Life Insurance
Erb and Erb's insurance specialists work with more than 25 carriers offering a multitude of life insurance products. In order for us to make the right recommendations for your specific needs and situation, we start with an in depth fact find and needs analysis conversation. After this initial discussion, we use software to poll all carriers to determine the best price for the right product. We are not directly affiliated with any one carrier, therefore, you can rest assured that our final recommendations are truly what's best for YOU!
You have likely heard terms such as Whole Life, Term Insurance, Participating Life Insurance, Renewable and/or Convertible Insurance, Universal Life, Riders, Joint Policies, etc. Below you will find the basics of life insurance to give you a basic understanding of these products, however, for more specific questions and to understand what type of coverage is right for you, please give Erb and Erb Financial Services a call today!
Term Insurance
This is by far the most common type of life insurance policy out there and meets the needs of most clients in most situations. The reason it is called "Term" is because you initially purchase it for a specific period of time (terms of 5, 10, and 20 years are the most common but others exist). Term insurance is the most affordable option at the time of purchase, however, clients must note that when that initial term comes to an end, premiums will increase substantially if the client does nothing and continues to keep the same policy in force (automatic renewal) which is how almost all term policies are designed.
There are a few reasons why Term insurance increases so much at renewal time. The biggest reason is simply that the client is now that much older and that much closer to the insurance company having to pay out. Another reason, however, is that since the automatic renewals do not require any new medical testing or questioning, there is great risk to the insurer since they are not given the opportunity to reassess your health and, therefore, increase your rates due to health conditions that have shown up since the initial policy was issued. Typically, only clients with new health issues accept the higher renewal rates because they are aware they would not be approved for new coverage with medical underwriting. Carriers are of course aware of this and, therefore, this drives the auto renewal rates higher as well.
If someone's health is still relatively decent, it is usually better to speak to a licensed life insurance advisor in order to seek out quotes for new coverage and proceed with new medical questions and testing (if necessary depending on age/health status) in order to find a new policy at a much lower cost than the automatically renewed existing policy.
Term insurance is normally sold to cover temporary liabilities such as mortgages, education savings, income replacement, etc. These are temporary needs because the amount needed to be topped up with insurance reduces as time passes and the goals such as paying off the mortgage come closer.
Again, please speak to one of our licensed advisors to determine if Term Insurance is right for you and if it is, how much coverage for how long is best.
Whole Life Insurance
The biggest difference between Whole Life and Term Insurances is that with Whole Life, there is no renewal date. The monthly/annual premiums remain level for life. As such, they are more expensive initially, however, if a policy is intended to be kept in place for life or at least until an advanced age, a Whole Life policy will likely be cheaper over the long term. Whole Life Insurance is also commonly known as Permanent Insurance.
Whole Life policies are more complex and, therefore, definitely require the advice of a licensed life insurance advisor. Buying a Participating vs Non-Participating type of Whole Life policy requires an in depth conversation based around the goal of the insurance. Is it for estate needs only? Might the client wish to do a policy loan in the future and take out some of the cash value that might build up for retirement needs? There are many questions that need answering to find the right policy for you.
One example of where Whole Life Insurance might make sense would be covering the capital gains on the family cottage so that when parents pass away, the burden of paying capital gains tax isn't left to the children to figure out in order to keep the cottage. Another might be leaving a legacy to a charity or family member. Yet another might be fund a buy/sell agreement between partners of a business. There are many situations where using Whole Life Insurance makes sense for the situation.
Universal LIfe
A Universal Life (UL) policy is a combination of a life insurance policy along with an investment account. The life insurance section can hold different types of life insurance types such as Yearly Renewable Term and others as well holding different types of investments such as simple cash, guaranteed investments, segregated funds, etc.
In order to fund the investment portion of a UL policy, the client simply pays more than the basic cost of insurance each month/annually. For example, insurance companies will set a minimum payment which only covers the cost of insurance and then there are regulated calculations that establish a maximum contribution amount and any amount over the minimum and up to the maximum is invested as the client and advisor predetermine.
There are tax benefits of setting up such a policy, however, the benefit is not as great as saving to RRSPs, TFSAs, RESPs, etc first. Business owners and high net worth clients are often the ones who benefit the most from a UL policies benefits. UP is, however, the least commonly used type of policy for the average Canadian.
Joint Policies
When purchasing a life insurance policy for more than one person, the policy becomes a Joint Life policy. The benefit to doing it this way is to avoid paying two policy fees for two separate policies (a portion of every annual premium is an administrative fee charged by the insurance carrier...the total premium paid consists of the Net Cost of Insurance and the Policy Fee which averages around $60 a year). You only pay one fee in the total premium for two lives insured.
Some policies are sold as either Joint First to Die (JFTD) or Joint Last to Die (JLTD). As the names suggest, the full death benefit is not paid out until the first or last of two parties passes away. A JFTD might be used when the goal is to pay off the mortgage when the first of a couple passes away. Since there is no longer a mortgage and no longer coverage needed on the second life to pay off the mortgage, the policy ends. Policies like this are a little less costly, however, the difference between a Joint policy and simply buying two separate policies is not as great as it once was and, therefore, less clients purchase a joint policy these days since there is often more that a policy is trying to cover than just a mortgage.
Other Life Insurance Features and Terms
You have likely heard about Riders on life insurance policies. A Rider is basically an "add-on" to a main policy that adds different features to said policy in order to make it more relevant to the client(s).
For example, while your main policy may be a 20 year term policy for X dollars of coverage, you may determine that you also need an additional Y dollars for the next 10 years, therefore, adding a 10 year term rider might make sense. You could even add a spousal rider if you wish, thereby adding coverage for your spouse on your policy.
There are other types of riders available including things like Guaranteed Insurability Benefit ensuring you can buy additional coverage in the future with no medical underwriting, Disability Waiver of Premiums where you do not have to pay the life insurance premiums if you become disabled, Child Protection Riders, Critical Illness Riders, and many others. Of course, adding these does add to the cost of the policy but the benefits may be worth it.
If you hear about a policy being "Renewable and Convertible", it means that the policy is automatically renewable (as mentioned under Term Life) and also, if it is a term policy for example, can be converted at a later date to a whole life policy if your situation changes.
There are many different features and riders available. The best way to find out what features would benefit you is to speak to one of our advisors today!