. Nicotine or marijuana even once in the past year means you’ll get smoker rates and that’s about double the nonsmoker premiums. Pipe and cigar smokers are occassionally an exception. But in the end, if you can quit you can lower your premiums. And if you have quit, then after a year contact your existing insurance company for reconsideration.

If you recently quit smoking or are planning on it, buy a shorter term. If you need 20 year term for example, buy a 10 year term for now. Then once you quit smoking for a full year requalify for non-smoker premiums and then bump your policy type up to a 20 year term. Between now and then you’ll be paying the cheaper 20 year term rates. There are a few life insurance companies that offer you the ability to bump up from a 10 year term to a 20 year term in the first five years, you may want to investigate those. As in #4, make sure you buy a policy that has a conversion option.

Having the right amount is more important than having the right type. If you’re on a restricted budget, buy a shorter term rather than buying less life insurance. That way if you die (which is what we’re preparing for here) you’ve got the right coverage. And I assure you, nobody who’s received a death claim has ever cared if the insured had whole life or 10 year term – we only ever care ‘how much’. This strategy means you need to take a medical exam and buy a new policy in the future, so make sure you only buy term insurance that has a ‘conversion’ priviledge. This lets you buy permanent insurance with no medical exam should anything go wrong medically.

Rated or expect to be? Have your broker ‘pre-shop’ companies. A broker can take down information (more is better) and contact a bunch of companies to get an initial estimate. Sometimes you can find a wildcard company that’ll give you a much lower rating than other companies. And sometimes, you can’t find that wildcard company – but there’s no harm in asking. Insurance companies and brokers dislike this extra work, but it’s your pocketbook – make them do it. If you’ve been rated on your policy already, first accept the policy, then have your broker do the shopping after the fact. Here’s an illustrative example:

• Company 1: Client applies and receives $2500/year rating. I contact company 2 for a second opinion.
• Company 2: No rating, wants an exclusion clause for scuba diving instead. I contact more companies.
• Company 3: $2500/year rating.
• Company 4: $2500/year rating.
• Company 5: No rating, wants an exclusion clause for scuba diving.
• Company 6: Asks for additional information on client and scuba diving. I provide the information. Company responds with standard policy – no rating, no scuba diving exclusion.

So, some of the companies feel that there was an underwriting issue that was worth $2500/year but didn’t care about scuba diving. Others didn’t see the same underwriting issue, but cared about scuba diving. And one company didn’t care about either the scuba diving or the underwriting issue. While the companies are mostly consistent, they are certainly not ‘always’ consistent.

Take the medical exam first thing in the morning. It’s called a ‘fasting blood test’. Discuss this with the paramedical who calls to book the medical exam, but you want to minimize any false readings in your bloodwork as the result of your breakfast.

Tell the insurance company everything. In fact, don’t just give them the facts, tell them all the surrounding details. Give them dates, diagnosis, cause, treatment, whether it’s resolved or ongoing, medications, and so on. Don’t leave them guessing and have them assume the worst. If you’re not sure, tell them anyway. This is perhaps the most counterintuitive concepts because it seems like the more we tell them, the worse it’ll be for us. But I have a saying -”everybody’s got something” – there’s hardly ever a clean case for life insurance. And the insurance companies still issue lots of life insurance. And you’ll likely be surprised about what they don’t care about (and perhaps, what they do care about).

A top ten list with only 9 items won’t work. So here’s the final one to round it out to 10 items.. Make all your insurance decisions financial not emotional. Buy insurance to cover catastrophic financial losses – and it helps to write out a list. What’s the financial loss? Can you define it on paper financially? (i.e. If this happens, I lose $X dollars?). Is it catastrophic, i.e do you need to insure it? Or are you buying a feel good decision (i.e. If this happens, I don’t ‘lose’ $X, but I like the idea of having that money given to me..

Author Bio: Glenn Cooke is a life insurance broker in Canada and president of InsureCan Inc. He has more information about life insurance on his website at Life Insurance Canada..

Related Posts:

• Insurance You Can Do Without – Credit Life Insurance
• Understanding Term Life Insurance
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Saving on Life Insurance Premiums originally appeared on Canadian Finance Blog on July 4, 2011.

