How To Buy Life Insurance Without Getting Screwed

I’ve been thinking a lot about life insurance lately. I don’t have a death wish or anything, but I think life insurance is a neglected area of personal finance which requires some Squawkfox attention. Without a proper or adequate life insurance policy, you can leave your dependents in financial disarray if you happen to make an early departure.

Life insurance is a funny animal. This is a product which is more often sold than bought. Basically, the insurance industry is based on hefty commissions and perks which renders the policy peddlers biased towards their pocketbooks. This industry is a complex, weird, and wacky business. There are writers, underwriters, sales forces, brokers, and agents. When I started shopping around for my “better half’s” policy, I found myself wound in a tangled web of weirdness. I would call an “agent” and then get passed to brokers of brokers of agents of brokers.

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Getting straight answers on what insurance to get and how much to buy was impossible. Everyone seemed to peddle the same policy s$it, and I trusted no one with this vital piece to my financial well-being. My “better half” and I spent weeks untangling the life insurance web, and I would like to share my findings with you.

Here’s how I bought life insurance without getting screwed:

1. Get Term Life Insurance

I’m about to save you billions of brain cells and thousands of dollars. Just buy term life insurance. The only exception is if you are an extremely high net worth individual, in which case you “have people” to discuss your privileged a$$ed-options and don’t need my blog anyways. Smile.

For the rest of us, there are two flavors in life insurance policies: Term Life and Cash Value.

Term Life: Is pure life insurance in that you pay a simple annual premium to receive a decided amount of life insurance coverage. Think of term life insurance as similar to how home or car insurance works. If the insured person perishes then the beneficiaries collect, otherwise the premium is gone.

Term insurance has no investment component. You’re buying life coverage that lasts for a set period of time provided you pay the monthly premium. An annual renewable term is purchased year-by-year and you don’t have to re-qualify by showing evidence of good health each year.

Cash Value: All other policies (whole, universal, variable) combine life insurance with a sneaky so called investment portion that builds a cash value. Basically, your premiums pay for the life insurance and some of the money is invested in various high priced vehicles, touted to grow over time.These investments are managed by the insurance company so they benefit from the fees charged to the account. If you miss paying a premium, then you pay penalties outlined within the policy terms. Most people think this sounds perfect – the notion of investing insurance dollars and not wasting premium dollars. But think again.

For the same amount of coverage (say $250,000), cash value polices cost up to 10 times more than similar term life policies. There are also significant penalties to ending a cash value policy early or missing premium payments. Your cash value policy is also invested with the insurance company, so the fees you pay are likely high and not competitive. Lastly, cash value policies are lucrative for agents and brokers as they pay commissions and bonuses. Buying a cash value policy lines the pockets of these people. Due to the expensive nature of this product, the sad scenario is most people end up being under insured.

By buying term life, you get more insurance for your beneficiaries for less bucks.

2. Do You Need Life Insurance?

You generally only need life insurance when other people depend on your income. If you have a spouse and/or children dependent on your income, then you should get life insurance. Those with mortgages and many years left to raising kids most certainly should get insurance. You are unlikely to need life insurance if you are single with no dependents, independently wealthy, retired and living off retirement investments, or a child (more on children later).

3. Calculate Coverage Needs

When buying life insurance make sure you’ve got enough. Deciding how much you need is both a subjective and quantitative decision. Since the main purpose of life insurance is to prove a lump-sum payment that replaces the deceased person’s income, the question you must consider is How much income do you need to replace? Also consider the following:

  • Are there any outstanding debts to pay?
  • Will the surviving partner have childcare expenses?
  • Is there a mortgage to cover?
  • Are there other assets on which to draw?
  • Will your children leave home soon?
  • Will there be education costs for college or university?

The answers to these questions can influence the decision on how much coverage you need. Be sure to consider all variables before deciding on your coverage needs.

4. Determine The Term

Insurance agents and brokers are huge fans of selling cash value policies you can keep throughout your life. These cash value (whole life) policies fatten their wallets with juicy fees and commissions. What agents tend to gloss over is you probably don’t need life insurance throughout your life. You generally only need life insurance when you have dependents (see #2).

Since you’re a smarty now and are thinking about Term Life insurance, here’s how to determine your term:

How often do you want your premium to adjust?

The cost of insurance goes up as you get older and your risk of dying increases. Sorry to be a downer. On the upside, term life insurance can be purchased so your premium adjusts (increases) annually, or every 5, 10, 15, or 20 years. The less frequently your premium adjusts, the higher the initial premium will be.

Advantages to longer terms: The advantage to locking in to a longer term policy (15, or 20 years) is you know how much you will be paying over that time. You also require fewer medical evaluations to qualify for the lower rates.

Disadvantages to longer terms: The disadvantage to a longer term policy is you will be paying more in the earlier years than you would on a policy that adjusts more frequently. You may also want to change the amount of insurance you need as your situation changes, so you are throwing away money by ending a longer term policy with a premium guarantee.

A happy balance are policies of terms 5 or 10 years. My “better half’s” term life policy is nicely set at 10 years.

Guaranteed Renewability

The better term life policies have this feature which guarantees a policy cannot be canceled because of poor health. Do not buy a life insurance policy without guaranteed renewability.

