Are Canadians Paying for Costly Life Insurance That They Don’t Need?
Surveys show that 49% of Canadians buying life insurance are buying a permanent policy, even though permanent insurance is not needed by most.
Most people need life insurance when they have dependents. They take out a policy to replace their contribution to the family budget should something happen to them. Therefore, the greatest need for life insurance is to have few financial assets, a mortgage, and a young child.
Retirees usually have investments, little or no debt, and independent children. If anything should happen to a spouse at this stage, there is usually a far smaller financial impact. Their need for life insurance is generally less.
Types of life insurance:
The two main types of life insurance people are offered permanent insurance and term insurance.
Canadians Paying for Costly Life Term Insurance?!
Term insurance is usually bought for a fixed period (usually for 10 or 20 years) and has fixed premiums during that term. It is usually more affordable because the likelihood of someone dying is far less, especially if they are still young and have ten-year term insurance. Term life insurance can be as long as a 40-year term: therefore, if you are purchasing for more than the period you need coverage, you are paying more than you should. If you choose your coverage period wisely, all the extra costs can be eliminated.
Permanent insurance has a fixed or flexible premium payment and only expires when you die but is more expensive. This is because, with permanent insurance, you are covered until your death, even if it is still many years away.
Who needs permanent life insurance?
Permanent life insurance is expensive because its cash value grows over time, and it offers lifetime coverage. The permanent life insurance beneficiaries receive a death benefit, whether the person covered dies soon after purchasing the policy or even decades later.
Permanent life insurance is a specialized product that is not suitable for most Canadians. It usually meets individual’s needs with a high net worth and requires it for their estate planning.
Is term life insurance better?
Since most people have decreased financial obligations as they grow older, term life insurance is a far better option. Term life insurance is designed to protect temporary needs, and its term can run for anything from one to thirty years. The younger people are when they take out term life insurance, the more affordable it is.
Younger couples buying their first home will have considerable debt for several years. Most insurance advisers would suggest a thirty-year term life to cover their needs. Then again, a couple in their forties that have almost finished their mortgage will most likely only need 10-year term insurance.
That being said, term life insurance might not be a wise choice for everyone. If you are concern with leaving a legacy, estate planning, building cash value or covering your final expenses, a permanent life insurance product is a much better choice.
Are Canadians Paying for Costly Life Insurance? Let’s compare the costs!
Term life insurance is more affordable for most people. We look at one example of a healthy 35-year-old, a non-smoking male who still has 20 years left their mortgage amortization. Let’s estimate that he requires life insurance cover of $750,000 for the next 20-years. This is to cover the mortgage and his children’s educational requirements should something happen to him.
A 20-year term policy will cost him approximately $45 a month compared with roughly $450 for permanent life.
The annual cost is ten times higher, something that is unaffordable for most Canadian families.
Canadians Paying for Costly Life Insurance! Temporary vs permanent
- It’s unaffordable – At almost ten times more than a term policy, the high cost of permanent life insurance is an unnecessary burden on some families, especially for coverage that some people may not need in their later lives.
- Better for long-term need – Permanent life insurance is a powerful product for those who need life insurance for the long term and are planning to keep the policy through their lives. Therefore, if you are planning to have life insurance for a long time, permanent life insurance may be a wise product to buy.
- Limited returns – Most permanent life insurance policies have a cash value attached and act as a type of savings account. This cash value does earn some interest, but it is usually much lower than the growth seen if the money is invested in an RRSP or TFSA.
- Policy flexibility – Many permanent products such as Universal life insurance, give you more premium flexibility. This is an amazing feature that temporary life insurance products will not offer.
- The policy may lapse – If the insured person stops paying the premiums because of a financial setback, the policy lapses. That money is a profit to the insurer. According to statistics, 88% of permanent life policies never pay a claim.
- Complex – Term life insurance is far easier to understand than permanent life insurance. Unfortunately, many brokers do push permanent insurance because they make far more commission on selling these. Permanent life insurance has complex cancellation charges, and their fine print often hides risks and fees that people are not made aware of by their broker. One of these is annuitized benefit options, which even confuse seasoned insurance agents.
- It builds cash value – Most permanent life insurances allow you to develop cash value in your life insurance policy which can provide you with many great advantages. Such as taking a loan against the cash value in your life insurance policy, can be used to pay life insurance premiums, later on, can increase your estate.
AplusWealth Inc. is here to help Canadians to find the right life insurance.
An expert advisor is the best person to help you secure your family’s financial future and guide you to compare different individual life insurance in Canada and find the best life insurance type. A financial advisor or insurance agent will assess your financial needs, look at the existing life insurance policies you may have. They will find a way to cover all your life insurance needs within your budget.
Life insurance and the covid-19 pandemic process are done entirely online. Thanks to our expert advisers who are entirely comfortable with the online life insurance & investment platform, you can take advantage of their expert opinion about if nothing has changed by taking your age and health, liabilities, and goals into consideration. At Apluswealth, you can get a quote, compare the life insurance pricing, and find the life insurance quote you feel comfortable with. Our life insurance advisors will provide you with quotations and the most suitable policy types. Contact our expert advisers today and find out which is the best life insurance for you. If you are one of the Canadians Paying for Costly Life Insurance, contact us and find out the ways you can save money.
Email: Contact@apluswealth.com
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