How Much Is Enough?

Now that we are taking on a larger mortgage this summer I feel that we need to take a look at our overall financial picture and get our life insurance needs up to date.

I’m a big proponent of buying term insurance and renewing it every 5 to 10 years to match your financial situation at the time.  Hopefully by the time our kids are grown-up and we are mortgage free then we can become “self-insured” or at least scale back on our coverage.

The group life insurance coverage through my employer is for 2.5 times my annual salary.  Let’s say for this example that my salary is $85,000.  That would put my total life insurance coverage at $212,500.  That doesn’t sound like a lot now, does it?

Calculating Your Insurance Needs

The common industry standard for a single income family is that we would need to replace 80% of my salary to maintain our current lifestyle.  That’s a good start, but for how many years do we need to replace that income?  Until our kids have left the house and are financially secure?  In that case our daughter just turned 2 and we would like to have another baby in the near future, so let’s say 20 years.

Now you can see why I’ve been thinking about increasing my life insurance policy.  It’s pretty apparent that $212,500 is not going to be enough to sustain our family for 20 years if something should happen to me.

I plugged those numbers into an insurance calculator and was a bit shocked by the amount that came up.  $1,200,000.  That’s nearly 6 times what my current life insurance policy is covering.  But hold on a minute, this calculation is only taking into account a replacement of income and is using a generic rule of thumb to apply to the average person (80% of income).

Assess Your Own Situation

Every situation is unique, and in our case we have a very high savings rate.  I contribute just over 11% of my salary to a defined benefit pension plan, and we manage to save an additional $1,000 per month on top of that.  That’s about 25% of our gross income. We have no debts outside of our mortgage.

So when we take our savings rate into account, I would change the replacement income estimate down to 55% of my salary.  When I plugged those numbers into the insurance calculator the amount came to $780,000.  That is still over 3.5 times what my current policy is covering, but it sounds a bit more realistic for our situation.

Like many Canadians, I could very well be underestimating our life insurance needs and overestimating our ability to become self insured in 10-20 years.  The nice thing about term insurance is that it’s fairly cheap and when the term expires we can re-evaluate our insurance needs and renew as we see fit.

Has a change in lifestyle caused you to re-think your life insurance needs?  How much is enough for you?

Related Posts:

• Insurance You Can Do Without – Credit Life Insurance
• Insurance You Can Do Without – Mortgage Life Insurance
• Insurance You Can Do Without – Life Insurance For Your Child

Is Your Life Insurance Up To Date? originally appeared on Canadian Finance Blog on June 28, 2011.

Now think about that for a second. Do you believe that term insurance and investing the difference is the best product for everyone, 100% of the time? I think most folks will agree that this can’t be the case. And yet buy term invest the difference proponents ALWAYS arrive at the conclusion that term life insurance is your best buy. Doesn’t that smell a little bit funny? Like it’s a foregone conclusion?

Sure enough, there’s some holes in the story. And like many ideologies, finding these holes happens when we start looking at assumptions and guarantees. The math doesn’t show the whole story in this case.

Basic concept

Buy term and invest the difference works like this; you compare the costs of term life insurance with permanent life insurance, where the permanent insurance typically has a cash surrender value. The concept shows how if you bought the cheaper term life insurance now and invested the savings you’ve kept over buying permanent, about age 65 when you don’t need life insurance anymore, you’ll actually have more money. Cool! Let’s run the numbers.

Example:

I ran a whole life insurance quote using Compulife (R) (Compulife is the standard life insurance company rate database used by agents in the US and Canada). Let’s say you’re a male age 40 nonsmoker. For an amount of $100,000 I grabbed the least expensive 20 year term (turned out to be Equitable Life’s 20 year term) and compared it with the least expensive whole life product in the comparison (turns out to be Empire Life’s Solution 100 with values).

The next step is to cancel both products at age 65 and see which product gives us the most money. We’re doing this because the concept says we don’t need life insurance past age 65 – by that point our savings will have left us self insured.

I’ve assumed a nice conservative interest rate of 3%. Based on that, if you had bought the cheaper term life insurance you’d have saved $7,941.86. If you bought the whole life insurance policy and cancelled it at age 65, you’d have $13,200. Wait, what?