Guaranteed Renewal Rates

When comparing various policies, what really matters is the total overall amount you pay for your coverage for ALL the years you require life insurance. Be sure the premiums paid each time you renew are guaranteed and outlined term-by-term in your policy. To better evaluate various policies, have the agent do a present value comparison of the total. This figure represents the cost of a policy for all the years in a single payment, today.

5. Buy When You’re Healthy

The worst time to buy life insurance is when you need it. Older people and those not in the best of health pay steeply higher rates for life insurance, so buy as early as you can WHEN you have dependents.

6. Don’t Insure Children

I’ve seen this happen to many new parents. Some agent discovers you just had a baby, and sells you a baby food policy providing $5,000 of life insurance for kids. This is contrary to the logic of owning life insurance since you are NOT financially dependent on your children but rather your children are dependent on YOU. Don’t let these agents gain economically from your emotional attachment to your new baby. This is a lucrative cash value policy gone sour. Ohh, my dear mom bought one of these policies for me at four months old. I still shake my head about it. Rest assured I cashed that silly thing in years ago and bought myself a $250,000 Term Life policy for less than half the cost of the $5000 Cash Value baby policy premium. I’m no sucker.

7. Shop Around

Always invest some time in shopping around for the best term life policy at the best rate. It makes little sense to stop at the neighborhood insurance broker and expect the best rates without knowing more about what’s available. Here are some places to consider looking for low-cost term insurance:

  • Are you a member of any Groups, Professional Associations, Business Organizations, or Alumni Associations? You can often find low-cost insurance by inquiring within your clubs and organizations.
  • TermForSale: To get a sense of what your premiums will be with various companies, try this online quotation service.
  • Blue Cross
  • Automobile Associations
  • RBC Insurance
  • TD Insurance

8. Skip Mortgage Insurance

Do yourself a huge favor, avoid mortgage insurance policies. These policies only pay off the balance on your mortgage if you die. The problem with this insurance is you are paying the same premium for a steadily declining amount of coverage, as you pay down your mortgage. It’s best to skip this narrowly-focused policy and favor for a broader term life policy and include the mortgage payments in your calculations when determining how much coverage you need.

9. Tell The Truth

There is no sense in telling tales on your insurance application to get a lower rate. Be assured that insurance companies will investigate any claim made before paying out. Be sure to always tell the truth.

10. Getting Rid of Cash Value Insurance

So now you’ve gone though your paperwork and see you have an expensive cash value life insurance policy, now what? Do yourself a favor and don’t cancel it until you secure some affordable term life to replace it. The worse thing you could do is leave your dependents vulnerable while in between life insurance policies.

That’s my brain on life insurance. I hope you found this lengthly article helpful. I’m wondering how many of you have life insurance? Do you have cash value or term life? Have you ever felt screwed after buying a life insurance policy? Do tell!

Your two cents:

  1. Four Pillars May 8th, 2008

    Increasing interesting insurance post!

    One thing to note – when I had my mortgage with TD they had life insurance on the mortgage but it was based on how much was owed, so the premiums did decrease as the mortgage was paid off. Of course, it still cost about three times as much as regular term insurance for the initial mortgage amount so still a ripoff.

    Mike

  2. Flexo May 8th, 2008

    Great article! Life Insurance is something I haven’t had to tackle yet, as I’m single and supporting only myself and my cat. But this is a very helpful guide.

  3. Mr. Cheap May 8th, 2008

    I don’t have (and never have had) any sort of life insurance. I try my best not to give people an incentive to want me dead. Plus, as you point out, I have no dependents so I don’t really need it…

  4. No Debt Plan May 9th, 2008

    Definitely good tips. We used AccuQuote to get ours.

  5. hank May 9th, 2008

    I admit it, I was baffled into a whole life insurance policy a few years back, but have realized the woes in my ways. It really is ridiculous to see what an agent will try to sell you. I can assure you the next thing on the list they’ll try to peddle is an annuity. When they do that, you know you need to run away, fast. I like your writing style, you’re officially RSS”d!

  6. Pete May 9th, 2008

    Excellent Post! Very informative.

    Coincidently, I have an appointment at my bank this afternoon to cancel my insurance on my mortgage. When I set up my first mortgage last year, one of the conditions was that I had to sign up for the term insurance (this was in part because I managed to bargain my bank down to a ridiculously low rate after bringing in quotes from an independent broker). My plan was to cancel the insurance after a few months (a loop hole my mortgage broker told me about) and continue on with my payments as normal. Unfortunately I had forgotten about canceling the insurance until earlier this week.

    Down the road, when I have dependents my plan is to purchase term insurance. Does anyone have more recommendations of places to shop for insurance?

  7. isabella mori May 9th, 2008

    thanks! came here through nancy zimmerman’s twittering. question. i have a cash value life insurance, back from the times when i didn’t know what i was doing. that was 10 years ago. i’m in my early 50s. i guess buying a new life insurance is not such a great idea now bec of my age but would it be best then to take the cash contribution as far down as possible?

  8. Amy @ The Q Family May 9th, 2008

    Great post!

    One tip, even if you already have life insurance that you have bought 5-10 years ago, it doesn’t hurt to check out the new rate even if you are a bit older. I just did and find a new insurance with same coverage and same lenght of coverage but 50% cheaper. So I’m switching to a new company as soon as I drop the letter in the mail.

