When I first got my license, my parents co-signed on my car insurance. Nearly 20 years, a wife and two kids later, I was still using the same insurance company for my home, auto, and life insurance. But, last year, prior to moving, one of the ways we tried to reduce our living expenses was to shop around for a better rate. Good move. Despite all the “loyalty” discounts I was supposedly receiving, we were easily able to find a competing company that offered us more comprehensive coverage, for significantly less. Shopping around can save you some major money, you just need to keep a few caveats in mind.

Beware the penalty
In order to keep their existing clients, some insurance providers charge penalties for cancelling a policy mid-term. Your current provider is required to send you a renewal notice one month before your policy expires. If you’re sticking with them, you don’t need to do anything: coverage continues as always. But think of the renewal notice as a reminder that it’s time to comparison shop. You’ll have plenty of time to inquire about alternative rates and then, if you choose, you can cancel at the end of your term without any risk of a penalty.

Make sure the apples match the apples
Odds are, you’ll do your research online or by making a few phone calls. But don’t just focus on the rate. Make sure you read all the fine print. Most auto policies, for example, will include coverage on rental cars and partial coverage for any towing expenses you may incur. But a bare-bones policy may not include these perks – something you’d need to consider if you frequently travel, or drive an old beater.

Constricted coverage
Some policies may provide limited coverage during the initial activation period. As a result, you might want to avoid switching policies every six months trying to chase a lower rate. (Not to mention the hassle of making all those calls and analyzing all that fine print.)

Give the old guy a chance
Once you’ve found a rate you like, and are happy that all of your needs would be met, call up your agent and see if they can beat it.

Timing is everything
Finally – and perhaps most importantly – make sure your new policy is activated before your old one expires. Murphy’s Law – your car will get stolen, your house will burn down, and you’ll get hit by a bus in the middle of a one-hour gap where you’re not covered.

Allan
Writer for RateSupermarket.ca

So you’ve finally gotten down to “buy life insurance” on your life’s to-do list. But does your agent or broker sound like they’re speaking another language? Well, he or she is. But here’s the layperson’s guide to understanding some of the key – or confounding – terminology. First off, there are two basic types of life insurance, term and permanent.

Term insurance refers to a policy that covers you for a set period of time, say 10 or 20 years. These have lower initial premiums than a permanent policy – and the rates are fixed for the duration of the term – but won’t provide you with any coverage if you’re fortunate enough to live a long time.

A permanent (or whole) life policy is as permanent as you are: provided you continue paying your premiums, the policy will cover you until your eventual death. (Yes, like it or not, it will eventually happen.) Permanent policies also have an investment component.

Here are a few other key terms to understand:

Accidental death benefit
A fairly common rider on policies that pay out a higher claim if the insured person dies in an accident. Sounds good. But the reality is that the vast majority of people die of natural causes. As a result, you’ll likely pay more than you need to for it. (A prolonged but ultimately failed battle with a disease like cancer, for example, is likely to be more emotionally and financially draining to a family than the sudden loss of a loved one.)

Cash value
This is the amount – less any applicable fees – that you will receive if you decide to cancel a permanent or whole life policy prior to its expiry. Also know as the cash surrender value.

Convertibility
This is a type of term policy that can be converted to a permanent one, typically with without requiring a medical exam.

Critical illness insurance
This option provides lump-sum payments to an insured person diagnosed with a terminal ailment, while they are still living. Though it sounds like a bankroll for completing your bucket list, it’s intended to help cover uninsured medical expenses.

Disability benefit
A rider that provides a preset level of income in the event you suffer an injury that prevents you from returning to work, also called a living benefit. Some policies will even waive the monthly premiums in the event of a disability claim.

Renewable term
Some term policies can be renewed for additional periods, albeit for higher monthly premiums. There are limits to how many renewals you can make, with most plans expiring by age 80.

Rider
A catchall phrase for the various options you can add to a basic policy.

Settlement options
This is where you get to choose how the policy’s beneficiary will collect the payment: typically as a lump sum, regularly scheduled payments, or a combination of the two.

Don’t get bogged down by the terminology.  Do a bit of homework and in no time you’ll be speaking your insurance broker’s language.

Allan
Writer for RateSupermarket.ca

You should get life insurance. Really, you need it.

Everyone tells you this. But the problem is, they never tell you which kind they’d recommend. In fact, there are a few types of life insurance products available on the market, and they fulfill different needs.

First up, we’re not talking about mortgage insurance, but it is a similar product. Mortgage insurance covers the cost of your home if one of the persons named on the policy dies. So, if you owe $200,000 on your house and your spouse dies, the insurance will pay off the house in total for you.

Great! But there are some flaws with this type of insurance. Mortgage insurance is underwritten at the time of death. Your insurance company can scrutinize your application and your medical history and refuse to pay out.