I’m reminded of the 5 P’s. Prior Planning Prevents Poor Performance. Because if I was in front of a client convincing them how important it was to buy term insurance, I would be very embarrassed right now. I’ve just shown that you would be better off buying the whole life insurance policy and cancelling. Whoops.

So comparing the least expensive 20 year term with the least expensive whole life doesn’t work. So what are they comparing to make this work so well? What am I doing ‘wrong’?

Do you know what assume spells?

It spells assumptions. Like all good theologies, the flaws lie in the unquestioned assumptions. Let’s have a look at some of them, see if you agree with them.

Problems with my comparison

First, while that comparison I just quoted shows that the whole life policy is better, what I didn’t mention is that the $13,200 of cash surrender value would actually be subject to taxation. Only a small portion of it would be taxable, but you would be unlikely to receive the full $13,200. However, even after taxes I’m pretty sure you’d still have more money with the whole life, using those assumptions.

Speaking of taxes, we assumed a 3% rate of return. Depending on what that’s invested in, the 3% could be subject to taxes as well. Easy enough to avoid those taxes, but if you don’t, that makes the whole life policy even more favourable.

Secondly, we’ve assumed that we’ve kept the 20 year term policy for 25 years – 5 years past the 20 year renewal. I can’t imagine someone would keep a term policy these days past the renewal. Renewal premiums are simply too high. Most consumers would either buy a new term policy at renewal or convert to permanent (despite the fact we’re trying to disparage permanent insurance with this concept). So fair enough, if you bought a new term policy in year 21, you’d have lower term premiums in years 21-25 than what I used, helping the term cause a bit. Is this something a consumer would catch?

Interest rate

I believe interest rates are the biggest single concern with this concept. If I have assumed 3%, the whole life policy looks better. If I assume 6% and no taxes on earning, then the term insurance policy is about break even. If I assume 10%, now the term life insurance policy is about $29,000 better.

So what interest rate do you think you should be using? 3% or 10%?

Now if an insurance agent wants to sell you a life insurance policy plus their miracle-gro investment strategy, what rate do you think they’re going to use? 3% or 10%?

But lets say we’re OK with the 6%. Nice fair comparison over 25 years and the term insurance wins by about $4500. I’m going to assume that $4500 over 25 years is close enough that we’ll call it a tie.

Cancelling at age 65

But is it a tie at 65 if we used 6% rate of return? We bought a whole life policy, or bought a term and earned 6%, and in both cases we just cancelled and ended up pretty close to the same financially.

But what if we don’t want to cancel the life insurance? Yeah, I know, the concept doesn’t allow for this possibility. But let’s say at 63 you had a cancer scare. The now-65 year old that had cancer two years ago that bought the term policy – how do they feel about their term life insurance policy? Not too good. The policy has ever increasing premiums and eventually it actually expires.

So what if I said to this 65 year old, hey, I can not only get you healthy rates for life insurance, but I’m going to lock it in for the rest of your life level. And I’m not going to give you the rates of a 65 year old. I’m going to give you the healthy rates of a 45 year old. Would you be interested?

If you made it through all of that sales speak, the point is that at 6% your the same financially if you cancel, but if you decide not to cancel, the whole life insurance policy is going to be a real deal breaker.

I appreciate that the rabid buy term and invest the difference advocates will refuse to entertain the idea that one could want insurance past 65. And perhaps my cancer scare example is a bit overboard. But two things are true – even if you don’t want permanent insurance now, there’s some possibility you may change your mind in the next 25 years and secondly, if you do change your mind, having bought the whole life policy in this example is going to be a much better solution. More choice in 25 years, for about the same cost.

The other aspect about cancelling at 65 is that in my experience, many people around retirement age want some permanent insurance. They want to cover final expenses. Some want to leave money behind for kids or grandkids that doesn’t come from the estate. Whatever the reason is, it’s been my experience that some people’s idea of the financial value of life insurance changes as they get older. That may not be you, but you should leave yourself open to the possibility that it could be.