  9. Kerry May 9th, 2008

    @isabella mori: Before changing anything with your current Cash Value policy, I think it’s important to do the following:

    1. Evaluate how much life insurance your dependents need. Life insurance is about dependents, so unless you still have children or a spouse that depends on your income, you may not need life insurance as much as you did 10 years ago.

    2. Evaluate your investments: Since your policy has an investment portion, it makes sense to evaluate your current investments. Do you have an RRSP? (or 401k for USA residents) What will your CPP (pension plan) entail at retirement? Do you have other sources of retirement income? Does it make sense to invest the cash value elsewhere? These are questions you may need a fee-only financial planner to help you with. For me, I took my Child’s Whole Life Policy and invested the cash portion in index funds (my RRSP is maxed out)(401K for USA). Again, only you can really answer these questions given your particular situation.

    3. If life Insurance is needed: Get Term Life Quotes: You never know what a premium will be unless you ask. Term life premiums have dropped significantly over the past years, you may be surprised. Besides, 50ish is the new 40. :)

    @Amy @ The Q Family: You are very correct, THANK YOU for mentioning this. I forgot about how significantly term life rates have dropped as I got my insurance last year.

  10. isabella mori May 9th, 2008

    thanks for this thorough reply and great article! i’ve stumbled it :)

    and congrats on having your RRSP maxed out!

  11. Quick Lunar Cop May 9th, 2008

    Great post! I have a whole-life insurance with an investment component and I am just appalled at the fees charged in these funds! I invest the proceeds into index funds, and even these funds charge anywhere from 3-4% in MER!

    Unfortunately, I’m not sure I would be able to switch to term life, due my being diagnosed with Type 2 Diabetes. Even though I have completely turned by health around (normal blood sugars, no longer overweight and now running marathons), most of the insurance companies no longer want to insure me or they want to charge me outrageous prices!

    I wish I had known about all this 10 years ago!

  12. Andy May 22nd, 2008

    I’m a single mom. I have a daughter. I have life insurance on her. If she were to die, I’d be devastated and suspect I’d need a lot of time off work. I’d have no income so the insurance I have on her would help cover off my income while I was off as well as any funeral expenses. I also have critical illness insurance on her for the same reason. If she were to get really sick, I’d have to be off work to be with her and again, I’d have no income. Lord knows I hope none of this happens but I feel better knowing I could take as long as I need to manage through these difficult situations.

  13. The Term Guy October 15th, 2008

    An excellent article on life insurance. A couple of clarifications though.

    First, not everyone needs term. Most need term – but there are instances where permanent insurance is needed. Ask yourself ‘do I need this insurance when I’m 80?’. If yes, then term insurance will not work for you. However, for most people the answer to that question would be expected to be ‘no, I don’t need this insurance when I’m 80′. And that makes term a better fit.

    Secondly, I think your term categories may not be well matched with the Canadian marketplace today. 5 and 15 year term are not price ocmpetitive. If you’re looking at either of those, you will be better served looking at 10 or 20 year term. For competitive reasons those two types of term insurance will be the same price or less expensive than 5 or 15 year term. Doesn’t make any sense conceptually, but that’s the current marketplace.

    The guaranteed renewable thing IMO means little (more on the real alternative in just a sec). Life insurance has two pricing tables; select which means you’re proven healthy, and ultimate which means we don’t know how healthy you are anymore because it’s been so long since you took a medical. Take a 10 year term – the first 10 years you’re going to get the select/cheap rates. Year 11+ you’re going to get the crazy expensive ‘ultimate’ rates. You’re not going to want to pay those rates. Which means if you still need the insurance at that point you’re going to have to take a medical exam to buy a new policy to get back to the select rates. By making that assumption (which it seems you have squawkfox) you have taken on the risk of being able to take a medical exam in 10 years. If you don’t want to incur that risk and would prefer to lay that risk back on the insurance company you should go with a long term to cover you as long as you need the insurance. In other words, if you need the insurance for 20 years, buy a 20 year term so that you’re not looking at a medical exam in 10 years when we don’t know what your health is. Certainly for most of us our health isn’t getting better as we get older.

    Back years ago the ‘renewable’ part meant more for term policies because Canadian term products had renewal premiums based on the cheaper select prices. So year 11 pricing was sane. Not so anymore.

    The real fallback position is not the renewability – it’s conversion. I always recommend that people ensure their term policy has a conversion priviledge. This allows you to switch to permanent insurance without a medical exam – and is also a good example of why term isn’t perfect for absolutely everyone. If you’re going along with your 10 year term policy and become uninsurable, there’ll be no more buying a new term policy in 10 years. If your current policy has a conversion priviledge, you can trade it in for a permanent policy and get the same rates as someone who just qualified medically. And if you’re uninsurable you’re going to ‘want’ permanent insurance (it’s a different perspective you get when you realize you can’t get insurance anymore). So rather than being overly concerned with a product being ‘renewable’ because while most term plans are in fact renewable, few will want to actually take advantage of it, you should be very concerned that your product has a conversion priviledge. Do not buy a term policy that is not convertible!

