To help demystify purchasing life insurance, knowing the right questions to ask is important.
Breaking down the checklist of questions into the ABC’s, our last blog focused on A – Advisor questions to ask.
Continuing our goal of arming you with the right questions to ask when purchasing life insurance, this blog will focus on:
B – Benefits
C – Coverage
Benefit Questions:
1) Should I get a life insurance policy that provides cash values?
Permanent life insurance is designed to provide insurance protection for your entire life, and with some types of policies, a portion of each premium you pay can be thought of as a savings component because the policy will have a “cash value” after a certain number of years. The “cash value” is considered a “living benefit” because, as the owner of the policy, you have the ability to surrender the policy or take a loan against the policy in order to access that money if you need it (for example, to pay tuition, contribute to a down payment on a home, or to help meet your retirement needs).
If your life insurance policy provides ”cash values”, you need to understand the rules for borrowing the money against or surrendering your policy.
2) Are there any life insurance policies that provide coverage in the event that I am disabled?
Some life insurance policies offer benefits for the owner of the policy if he or she becomes disabled and is no longer able to work. This “living benefit” could include the life insurance company covering the cost of your life insurance premiums if you become disabled and can’t work. This is called waiver of premium.
You need to clearly understand how your life insurance policy defines “disabled”, as well as any terms and conditions, so you can ensure you have the coverage you need.
There are also critical illness coverages that are specifically designed to provide “living benefits” if you are diagnosed with a critical illness, such as Vital Link offered by Empire Life. Critical illness insurance can provide a lump sum, cash benefit in the event you are diagnosed with a critical illness or life-altering condition that is covered under the policy, such as cancer, heart attack and stroke.
You need to clearly understand how your life insurance policy defines “critical illness”, as well as any terms and conditions, so you can ensure you have the coverage you need.
Coverage Questions:
1) How much coverage do I need?
Everyone’s financial circumstances and priorities are different but here are some questions to help you determine the amount of life insurance that you may need:
- How much money will your family need to meet immediate expenses such as funeral costs, legal fees and outstanding debts and mortgage balances if you die?
- How much money will your family need to maintain their current standard of living over perhaps several years? This could include everyday living expenses, money for a child’s post secondary education, or your spouse’s retirement.
- How much life insurance do you already have and what other income or assets are available to cover the expenses you identified above?
Researching your current and future financial needs will be the starting point for determining how much life insurance you actually need. An insurance advisor can also help you decide how much life insurance you need.
2) How long does my life insurance policy last?
It depends on what type of life insurance you choose:
Term life insurance is designed to provide a specific death benefit if you die during a specific period of time, or “term” as the name indicates. The term may be a fixed number of years (e.g. 10 or 20 years) or to a set age (e.g. age 75). If you die during the term of the policy, your beneficiaries will receive the death benefit. If you don’t die during the term of the policy, no death benefit is paid and the insurance ends (subject to renewal).
Permanent life insurance is designed to provide you with insurance protection for your entire life. This means you can keep your life insurance coverage as long as you continue to pay your premiums. Generally, the payments for permanent life insurance are higher than payments for the same amount of term life insurance coverage.
3) Is my term life insurance policy renewable?
Many term life insurance policies allow you to renew at the end of the term without having to re-qualify or submit a new medical exam. One thing to keep in mind, though, if your term life insurance renews at the end of the term, the new costs will typically be significantly higher and may not be guaranteed. Some term life insurance automatically renew at the end of each term, but usually the insurance coverage can’t continue past a certain age (often age 75 or 80).
Some renewable policies set a deadline determining when you can renew the policy, so make sure you know when that deadline is, what happens at renewal and whether or not you need to re-qualify.
4) What options can be added to my policy?
Several extra features or “riders” may be available when purchasing life insurance, such as:
- Convertibility Clause - allows you to convert a term life insurance policy to a permanent life insurance policy without having to submit to a medical exam
- Guaranteed Insurability - allows you to purchase additional life insurance in the future regardless of your health
- Waiver of Premium - waives your premiums if you become disabled and can no longer work
- Optional life insurance for children
5) What are the exclusions in my life insurance policy?
It is important to understand the exclusions and limitations of the life insurance policy as these outline instances where your beneficiaries may not receive payment upon your death. For example, most life insurance policies exclude coverage if the policyholder commits suicide within two years of purchasing the life insurance policy.
6) Will my life insurance payments fluctuate?
For most permanent life insurance policies, the amount you pay per month (or annually if you opt for that payment period) will not increase during the life of the policy if premiums are paid when due and no changes are made to the policy.
The payments for term life insurance are fixed during the specific period of time, or “term” as the name indicates. However, if your term life insurance renews at the end of the term, the new costs may be significantly higher and may not be guaranteed.
7) What happens if I can’t pay the premium?
If you run into financial difficulties, knowing your options is important. Typically, 30 days is given as a grace period after the due date to pay a premium to allow you the opportunity to pay the premium without the policy being automatically terminated. After the grace period, if you still haven’t paid the premium, the policy will terminate and your coverage will cease. You may be able to reinstate the policy if you pay the premiums that are due, however you may be required to go through the underwriting process again to determine your eligibility for the life insurance product.
Being armed with these questions will help you better understand your life insurance policy and help ensure that you are getting the insurance you and your family needs.
Don’t be afraid to ask. Knowledge is power and action gets things done!
To help connect you with a life insurance advisor, click Find an Advisor.