Still not convinced? Would you believe that many people are interested in a smaller life insurance policy after retirement? That’s probably obvious. And with a 25 year old whole life policy already in force, all you need to do is drop your face amount down when you hit 65 – instant small life insurance policy, guaranteed.

Self Insured

This is an easy one to debunk, just take it to the extreme. It’s clear that people with high net worth can run into tax complications at death. If they don’t want their beneficiaries or family to have to sell assets at fire sale prices or dip into liquid cash to pay these taxes, then life insurance is an easy answer.

So if you do become self insured to the point of being really well off, there’s a reasonable chance that you are going to want permanent life insurance. Again, it’s not 100%, but it’s a possibility you shouldn’t exclude.

Guaranteed vs. Not guaranteed.

At our 6% rate of return, the term life insurance and whole life insurance products were basically even. But they’re not. We just compared a guaranteed result with a non-guaranteed result.

That 6% rate of return you earned on your ‘savings’ from buying the term policy – was that guaranteed? Not even close.

The $13,200 of cash surrender value on the whole life policy? That is guaranteed. And frankly, an agent should be ashamed of themselves if they’re comparing guaranteed vs non-guaranteed in front of a consumer and neglect to mention it to them.

So how does the term look now? The person that bought the whole life insurance policy is guaranteed $13,200 less some taxes at age 65 if they cancel. To get the the same results from a term policy, you’d have to earn more than 6%. That’s almost like saying you can get a guaranteed 6% interest rate. I’m not saying that! But at what point do you need to be before a guarantee matters? For many Canadians, having to invest in something that will earn more than 6% to beat a guaranteed option is going to be a no brainer. They’ll let someone else take the risk.

And that’s only if you cancel. We’ve already covered how the whole life insurance compared better by giving you better coverage cheaper if you decide to keep your insurance after 65.

Other considerations

So how do we make these comparisons ‘work’ to favour the term insurance.

First, use a higher non-guaranteed interest rate and compare it to a guaranteed cash surrender value. (and then lead into a discussion of sale of investment products rather than mentioning the non-guaranteed aspect ).

Secondly, don’t compare least expensive with least expensive. If you have a non-competitive whole life product and compare it with a current term premium, of course the term policy is going to look better. Try comparing the term product with a competitive permanent product. Or comparing your existing permanent with a new, competitive permanent product. (I compared a 20 year term with a competitive Universal Life policy and the total cost difference at 3% over 25 years was only $5100).

Thirdly, use optimistic health class on the ‘new’ term policy when comparing against your existing insurance where you didn’t receive those optimistic rates. In other words, compare ‘preferred’ term rates with ‘regular’ permanent insurance rates. Of course, if the insurance company gave you a regular health class when you bought your permanent insurance and now you’rea couple years older, what’s the chances that you’re going to spring into those preferred rates with your new term policy?

Summary

Despite how it may have read, I’m not proposing that buying term insurance is bad, or that whole life is good. I’m suggesting that at a minimum, sales techniques that start with a predetermined conclusion are not suitable for all circumstances. The right way to start a conversation on the merits of term insurance vs. permanent is to ask the question “How long do you want the insurance for?”.

Secondly, when comparing insurance products, be very mindful of guarantees and non-guarantees.

And thirdly, be mindful of salespeople who are biased on only one product type.

Author Bio: Glenn Cooke is a life insurance broker in Canada and president of InsureCan Inc. He owns a healthy mix of term insurance and permanent insurance.

Related Posts:

• Understanding Term Life Insurance
• Insurance You Can Do Without – Long Term Care Insurance
• Insurance You Can Do Without – Mortgage Life Insurance

Buy Term and Invest the Difference originally appeared on Canadian Finance Blog on June 27, 2011.

Term life insurance is characterized by premiums that are level for a period of time. If the premiums are level for 10 years, it’s 10 year term life insurance. If the premiums are level for 20 years, then it’s 20 year term.

Renewals

At the end of the level term, most term life insurance policies automatically renew. The renewal premiums will be much more expensive than the initial premiums – substantially so. In fact the premiums on Canadian term life insurance policies are so expensive these days that almost nobody renews their policies. In years past (up to about the early 90′s) it made sense to renew your term policy but with todays policies you should be planning on doing something other than renewing at the end of the term. This Globe and Mail article discusses how pricing of these policies has changed so that automatically renewing your term policy is no longer an attractive options.