    And my one last clarification on the post; the ‘cash value insurance’ moniker has been used a bit too broadly. It seems you’re comparing ‘cash value insurance’ against term. In fact there are two types of insurance; term and permanent. Permanent life insurance has three types; whole life insurance (this is the ‘cash value insurance’ that many object to and I think you’re referring to), term to 100 (no cash values), and Universal life – that may or may not have cash values.

    Both term to 100 and Universal Life insurance can be set up to be straight up or pure life insurance almost like term – no cash values or investments, just guaranteed level premiums for life. Great IF you need life insurance permanently (and again, I appreciate that most folks don’t). Universal life insurance can develop ‘cash’ values or an account value under certain conditions and it is commonly sold that way – but it doesn’t have to be.

  14. wilfredo castillo October 16th, 2008

    I love you article and always said to my friends buy term insurance and invest the different,if you have other article mail me because like help other to know about life insurance is very important.

  15. Riscario Insider October 19th, 2008

    What would Warren Buffett buy?

    The debate between term and permanent life insurance never ceases. Each product satisfies different needs. Untimately, you get what you get pay for. If you think insurance companies are minting money, buy shares.

    Term is great for estate creation. It’s cheap because it expires before normal life expectancy. Much like a warranty that runs out before the big repair bills start. In comparison, permanent insurance is expensive because it lasts until you die.

    You’ll find that wealthy Canadians (especially small business owners) buy permanent insurance for tax planning. They’re smart and prudent. They usually have proposals reviewed by their impartial accountant before acting. The cases I see typically have deposits of at least $100,000/yr for 3-5 years. The same principles apply for smaller cases too.

    Does Warren Buffett “Buy Term and Invest The Difference”? You can get answers and dozens of comments (mainly from Americans) at http://blog.riscario.com/2007/10/does-warren-buffett-buy-term-and-invest.html. You will see a lack of consensus.

  16. Brett S October 24th, 2008

    Wow Ricarsio Insider sums it all up in one comment WHAT WOULD WARREN BUFFET BUY! Warren Buffet is worth more money than obviously Ricarsio thinks because to think for one second you would sell life insurance to him only means you must be a cash value crook. What do you think Warren Buffet would do with a life insurance policy. he is worth some 40+BILLION dollars. But i guess in your way of selling life insurance he is the Big Fish you are looking for. Let me guess you would have him put 20 million in a whole life policy that would give him a great rate of return of 2.2% after the 5th year, don’t forget to tell Mr. Buffet that he would lose all 20 million for the first 5 years, but no worries he would get it back after that! while you spent your next 4 years living it up in cabo on his 20 million. so let me ask what good did that 20 million dollar investment do for him. except pay for a vacation for your family?
    Once again a cash value agent that tries to explain to someone that is completely financially independant to buy a life insurance policy……. thats just sad!!!

  17. The Term Guy October 25th, 2008

    Brett, Riscario Insider isn’t a life insurance agent, he’s an actuary. So I suspect you’re going to look a bit foolish trying to simplify the numbers for him.

    Secondly, your view is simplistic. Trying to save the day by rescuing poor consumers from the horrible perils of whole life insurance is wonderful. But the fact is, very affluent people have different needs – yes even when they become self insured. These people frequently have large tax issues upon death that they can either liquidate assets at that time to pay the taxes, or buy life insurance. For those that run the numbers it turns out that buying life insurance is actually less expensive. That’s because permanent insurance is lapse supported. Lots of people buy insurance,most cancel before dieing. That means the insurance company doesn’t have to price life insurance strictly as
    PV of future premiums=PV of death benefit+profit+claims.
    It’s actually more like
    PV of future premiums= PV of death benefit+profit+claims-premiums from other people’s lapsed policies.

    And you’ll notice that Riscario prefaced this comment with the word ‘wealthy’.

    The fact is, while you might imagine that wealthy people will self insure and sell their assets or use their cash upon death to pay their tax liabilities, in reality these people don’t listen to what you’re saying. They decide that using life insurance is cheaper than self-insuring AND means they don’t have to liquidate assets at death (which means at firesale prices) and screw up everything they’ve built during their lives.

    If you run the numbers the PV of the future premiums turns out to be substantially less than the PV of the death claim. And in plain English, that means that if you know you have a large liability like taxes to pay out on death, in many cases the cheapest way to do that is with a permanent life insurance product.

    The other big problem with Brett’s post is that Riscario Insider talked about permanent insurance. Fanatics hear permanent insurance and they put on their ‘whole life insurance’ blinders. If you read his link, it’s clear that Riscario is discussing Universal Life, not whole life. People look start to look foolish when they use about the 30 year old whole life arguments against Universal Life. In most cases the arguments – and for that matter the basic objection – just don’t hold true.

    Of course if you start reading general VUL information on the web, you’re going to be reading the same vitrol as you do about whole life. That’s because you’ll be reading American stuff. Canadian Universal Life insurance is far better than most American universal life insurance. AND American universal life insurance products are actively in the process of moving towards a model that looks much more like Canadian Universal Life insurance. And you won’t find that on the web in most places either. Unless you read something like Riscario’s blog who is an actuary, Canadian, and knows what he’s talking about.

    In short, your entire rant against Riscario is misplaced since he’s not even talking about whole life, and your basic premise that wealthy people who can self insure don’t need life insurance is actually wrong.

