Purchasing life insurance may seem overwhelming. And let’s be honest, no one really wants to think about ‘what if I die?’. That being said, uncomfortable things are still important to learn and talk about. If this is your first time getting insurance, or you just want to make sure you have the best option, sit back, grab your favourite drink, and read on. Like many things in life, the results from a google search can seem daunting. You will see lots of opinions, with an obnoxious, annoying amount of statements about ‘always do this…’ or ‘never do that…’.

Fear not, life insurance can be simplified so that you feel confident about your choice. Importantly, you can understand why a certain insurance product is a good fit for you and your family. There is no cookie-cutter solution that works for everyone. So let’s filter the unnecessary fluff out and focus on what you actually need to know.

Here are the top 10 things we think families need to know before buying life insurance:

How Much Life Insurance Do I Actually Need?

This is an area where we see the most confusion from people looking for quotes: how much coverage do I need? The answer will vary a lot from family to family due to lifestyles, income and debts (hello, mortgage payments). Consider how much money your family would need to maintain their cost/style of living If you were to pass away. 

An online life insurance calculator is a great place to start. Mainly because it will do the math for you (yay) and factor in a number of costs:

• Immediate expenses that will come up at death, such as the cost of a funeral;
• Maintaining your family’s lifestyle, such as enough money to cover your mortgage payments and regular cost of living;
• Future expenses, such as money put aside for a child’s post-secondary education.

Consider these two families:

An insurance calculator will factor in your income, expenses, debt, and education planning to recommend an amount.  Think of this as a starting point for quotes and gathering information. 

Want an even faster guesstimate? Approximately 10 to 20 x your annual income is commonly recommended.

If you try out a calculator and the suggested insurance coverage scares you (i.e. it doesn’t fit into your budget), you can choose a lesser amount or a shorter period of coverage (see below). As long as you understand the pros and cons, then you are making an informed choice. The key takeaway here is to consider your family’s financial needs as a starting point.

What is the difference between term and permanent insurance?

The most common type of insurance for families is term insurance because it is significantly less money than permanent options. Term insurance is only for a set amount of time, after which the insurance will stop. Common term lengths are 10, 20 and 30 years. At the end of the term, there will be no more payments and you will no longer have life insurance coverage.  Sometimes term insurance is compared to renting, in that it’s for a defined period of time and there is no permanent asset attached to it.Term insurance is much less expensive than permanent options and is a great choice for those that need to keep costs lower and those with younger children.

Permanent insurance policies last for your lifetime. They only stop if you choose to cancel them (or stop making payments). Universal and Whole life insurance options are two different types of permanent insurance. They can have investment components within the contracts, so some of these policies will build up a cash value, in addition to the contract death benefit. Permanent insurance products cost more than term insurance. Some families choose to get a small portion of their insurance coverage as permanent, and then utilize the lower cost of term to accommodate their family’s financial needs.

Will my health or body weight affect my life insurance cost?

The price of insurance is based on a person’s age, gender, lifestyle and health status. An insurance quote is usually created based on “standard health”, which is an average for a group of people with the same age and gender. Your final price for premium may go down or up after the underwriting process, depending on your lifestyle and health status. For example, a person that is fairly active may get a discount; whereas a person diagnosed with a chronic health condition may have a “rating” and pay a higher percentage. If you are concerned about excess weight or a health condition, ask your advisor about this. 

TIP: Just because you have a health condition, does not mean you automatically get charged more! Some insurance providers assess risks differently and your advisor can make suggestions for you.

What happens if I want to cancel my policy?

If you want to cancel your policy, you can; easy peasy. Why? Because insurance contracts are unilateral. This means that the ability to cancel them goes one way: You can cancel them at any time, but the insurance company cannot cancel on you (disclaimer: you need to keep paying your premiums…). 

That being said, we do not recommend canceling on a whim – make sure you have a financial plan in place and talk it over with your broker. If your health has changed, you want to ensure you can still be covered. As underwriting times can vary significantly, you don’t want to cancel a current policy until the next one is in place.

Can I convert some of my term policy to a permanent option?

This is another option that is part of many insurance policies. For example, if you have $500k of term 10 insurance, you might convert $50,000 to a whole life (permanent) insurance policy after a couple of years. You would then have $450,000 of term 10 (same expiry date) and $50,000 of permanent. If you pass away during the 10 years, the death benefit would be 500,000. After the 10 years, there would still be a policy in place for $50,000.  

Can I change or add a beneficiary?

Yes, you can add, remove and make changes to your beneficiaries. For convenience, this can be facilitated through your insurance broker; or with the insurance company directly. You can also declare both primary and contingent beneficiaries (and more than one person for each); if another little one comes along, you can easily add their name to the list of beneficiaries.

What happens to my life insurance if I get separated or divorced?

Eek, awkward topic, right? Nevertheless, separations happen and knowledge is important. 

Commonly, most couples share and jointly own their insurance policies. In the event of a separation, the contract can continue on as is. If you want to make changes, only the owner(s)  can do this. Be sure to update your contact information with your insurance broker! 

What happens at the end of my term insurance policy?

Well hopefully you’re still alive and well (which is a good thing!) and then the contract is done. Your current policy will outline if the renewal is automatic and/or guaranteed. You will have the option to renew for another term, choose a different insurance product, or not take another policy. If you choose the latter, you will no longer have payments, but there is no more insurance coverage.

If my health changes, can I still renew my term insurance policy?

Maybe… that sounds a little scary, doesn’t it? The good news is that you will know what your options are at the start of the contract. For example, many policies have an option that you can extend the term without any medical evidence. So if you were to be diagnosed with something like cancer, and have a policy that is ending, you can extend the coverage without having to go through underwriting. 

 Important detail to note: not all carriers offer this, and not all of them offer the same timelines **

Also, most policies have a guaranteed renewal rate. It may look expensive, but most people will undergo underwriting again and get a much better rate if they are healthy or do not have major health concerns. If you decide to take this route,  the  guaranteed rate will at least give you an option so you are not left without.

What if I Still Have Questions?

Work with someone that you like….so you feel comfortable asking as many questions as you need to feel confident. Life insurance does require you to share some personal information, and you should trust your broker to have your best interests in mind.

Side note: Dickson Insurance meets and/or exceeds industry standards relating to privacy and compliance. We respect the confidential nature of our relationships with our clients, always.