Requalifying

At the end of the term, you can requalify if you still need insurance. Don’t be fooled by the term ‘requalify’. The only difference between requalifying and buying a new policy (with the associated new medical exam and higher premiums as a result of your older age) is….well there isn’t any difference. I guess requalifying assumes that you bought a new policy with the same company instead of shopping around to ensure you’re still getting the best rates. In short, requalification is basically a shell game – if you can requalify, you can buy a new policy anywhere. This feature isn’t often seen in Canada, it’s a hangover from U.S. Products that used to have this available as a policy option.

Conversion

If you purchase a term policy, you should ensure that it has conversion clause in the policy – accept nothing less. The conversion clause allows you to purchase a permanent life insurance policy without taking a medical exam – and still receive healthy rates.

There’s a reason this is important. When we’re young and healthy, buying term insurance with the intention of cancelling it in the future is great. However for the few that become uninsurable later in life, conversion allows you to change your mind and switch over to a permanent life insurance policy – no matter how insurable you’ve become. It’s insurance for your insurance. Most folks won’t need or want to use this, but if you do become uninsurable, this clause can be the only opportunity for you to continue to get life insurance.

Tip: Some Canadians will purchase term insurance for the cheaper premiums today with the intention of changing to permanent insurance when they’re older. This defers higher premiums until later in life which may be preferable. And the conversion clause guarantees that we can change to a permanent policy later, no matter what our health is like in the future.

Types of Term Life Insurance

There is a broad variety of term life insurance policies available in Canada today. However there are three types that are the most common – 10 year term, 20 year term, and 30 year term.

Tip: 10 year term and 20 year term is very competitively priced through most ages. 30 year term in Canada today is typically only competitively priced for those in their early 30′s and younger. After that time, 20 year term can be half the premiums of a 30 year term policy.

Typically one should purchase the term that best fits the length of time you want to keep insurance. If you’re planning on keeping the insurance for 20 years, your best bet is likely a 20 year term.

Tip: If you’re trying to save on premiums, always buy a shorter term instead of buying less life insurance. Having the right amount of insurance and a less than optimal type of insurance is preferable to having the right type and not enough coverage.

Shopping

Term is insurance is relatively straightforward with few differences amongst policies. The best way to get the lowest premiums is to use a broker who shops multiple companies. But be careful – some brokers won’t quote all companies that are available or competitive. Many brokers pool their business to a few insurers and as a result won’t quote some of the more competitive companies that may be available. Ensure your broker works with 10 or more companies routinely, not just placing 90% of their business with the same three companies.

Policies with idiosyncracies:

As a broker I am reluctant to publicly mention any specific company as I don’t want to be perceived as favouring any one company. Nevertheless there are a few companies that have added a bit of spice and polish to their policies that make them more attractive in certain circumstances.

Have a big family?: Unity Life term policies have some additional benefits (these additional benefits are not guaranteed). If a parent has a policy, and both parents should die, then the guardians of their children will receive $900/month per child. Also in the case of both parents dying, the children will receive $6000/year when they go to university. This become more attractive the more children you have. These benefits are in addition to the death benefits and are not conditional on both parents being insured nor are they conditional on the amount of insurance. So placing a small $100,000 term policy just on Mom (since female premiums are cheaper than male) will provide access to these additional benefits.

Smoking but going to quit: Rather than locking in a 20 year term policy at smoker rates if you know you’re going to quit soon, purchase a 10 year term policy and then bump up to a 20 year term after you qualify for the nonsmoker rates. Some companies allow you to upgrade from 10 year term to 20 year term as a mini-conversion – RBC, Canada Life, and Equitable Life at a minimum all offer this currently for the first 5 years of their 10 year term policies. Consider the 10 year term at the smoker rates, qualify later for the nonsmoker rates, and then use the guaranteed conversion to flip up to 20 year term at that point. This strategy will likely save you money.