  18. Riscario Insider October 25th, 2008

    The comments from Brett S are interesting to read but show the difficulties in having a dialogue. In contrast, The Term Guy makes perceptive observations that help readers. I’ll comment on three.

    1. I was referring to the wealthy and they are indeed different. I was reading today’s Toronto Star while waiting for a haircut and saw lots of ads for cars touting high gas mileage. That may be a deciding factor if you’re looking for a $20,000 car, but not if you’ve got a $70,000 BMW M3 in mind.

    2. There are different forms of permanent insurance. Canadian sales figures show that very little whole life is sold in Canada — only 8% of premium last year (see http://blog.riscario.com/2008/03/canadian-life-insurance-sales-in-2007.html). The predominant form of permanent coverage is universal life which is effectively lets you “buy term and invest the difference in a tax-sheltered vehicle”. That’s not to say that UL is ideal for everyone.

    3. Most of what you find online is about whole life and American products.

    Unfortunately, there’s limited online content to help Canadians understand their options for life insurance. Thanks to Squawkfox for sharing her thoughts.

  19. Yakov December 14th, 2008

    coming from an insider: typical comission on whole life is 100% of the first year’s premium. This is not rip off, this is murder (no pun).

  20. Melanie Jackson January 23rd, 2009

    Never, EVER buy term life insurance if you’re middle-aged. My mother did that, and now that she’s in her 70′s, it’s going to be impossible for her to get life insurance for a decent rate, when her term expires.

    The result? She’s paid into a useless life insurance policy, because she’d have to die soon in order for it to be worthwhile. She and I would both like her to stick around a while longer.

    Term life is useless for anyone except the young. Once you hit the big 4-0, don’t fall for this scam.

  21. Scott Manning February 9th, 2009

    I’m ALWAYS suspisious those who advocate one and only one position when it comes to life insurance. Ask yourself a question… Will it be important to have a death benefit when you die? The chances of death are 100%. To make a blanket statement that term is the only way to go is extremely irresponsible. Term is great for specific periods of time but for the average person who will live past the age of 65 term is a great way to guarantee you will not die with an in-force life policy. If you have convinced yourself that there is no possible way you will need or want a death benefit if you live an average life span then just keep your term policy. This may be the best course of action for you but I would argue a fair percentage of your readers have multiple reasons why they should consider a permanent life policy.

  22. Brett S February 9th, 2009

    SCOTT,
    To make a blanket statement is pretty easy when it comes to life insurance! Your telling me it is going to be in your best interest to buy a cash value life insurance policy at 65? why is it that you think you can’t just buy another term policy for 15 years at 65 which would give you coverage to your 81st birthday. That would still be far less expensive and far more rewarding than any other cash value product. Did you know Scott that when the market averages 12% a whole life policy averages 2.6%,Universal life averages 4.2% And A V.U.L averages 7.6%WHO GETS THE DIFFERENCE??? i just don’t understand!Do you truly know how a cash value life insurance policy is broken down with fees and Cost of insurance? if you do then how is it ever in the best interest of the individual. Scott answer me an honest question… Are you a life insurance salesman. I’m not asking because I’m some narcissistic term insurance guru. I’m just a guy that took a little bit of time to break down my policy and six of my friends policies all ranging from 25-40 and ran the same numbers that they were all quoted and it came to pass that we were all getting taken for a ride. let me restate my previous comment… Cash Value life insurance should only be sold to maybe 1% of the population. all others should buy a term insurance policy and invest the difference. so i guess your right my new comment is going to read: 99% of the time you should buy a term life insurance policy over a cash value product!

  23. venkatesh March 4th, 2009

    the comments are very nice but why some people are not showing interest to buy life insurance?

  24. mike September 8th, 2009

    Kerry – great article.

    Thanks for telling it like it is.

    Life Insurance should cover liabilities like your mortgage, loss of income, consumer debt etc. The good news is these liabilities should go down over time.

    Money in you pocket today is better used to buy cheap term insurance, paying down your debt, paying off your mortgage and/or deferring taxes.

    Proper planning will insure you will not have a need for insurance in your 60′s and 70′s.

    The trick is to find an insurance agent/company that wants to sell you insurance today and will help you to cancel your insurance policy when you don’t need it in future!

    The moral of the story “Buy what you need today and get rid of your liabilities, then cancel your insurance policy!”

  25. kasbah September 26th, 2009

    I need some advice. I came across this article and it made me realize that I need to make some changes in my life insurance. I have universal insurance which covers life and critical illness. I pay about 144CAD/month since late 2006. I felt as if I was duped into purchasing this insurance. I did no research what so ever. I was referred to this Insurer by a family member. I am 29yrs old, married, no children yet, no mortgage (living in family owned condo which is paid off and title will be transferred soon), income of 100,000/year, no medical conditions, healthy, don’t smoke or drink and I support extended family. I want to cancel my insurance and cut my losses. At this point I don’t feel I need term either. What should I do?

  26. Mike September 26th, 2009

    Good questions.

    My personal belief is insurance is purchased to cover liabilities, mortgage, debt or impact by loss of income.

    Based on what you have mentioned your concerns are justified.

