8 little known facts about life insurance
Life insurance is a product for everyone though it is also quite complex. Whether you have a policy or not, here are 8 facts you should know about it.
1. There are several ways to save on your life insurance premium.
- Take out insurance when you are young and healthy. The longer you wait, the more your risk of death increases and the higher your premium could be.
- Don’t smoke or quit smoking. In some cases, smoking can more than double a life insurance premium. Notify your insurer if you have stopped smoking for at least a year: your premium could be considerably lower!
- Consider term life insurance. It is often more affordable than permanent life insurance, which provides coverage for life, as it offers limited protection over a specific period of time. In addition, a term life insurance premium amount stays the same for the duration of the contract and only increases upon renewal.
- Choose annual payments. You avoid paying administrative fees associated with monthly payments.
- Explore the option of bundling your policies to save on fees. Check if it’s possible to add your life partner or children to your life insurance policy. If you have several term life insurance policies covering your financial obligations (e.g.: mortgage, credit cards and lines of credit, various loans), combining this coverage into a single contract could save you money.
2. Life insurance included in your group insurance is different from individual life insurance.
Are death benefits included in your employer’s group insurance? Keep in mind that this temporary coverage is not equivalent to individual life insurance:
- The amount of group life insurance is not based on your needs. As a general rule, the amount payable on an employee’s death is double or triple their annual salary. As this amount does not take into account your family and financial situation, it could prove to be inadequate and leave your loved ones in the lurch.
- In most cases, group life insurance coverage ends if you change jobs or retire.
3. Your life insurance should evolve according to your situation.
Buying a house, birth of a child, marriage, separation, death of a spouse: many life events could spur a review of your life insurance.
Contact your financial security advisor if you have recently experienced such an event in order to ensure your coverage is still sufficient and confirm the options available to you.
4. It is important to be aware of and periodically reassess the amount of your life insurance.
The amount of insurance represents what the insurer commits to pay on the death of an insured person. It is important that this amount be sufficient enough to prevent your loved ones from finding themselves in dire financial straits after your death.
To be considered sufficient, this amount must allow your loved ones to:
- maintain the same lifestyle, despite the loss of income caused by your death. Think about daily expenses such childcare expenses, school fees, groceries, clothes, medical expenses, etc.
- cover death-related expenses: funeral costs, notary, executor, taxes, etc.
- pay off your debts, if any: mortgage (especially if you don’t have mortgage protection insurance), loans, lines of credit, credit cards, etc.
Your financial security advisor is the best person to help you calculate the right amount to meet your needs.
5. You should know who is named as beneficiary of your life insurance.
The beneficiary is the person who will receive payment of the amount of insurance on your death. Do you no longer remember who is named as your beneficiary? Review your contract immediately to ascertain that the person listed as beneficiary is the person you want to be and not a former spouse or deceased relative.
6. In Quebec, the law allows you to protect your life insurance from creditors.
If you are having financial difficulties and need to declare bankruptcy, a law currently in force in Quebec can protect your life insurance contract from being seized by creditors. To be eligible for this coverage, you need to:
- Have designated an irrevocable beneficiary
- Have designated an eligible family member as beneficiary, either your spouse (by marriage or civil union), children, grandchildren, parents or grandparents.
7. It is possible to borrow money on some life insurance policies.
Permanent life insurance and universal life insurance usually have a cash surrender value. This is an amount you may be eligible to receive if you cancel the policy before it expires.
However it is not necessary to cancel your insurance to benefit from the cash surrender value. You can also use it to borrow money from your policy, with interest. Unless the loan is repaid prior to your death, the amount borrowed will be deducted from the amount paid on your death.
8. Universal life insurance provides tax-free savings.
Universal life insurance combines life insurance and savings. Its savings portion allows for additional tax-free wealth to be bequeathed at the time of death.
Ask your advisor for help.
Their role is to keep you informed and guide you so that you are adequately covered, while respecting your needs and budget.