Guarantee your rates when you convert: A loophole in the conversion clause I mentioned above is that the premiums available when you convert are whatever premiums are available at the date in the future that you convert. We don’t know what those rates will be – but we do know that permanent insurance premiums have risen dramatically over the last year and are expected to continue to increase over the next year. If you’re over 45, Empire Life has a 20 year term policy that automatically converts to a permanent life insurance policy in year 21 – and those premiums are guaranteed today. In effect this adds an additional guarantee to the conversion clause – they’re guaranteeing your rates when you convert 20 years in the future. (Empire Life may not have the least expensive policy

Author Bio: This article was written by Glenn Cooke of InsureCan Inc. Company names used in this article are the trademarks of their respective owners. Information provided on specific policies in this article are from a broker’s perspective and have not been approved by the respective insurance companies.

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Understanding Term Life Insurance originally appeared on Canadian Finance Blog on June 20, 2011.

Prepare Your Teenage Driver

The first thing you want to do is make sure your child will be a responsible driver. Simply taking a driver’s training course isn’t enough. You should begin teaching them the rules of the road and proper driving techniques as early as possible. Let them know the importance of having adequate insurance, and how the system works. Try and make them understand that by driving sensibly they will not only be allowed to drive more, but that it will help keep insurance premiums down. Encourage them to drive safely and avoid traffic stops, and the possibility of a ticket, because that will also help reduce rates.

Driver Safety

Since you’ll be trusting your child’s safety not only to their training, but to your automobile as well, you need to make sure it is properly tuned and in tip top running condition. Owning a vehicle that has a good safety record is important in keeping insurance rates down. Make sure your teenager wears a seat belt at all times. Let them know there is no such thing as an inexpensive accident, because of the deductibles, and that by obeying the rules of the road and doing the little things like checking their mirrors and making proper lane changes they’ll be helping keep insurance costs at the lowest possible rates.

Getting the Best Rates

By teaching your child responsible driving techniques, and making sure the car is as safe as possible, you’ve done all you can to qualify for the lowest possible insurance rates. Now it’s time to shop for the best rates. If you’ve been with the same company for a long period of time you should be eligible for a discount. By using the same insurer for multiple policies, such as life, home, health and auto you should also meet the requirements for lower rates through a combined insurance policy. Some companies also offer discounts for being a good student.

Comparison Shop

Just because you’ve used the same insurer for a number of years doesn’t automatically mean they’ll have the lowest rates. The insurance industry is a competitive business and companies are constantly tweaking their policies and rates to encourage new customers. By visiting a few insurance companies, you can get an idea of whether or not it would be beneficial to switch providers. Decide on the minimum coverage you’d be willing to get, and ask each company what their best rates would be for that type of policy. Many times the agent will come up with some sort of package deal that will suit your needs. After getting a few quotes from different companies, compare the rates and what is covered in each policy, and then decide which would best for you.

Return Trip

Before signing any papers with the lowest bidder, it might be a good idea to take that quote back to your present car insurance provider and see if they’re prepared to meet the offer. If you’ve been with them for a number of years they’ll probably be willing to make some concessions to accommodate you.

Guest post from Bailey Harris. Bailey writes about online car insurance quotes for www.insurancequotes.org.

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Car Insurance Tips for Teenage Drivers originally appeared on Canadian Finance Blog on May 26, 2011.

Tip #1: Ask for a discount

This one is a simple way to save money on car insurance, but you’d be amazed by how many people wind up paying more than they otherwise would have simply because they were too passive to speak up and ask for a discount, assuming that the insurance company would automatically give them all available discounts. They won’t. Not unless you speak up and demand it.

Tip #2: Safe driver

Your caution is worth money. If you have no moving violations or accidents, then you have leverage for extra discounts. Use them. Remember, you’re the kind of customer your insurance company WANTS to keep. Make it pay for you by slicing a percentage off your rate.

Tip #3: Driver Training

Check if your province mandates that car insurance companies reduce premiums for drivers who take driver training courses. If so, then a course quickly pays for itself and then some.

Tip #4: Multiple Safety Features

Safety devices such as airbags, automatic seat belts, anti-lock brakes and car alarms not only make you and your vehicle more secure, but also lower your rates. It may be cost effective to trade in an older vehicle without such devices for a newer model that will be cheaper to operate in the long run.