    Before you cancel your current coverage take out a piece of paper and figure out who would lose financially if you died prematurely. (You mentioned you are responsible financially for extended family). If you decided there no need … you maybe right in wanting to cancel your coverage.

    Get second opinion from another agent may also help (some one you trust).

  27. Mike December 21st, 2009

    Hi Brian,

    You are not putting me on the spot … Yes I do sell for Primerica … I have been with the company for almost 15 years. I can tell from your response that you also sell life insurance.

    Information you have is untrue … All the term insurnace policies Primerica has marketed for ths last 20 years in Canada has guaranteed renewability to age 80 or 95.(Depending on the product)

    Term4Sale.ca is great resource for comparing features of insurance policies on the web.

    I agree that Renewability is important feature … but becoming “self insured” is even more important. With proper planning you won’t need the coverage at age 80, something we call “The Theory of Decreasing Responsibilty”.

    http://www.primerica.com/public/rep/theory_decreasing_responsibility.html

    Owning your financial life (being debt free, and being financially independent)is more important than “owning” your life insurance policy.

    Of course this in my opinion.

  28. Brett December 22nd, 2009

    Hello ,

    I just read the last few post from Brian and although it is good information it is extremely vague. how can you compare life insurance companies on just price and not explain why rates can be so different?
    Sure anyone can get online look up any life insurance company and get a qoute and one quote can be $20 to $50 dollars cheaper than the other. But what people don’t understand is not all life insurance is created equal and you are not getting the same products even though they are both called TERM. For Example: Brian referenced this quote “Male born June 15 1970 (non-smoker) $500,000 (coverage) rated regular, Term twenty, top three companies Western, RBC and Equitable costs between $59.14 to $62.55 per month…Primerica $85.50 per month.
    This quote doesn’t explain at all why there are differences in price or explain how it is even possible for these 3 companies to have such discrepancies. So let me help.
    Every life insurance company has what you call “Exclusions”. Exclusions are a way to take some of the liability off of the company when a client passes away. For instance some Insurance companies have what they call the “Act of War Clause” This exclusion means the Insurance company will not pay a claim if the client died during a circumstance that causes our country to go to war. Sounds crazy huh? well not really… Look up how many Life Ins. companies did not have to pay out claims on the Sept 11 due to terrorist attacks??? How about the Exclusion called the “Act of God” OR “Natural Disaster Clause” Look up how many companies that don’t have to pay a claim when something like hurricane Katrina hits??? those are bigger Exclusion but whats really crazy is finding ones like in my fathers policy that said he could’nt pass away due to illness or infection as well as passing away due to the accident of a two wheeled vehicle ?? and thats just to name a few! Sounds rediculous huh? but these exclusions are ways companies can reduce the risk of them paying a claim.
    Hopefully you can see why a company can be extremely inexpensive. when a quote from a company is rediculously cheap you should do the research. The more exclusions they can put into the policy the less likley they are to have to pay out a claim and the cheaper they can make their policies. This is just one of the many different things you should look at when looking at life insurance. Find ALL the information instead of just the price and you will find the real value of the life policy and company.

  29. brett December 24th, 2009

    Hello Brian,

    I appreciate the help understanding more of the fine print but a few things that I guess I’m confused on what you mean when you say if you only have a limited time or time line to buy insurance. Don’t you feel that is the biggest problem we have is instead of educating ourselves and reading the fine print that we trust what one person claims and then find out when we need it most that we should of done the research?
    All to often with everything it seems to be the case. Explain to me how 3 companies all sold different policies one term, one whole life and one VUL all ranging from 150k to 180k of coverage all purchased within 5 years of each other, all given the same preferred rating. when the client passed away the Term company paid the claim in 30 days. the other two companies denied the claim & took them to court to try and not pay the claim? THANK GOD FOR THE 1ST COMPANY OR MY GRANDMA WOULD OF BEEN IN SERIOUS TROUBLE. and that 1st company is the one you seem to have the biggest problem with.
    The second question I have is you keep talking about renewability and when u get older having to pay a ton more for your insurance. Isn’t that what you do every year with your permanent life insurance policy? Every year your cost of insurance goes up to a point where it cost more than your initial premium payment was. Is this not true? and the next question I have is so when my cost of insurance surpasses my initial premium payment where does the company get the difference to pay the payment? doesn’t it come from my cash value? And if the company is taking money from my cash value how does it ever grow? And then does the company send you anything in the mail or call explaining this or do they expect the person that just listened to his agent and didn’t do the research to know this… There just seems to be too many questions that can”t be explained when it comes to buying what you call Permanent insurance.

  30. Jeremy January 5th, 2010

    What types of exclusions are there out there for Term Policies? Are we talking the Ins. co won’t pay out because you lied about smoking pot in college? Or are we talking, you lied about having a brain tumor?.

  31. Juan June 2nd, 2011

    Curious post. However let’s back track a little bit. If you look at an in force illustration on a term policy they have a tendency to do this very abnormal spike in pricing it only benefits insurance companies. If I bought anything that has a 2% rate of success we kinda sorta call it a scam. Then to make matters worse it expires at a certain age. More and more people are living past 90. Justifying term as “inexpensive” shows lack of research. Term policies usually becomes annually renewable. If you doubt me find someone who has a term policy for 5 or more years request the illustration and lament at the fact you didn’t get screwed you got out right raped spat on and sent home.

