For most people, buying life insurance is typically very low on the priority list. It’s just not something we tend to think about day to day. Despite that, it is a very important financial planning tool that is essential for protecting your family and loved ones.
When it comes to buying life insurance, three basic questions seem to come up frequently:
- Do I really need life insurance?
- How much life insurance do I need?
- What kinds of insurance should I buy?
As much as these questions are very important to buying life insurance, there are some other factors to be aware of
Be wary when replacing your insurance
One of my financial advisor friends says when he does not want to talk to people on an airplane, he always make a point of telling the chatty person next to him he sells life insurance for a living. This is because the roots of negativity stem from the old stereotype of the insurance salesperson that wore a plaid suit and went door-to-door peddling life insurance policies.
As much as the insurance industry has changed, there are still some bad life insurance sales people around. Some people of these sales people encourage clients to replace existing life insurance policies simply to pad their wallets and close a deal rather than for the good of the client. Although there may be times where replacing a life insurance policy makes sense, be careful when cancelling an existing whole life or universal life policy. Make sure you get a second or third opinion before you trigger potential surrender charges and lose any preferred rates.
Be careful when selecting a no medical life insurance plans
No medical life insurance policies can be attractive if you have health issues or concerns of being uninsurable. Remember that these policies carry higher premiums and lower face amounts than traditional life insurance policies.
Typically there are two types of no medical life insurance plans:
- Simplified issue policies usually have no medical tests but with a questionnaire containing up to a dozen health questions
- Guaranteed issue policies have no medical tests and no health questions. Guaranteed issue plans have death benefits which are limited to a return of premium plus interest in the first two policy years.
Non-medical life insurance are designed for applicants with significant health issues.
Avoid accidental death insurance
Many Canadian life insurance companies heavily market accidental death insurance to unsuspecting consumers. I’ve seen so many people who think they have life insurance but really only have a low cost accidental death insurance policy. Accidental death policies are very profitable to insurance companies, because they have a very low claims rate. In fact, less than 3% of all life insurance claims are paid out because of death by accident.
Use a life insurance broker.
Many life insurance agents are still ‘captive agents’ which means they only sell insurance products from one company. Life insurance brokers will shop the market to many life insurance companies instead of just one company which increases the chance of buying better products at better rates. You can also ask them to find out more about funeral insurance.
Don’t get fooled by buying just the cheapest
When buying term insurance, it’s easy to believe that it makes sense to buy the cheapest policy. However, there are times where the cheapest now gets much more expensive later. Some insurance companies use low initial premiums as a type of loss leader to get the sale but then they make it up by jacking up the cost at renewal time.
Just like anything else, remember that it makes sense to do your homework and shop around before you buy any life insurance product.
This article was written in support of the Life Insurance Movement by Good Financial Cents