The above is meant as general information and as general policy descriptions to help you understand the different types of coverages. These descriptions do not refer to any specific contract of insurance and they do not modify any definitions, exclusions or any other provision expressly stated in any contracts of insurance. We encourage you to speak to your insurance representative and to read your policy contract to fully understand your coverages.
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If someone really does want and need permanent insurance, and that may be especially relevant for those in Canada who own corporations, there are a variety of strategies to which the Minister of Finance is taking the axe for policies issued after January 1, 2017. As it stands now, the absurd inflation of surrender charges in the early years of a policy allow for a maximum funded LCOI (level cost of insurance) Universal Life policy to sock away a small fortune, tax-sheltered. That’s on the way out. But until it’s gone, there are some great applications that take advantage of a policy’s ability to pay out the investment portion of a policy tax free to a beneficiary upon the first death on a joint-last-to-die contract. That’s just one application…this is but one way insurance companies have adapted permanent insurance products to benefit the wealthy and there are many others, but these strategies tend to be offensive to the Canada Revenue Agency and as such their existence is always under threat. Life insurance companies tend to engage in games of cat and mouse in terms of finding and exploiting holes in the Income Tax Act in Canada, such as 10/8 policies or triple back to back arrangements, then the authorities shutter them. Rinse and repeat. This is probably not a bad thing…it exposes and then closes holes in the income taxa act. Frankly, the best use of an insurance policy is as INSURANCE. The death benefit is where the juice was always supposed to be. Not in engaging in elaborate tactics to skirt the rules. This is especially true as what is legal today may not necessarily be legal tomorrow. A lot of highly beneficial strategies amount to playing with fire.
Insurable interest – the insured typically must directly suffer from the loss. Insurable interest must exist whether property insurance or insurance on a person is involved. The concept requires that the insured have a "stake" in the loss or damage to the life or property insured. What that "stake" is will be determined by the kind of insurance involved and the nature of the property ownership or relationship between the persons. The requirement of an insurable interest is what distinguishes insurance from gambling.
To sell insurance products on behalf of a particular insurer, an agency must have an appointment with that insurer. An appointment is a contractual agreement that outlines the specific products the agency may sell. It also specifies the commissions the insurer will pay for each product. The contract usually describes the agency's binding authority, meaning its authority to initiate a policy on the insurer’s behalf. The agent may have permission to bind some types of coverage but not others.
Regarding pension vs registered accounts: It is hard to know what is better, relying on your pension or relying on an individually held mutual fund account (or some variation thereof using other securities). This would require a close reading of the pension and securities legislation in your region. For us in Canada, a defined benefit pension (prescribed benefits upon retirement based on a formula where the employer is responsible for funding any shortfall) can be incredibly enticing due to the guarantees attached to them. It is the preferred pension and stacks up really well against defined contribution pensions (where employers match the contributions of employees to at least a certain degree and where the account grows until retirement and the pensioner draws down the account and is burdened with any shortfall) but defined benefit plans are going the way of the dodo over here. It’s still available to government employees but most private employers don’t want to take on the risk of having to meet funding requirements. That’s a huge liability on the balance sheet. In any case, pensions have a few benefits over individual savings vehicles. First, they benefit from reduced management fee pricing, thereby improving returns marginally over the course of fund accumulation. Second, they benefit from a longer investment horizon since they are always looking many years in the future as their pension liabilities are long-term by definition. Third, actuaries are required to evaluate pensions regularly to make sure funding targets are established and followed.
You’re typically asked about your current and past health conditions, and your family health history. The insurer may ask for your consent to get your medical records and may ask you to take a life insurance medical exam. Insurers will also check other data sources to determine term life insurance quotes. More: What you need to apply for term life insurance
Home insurance, also commonly called hazard insurance or homeowners insurance (often abbreviated in the real estate industry as HOI), provides coverage for damage or destruction of the policyholder's home. In some geographical areas, the policy may exclude certain types of risks, such as flood or earthquake, that require additional coverage. Maintenance-related issues are typically the homeowner's responsibility. The policy may include inventory, or this can be bought as a separate policy, especially for people who rent housing. In some countries, insurers offer a package which may include liability and legal responsibility for injuries and property damage caused by members of the household, including pets.
Hi Christine. First of all, thank your for stopping by. Second of all, please don’t beat yourself up over this. Life insurance salesmen are trained to make these policies sound REALLY attractive and their arguments can be quite persuasive. I actually found myself feeling close to convinced about one of these policies a few years ago before coming to my senses.
A more detailed method is to add up the monthly expenses your family will incur after your death. Remember to include the one-time expenses at death and the ongoing expenses, such as a mortgage or school bills. Take the ongoing expenses and divide by .07. That indicates you'll want a lump sum of money earning approximately 7% each year to pay those ongoing expenses. Add to that amount any money you'll need to cover one-time expenses, and you'll have a rough estimate of the amount of life insurance you need.
First, you compare whole life as a retirement vehicle to a savings account or CD. I’ll get to whether or not it’s actually better than those vehicles next, but regardless that’s an improper comparison. When people save for retirement, they generally do so with things like stocks, bonds and real estate. Savings accounts and CDs are not very good long-term investment tools. So whether it’s better than those things for retirement or not, the point is irrelevant.
Thanks for the insightful article. I agree with the general statement that, in a vacuum, it is better to “buy term and invest the difference.” However, I’m interested to hear your thoughts on using whole life insurance as an investment vehicle in the context of the infinite banking model (assuming you are familiar with the concept). From what I understand, it sounds like a good way to achieve predictable and guarenteed growth on a compounded basis while allowing you to borrow money from your own policy and pay yourself the interest, all while always having access to the funds. I think it might be wise for people, like myself, are looking for guaranteed growth with little risk.