  32. Juan June 2nd, 2011

    Curious post. However let’s back track a little bit. If you look at an in force illustration on a term policy they have a tendency to do this very abnormal spike in pricing it only benefits insurance companies. If I bought anything that has a 2% rate of success we kinda sorta call it a scam. Then to make matters worse it expires at a certain age. More and more people are living past 90. Justifying term as “inexpensive” shows lack of research.

  33. brett June 13th, 2011

    Juan,

    Do you understand how Cash Value Life Insurance and Term Life Insurance work? Maybe a better question would be, do you understand why one would buy Life Insurance period. You said that buying something with a 2% rate of success is a scam? So making sure my Family is protected financially if something happened is a scam? I’m actually really okay with 2% when your talking life insurance. If that number were higher then it would mean more people would be DEAD!
    Life insurance when you have a family is a necessary evil. its never something you want to use (Unless your Juan and your pissed about the small chance of return) But if you do you are thankful there was someone smart enough to understand the importance.
    Obviously Juan we have VERY different views. When it comes to protecting the ones I love the most Im okay with the percentages. but when it comes to buying Term or Cash Value Understand the Facts.
    You said that after 5 years most term policies turn into Annual Renewable Term. Well Thats ridiculous to even say let alone it’s not true. where I’m from it would be illegal to sell someone something only to give them something else.
    You also mentioned the spike in pricing to only benefit the company and justifying term as inexpensive is a lack of research. What are you comparing your inexpensive to? inexpensive compared to a Universal Life policy, a candy bar, a car. inexpensive compared to what? Have you ever actually been taught how a so called permanent life insurance policy works? Do you understand COST OF INSURANCE tables and how they are calculated? Your theory on how a term policy spikes and how those costs are there to only benefit the company is an obvious lack of knowledge and education. Here you are complaining about costs that increase after 20 or 30 years of a policy, but fail to mention anything about the increase in a cash value life insurance policy that happen EVERY SINGLE YEAR.

    good luck Juan cause your going to ned it!

  34. brett June 13th, 2011

    Brian,

    Will you please explain what you mean by renting versus owning. you say that Term life is like renting and permanent insurance is like owning.
    I personally wouldn’t want to own something I had to pay on average 14 times more for. I Really don’t want to own something consumer reports has said for over a decade now is a mistake and A STRONG DO NOT BUY. But I really really don’t want to Own a Product the FTC- Federal Trade Commission has tried on Multiple occasions to EXPOSE and is DOCUMENTED saying that “Consumers are losing billions of dollars per year on Ill advised cash value life insurance policies.

    Sounds to me like your so-called renting is the ONLY way to go…

  35. The term guy July 6th, 2011

    Beware those that promote only one type of insurance (yes, despite my moniker of the term guy).

    Brett’s post above talks about exclusions:
    ———————————————-
    Every life insurance company has what you call “Exclusions”. Exclusions are a way to take some of the liability off of the company when a client passes away. For instance some Insurance companies have what they call the “Act of War Clause” This exclusion means the Insurance company will not pay a claim if the client died during a circumstance that causes our country to go to war. Sounds crazy huh? well not really… Look up how many Life Ins. companies did not have to pay out claims on the Sept 11 due to terrorist attacks??? How about the Exclusion called the “Act of God” OR “Natural Disaster Clause
    ——————————-
    And it looks like he’s a primerica agent.

    Here’s the problem. Find me the name of a Canadian life insurance company that has a policy that includes an ‘act of war’ clause. Or an ‘act of god’ clause. or a ‘natural disaster clause’.

    I’ve read (yes, I’ve actually READ) policies from many different Canadian life insurance companies. And I don’t recall ever seeing any of those clauses. NONE of them.

    There are two exclusion clauses in most Canadian life insurance policies – two year suicide exclusion, and incontestibility which you can think of as kind of a misrepresentation type of thing. That’s it for most policies. None of this natural disaster type of thing.

    Careful what you read on the internet. Even primerica agents tend to spew out verbatim what the head office of THEIR life insurance company is telling them to spew – without bothering to find out if it’s true or not. Not that different from the behavior they accuse others of having.

    Your best bet, find a broker that doesn’t start the sales process with ‘this is the only type of insurance you’re going to buy’.

  36. christine December 12th, 2011

    I am in the process of getting life insurance for my husband and I, and wow is there a dearth of information about what you are actually signing. We are going with an independent Canadian company. On the illustration, we have individual quotes, then there is a lump sum quote onto which is added a policy fee which is apparently 75 dollars a year. Is this a typical fee? Because we are filing jointly we have a 50% savings on the second policy, but it seems that the policy might be 10 dollars more a month than comparable policies (but it is a 25 year term vs the more traditional 20 year terms, so maybe that isn’t so bad).

    So two questions: is the extra policy fee normal, and does a 10 dollar discrepancy make up for an extra 5 years on a term. I just want to make sure that we are getting what we should get, not necessarily a deal. I made a mistake once in not asking enough questions, and I don’t want to make that mistake again.

    Please help!