Tip #5: Deductible

Raise your deductible, particularly if you’re a safe, conscientious driver. The higher your deductible, the lower your premiums. Yes, you incur some risk here, liable out-of-pocket for, say, any damage below a $1,000, but remember that the money you save on those premiums remains working for you, earning interest in your bank account rather than the account of your insurance company.

Tip #6: Low-Mileage

If you can, take advantage of low-mileage discounts. Most companies will actually offer lower rates for drivers who keep their vehicles restricted to a certain number of miles per year. (This makes sense as the fewer miles on the road the fewer chances for an accident.) People who lease vehicles are excellent candidates for this option as the lease agreement often stipulates a maximum number of miles per year. Still, even if you own your own vehicle, this option is still good if you live in a city and have access to public transportation. Or even if you live in the suburbs and can organize a carpool with other drivers who wish to lower their rates and gas expenses as well. Not only will this strategy save you money, but you’ll help the environment as well.

Tip #7: Got a clunker?

Well, in that case, make sure you don’t have collision coverage. Insurance companies use their own criteria to determine fair market value in case a car is totalled. In the case of a clunker, the money you receive may be far below what you were paying in just a couple of years of premiums on the vehicle.

Tip #8: Tell Companies About Better Deals

Comparison shop AND let the insurance companies know that you’re doing it. As you discuss various options with an agent, don’t be shy about letting that agent know a better deal that another company has offered you. Auto insurance is a competitive market and, if you have a good driving record, the companies will bid against each other for your business.

Tip #9: Bundle Your Policy

If possible, considering bundling your insurance needs with one company. If you own your home, then ask whether you can get a discount for insuring both your house and your car with the company.

Tip #10: Location. Location. Location.

Where you live greatly influences the amount of money you will pay for car insurance. Remember, it is all about actuarial tables for the insurance companies and those tables clearly show costs skyrocket in densely packed urban areas due to accidents, theft and vandalism. So, if money is tight, the boring neighbourhood in the suburbs might be a better bet than that funky, gentrifying neighbourhood on the bohemian side of town.

And now, as a special salute to benefits and discounts everywhere, here is your unexpected bonus: This Top Ten List goes to eleven!

Tip #11: Emergency Road Service

Sign up for a membership in an emergency road service. Not only will a membership often earn you yet more discounts from your insurance company, but a little piece of mind in case that moose steps out of nowhere and into your oncoming headlights is nice to have. You should also keep an emergency kit in the car to keep you safe until help arrives.

Finally, not a tip, but an exhortation. All this advice on how to save money on car insurance will do you no good unless you pick up that phone and put it into practice. So come on, what are you waiting for? Your grandpa and your favourite aunt would want you to, you know.

Author Bio: Andrew is a professional writer and webmaster, with interests ranging from business to sports. He is also an avid NBA fan and an amateur photographer.

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Ten Ways to Save Money on Car Insurance originally appeared on Canadian Finance Blog on May 19, 2011.

Why you might want to avoid long term care insurance

First off, you could easily pay thousands of dollars in premiums for insurance you may never need to collect. There are obviously worse things than never needing long term care insurance, but what if you do need to collect on the insurance but the insurer denies your claim?

There are many stories of this happening. Whether the insurer does not agree that a certain diagnosis is covered or doesn’t pay as much as expected, these are possibilities you should be aware of. Unfortunately, there’s no way to know in advance if you’ll have any issues when you need to collect on your long term care insurance.

Another issue with long term care insurance is rising premiums. While you might pay reasonable premiums for a decade or two, as you get into your later years, the insurer may start raising your premiums by as much as 50% to compensate the additional risk they take on as you get older.

Alternatives to long term care insurance

If you are concerned about your health in your later years, you can likely put your money better use in an RRSP or Tax Free Savings Account. This can serve as a form of self insurance where you’ll have the money available when you need it, without having to jump through any hoops and red tape.

You should also consider critical illness insurance. This form of insurance pays out a lump sum when you are diagnosed with a major illness. Not only can you use the money how you see fit, but it has a better track record of paying out for the covered illnesses.

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Insurance You Can Do Without – Long Term Care Insurance originally appeared on Canadian Finance Blog on April 11, 2011.