  37. Kerry December 12th, 2011

    Hi Christine — In Canada there are two types of life insurance to choose from — term and permanent. Term life insurance covers you for a specified period of time: generally one, five, 10, 20, or 30 years. Term is usually the least expensive type of insurance, and is often called pure insurance coverage since it doesn’t include an accumulating investment portion.

    Permanent insurance covers your back for as long as you live, and comes in three variations: whole life, universal life, and term-to-100. Whole life and universal life can accumulate investments inside the policy, while a term-to-100 policy is more like term insurance in that there is no investment portion.

    The policy you describe does not sound like term life, hence all the extras and added fees. I would suggest getting another quote for pure term life insurance just to see the difference. http://www.rbcinsurance.com/lifeinsurance/index-term-life.html

  38. christine December 12th, 2011

    Thanks so much for responding! Believe me, I have scrutinized every article on the subject posted on your blog (and thanks so much for having this blog and helping us all out!), and a few other money-related blogs I follow, so I am getting a handle on the types of insurance out there. We have been talking to the Cooperators, and unfortunately I think we might have an agent who isn’t quite sure how to handle my questions.

    In any case, this is supposed to be term, but what you just said makes it seem like perhaps the cooperators have their own fee system, as you’re right added fees would make sense for other than pure–which is not what we want. The agent we were dealing with just keeps saying, yes, it is a policy fee. But she also told us that we would be saving a lot by filing together but hasn’t really explained what is being saved–and worse, the language on the illustration suggests that we are considered at the oldest age of the two filing (“based on the oldest proposed life insured”), and my husband is several years younger than me, and is being insured for twice as much as me. She said that this did not occur, but can’t explain why the language would say it was so. Essentially, I am not getting the most satisfactory answers. Sigh.

    Thanks again! Love your blog! I feel smarter just being subscribed! Told all my friends!

  39. christine December 12th, 2011

    Brian, thanks for letting me know! I am so impressed by this blog community helping each other out. This helps allay my concern with respect to the fees. The way it was spelled out on the illustration was to detail each policy base monthly fee, then the combined PLUS policy fee. The extra 10 dollars was not accounted for elsewhere and when I asked about this, the agent was surprised and couldn’t immediately explain it–again, not inspiring confidence.

    We went with the cooperators initially because of the 25 year term vs the 20 year that RBC offers, but now I am wondering if that is worthwhile. We haven’t committed to anything yet, but I suppose it is pending.

    We are the first of our friends to look into life insurance, so are sort of paving the way ourselves.

  40. Promod Sharma | @riscario December 12th, 2011

    @christine: As Brian points out, administration fees are common and the amount varies. You want to focus on your total outlay. The breakdown doesn’t matter that much. That said, an admin charge of $75 is rather high for term insurance. Why? Manulife currently charges $57 on Family Term and RBC Term Life only charges $40.

    In Canada, the usual term products are Term 10 and Term 20. That’s where companies focus on being competitive. If you are picking an unusual term, how can you compare with the market? There are comparison services like http://www.winquote.ca/ (for Health Risk, pick Regular). See how few sell Term 25? That’s a red flag — or at least a yellow one :)

    An insurance policy is a promise and corporate governance is a measure of how well companies keep their promises. The Globe and Mail released the 2011 rankings of 250+ companies mere days ago (http://bit.ly/RANK2011). The top three insurers are Manulife (#2), Sun Life (#7) and Industrial Alliance (#12). In contrast, RBC is #23 (still respectable). Where does the company you’re considering rank?

    You may wish to deal with an independent advisor who answers your questions to your satisfaction and who sells products from a range of major companies with high corporate governance.

    PS What if your insurance policy has already been issued? Don’t worry. Insurance policies come with a money-back guarantee (commonly 10 days). If you aren’t satisfied, you are entitled to return the policy without penalty. You need not feel any obligation to your salesperson either.

  41. christine December 13th, 2011

    Promod, I think that a few more pieces of the puzzle have just been set–thank you so much. The saga continues and has caused a lot of arguments between my husband and I–at this point finding an advisor would be the best thing to do.

  42. Promod Sharma | @riscario December 14th, 2011

    @christine: I’m glad this thread was able to help. We’re in a world of Buyer Beware. You deserve kudos for taking the time to investigate. It’s unfortunate there isn’t more unbiased information online to answer questions like yours.

    In Dec 2010, The Globe and Mail ran two articles about how insurance advisors lack supervision and how conflicts of interest affect their recommendations. You’ll find links at http://bit.ly/InsLoophole, including a link back to this informative thread.

    I hope you and your husband have stopped arguing and will soon get peace of mind by putting suitable insurance in place :)

  43. Bob August 6th, 2012

    Great article. I need some advice. I am 49 years old and have started a family I guess you can say late in life. I am married and have a 5 year old and a 6 month old. I want to get term life insurance but don’t know if it’s better for me to wait until I get back in shape (overweight with high blood pressure now) or before I turn 50 in a few months. Any thoughts?

  44. Brian Poncelet September 2nd, 2012

    Bob,

    This is a common question. Too frequently people wait until they are in better shape or quit smoking in order to get the best insurance rates. Then they die in a car accident or they are diagnosed with cancer and the opportunity is lost.

    Get the insurance in place now and protect your family now. You might pay an extra premium for your build but most companies will remove the rating after you have maintained weight loss for 12 months. Check with your agent.

    Brian

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