As well, while your premiums stay the same, the amount you owe on your house goes down over time. So, fifteen years into home ownership, you’re still paying the same premium and when your spouse dies, you get less money. Finally, that payment does not cover other costs such as the funeral, your kids’ education, income replacement and the other things you may have relied on your spouse for when he or she was alive.

So, we come back to the fact that you need real life insurance to truly cover yourself and your partners if something were to happen.

Term insurance

This type of life insurance is called term because it is sold for 5, 10 and 20 year periods of time only. When that time elapses, the policy simply ends. People buy term insurance to cover their needs during the busy, expensive years of life. When they have a mortgage, young kids and a spouse who needs supporting.

Many term insurance policies are renewable and convertible. Renewable policies can be extended time-wise, so you can change your mind in the future and purchase more years to cover the last few years of mortgage payments and the family while the kids are still in university. Your premiums may go up when you do this, however.

Term life is a great choice for many people because it’s the most affordable type of life insurance. Business partners, as well, often use term policies to cover each other to protect the business.

The flaws? Obviously, term insurance won’t cover you well into your senior years to pay for things like funeral expenses and leave your family a legacy. Also, Norm Gorrie, a Thunder Bay-based insurance agent, says term life policies can become void if you don’t pay the premiums regularly. After just 31 days, a missed payment will lead to a cancelled policy. It doesn’t happen often, but could when you’re travelling or there’s a problem with your automatic payment and you miss the notices from your bank and agent.

Whole life insurance

This much more expensive insurance will cover you until your death and provide for any final expenses and leave an inheritance for your family. As well, unlike any other type of insurance, your policy acts like a savings account. Once you build up a certain amount of equity in your account, for instance, you no longer have to make payments — they can be paid by the policy itself as a loan that is paid back when your policy is cashed in when you die. You can withdraw money from your account when you retire tax free (loans are tax free in Canada) and supplement your retirement income. As well, whole life policies pay dividends, so you can pocket that money or use it to pay your premiums every year.

The downside is that cost mentioned above. As well, the amount you’ll need when you die as a senior is much less than you’d need if you died in your mid 40s, when your family is heavily relying on your income.

A combination of products

Most insurance agents will suggest combining term and whole life insurance to get the most complete coverage. In fact, some insurance products are a mix of the two.

Bottom line: life insurance is complex and functions unlike any other insurance product. You’re best off working with an experienced agent to help you find the right product and coverage amount for you and your family.

Diane
Writer for RateSupermarket.ca

No one wants to think about death or debt, especially in combination. But unless you have something lined up, your death could be a financial burden to the ones you love most. If you have debt, it might be time to consider life insurance. Here are 10 insurance-related myths, debunked, to help you decide whether or not life insurance is right for you.

Myth #1: I’m young. I don’t need life insurance.

Your age isn’t really what’s important here. What’s important is whether or not you’ll be leaving anyone behind who would be worse off financially. Even if you have no dependents, someone will still be responsible for your student loan, and your car payments.

Myth #2: Life insurance is unnecessary if I don’t have kids.

True, there’s much less at risk if you don’t have children, but what about your partner? Chances are they rely on your income to a certain degree. Ask yourself, “Could my partner manage all of our current financial obligations alone?” Maybe, but probably not.

Myth #3: My employer provides coverage. I don’t need more.

Many larger companies offer their employees free life insurance; sometimes it even amounts to twice their salary. Even if you’re lucky enough to have such an employer, if you change careers you’ll lose that coverage. It may be difficult or even too late to purchase the coverage you need.

Myth #4: Life insurance is too expensive.

Actually, life insurance probably costs a lot less than you think. As average life expectancies continue to rise, the cost of life insurance decreases. Take the time to compare prices before you write insurance off as a waste of money.

Myth #5: All insurance policies provide the same coverage. The only difference is price.

All policies are not created equal. Read the fine print – they might have similar names, but chances are they are very different.

Myth #6: My health is poor. I could never get coverage.

Never assume that because your health is poor you won’t get coverage. There are companies out there that specialize in this type of coverage. Don’t be discouraged if you’ve been declined. Shop around. There’s something out there for you.

Myth #7: I probably won’t need it, so why waste my money?

You’re right. Chances are you won’t need it, especially if you’re still quite young. It’s unlikely that you’ll die in your younger, working years – that’s why insurance is so inexpensive then. Most people who purchase life insurance don’t expect that they’ll have to use it, but if they do, it’s there. You need to ask yourself whether of not a worst-case scenario would be catastrophic to your family. If the answer is yes, then life insurance could provide added security, protecting the ones you love.

Myth #8: The higher the price, the better the coverage.

For most people, term insurance, which is more inexpensive than whole life insurance, is actually the better choice. You buy term insurance for the amount of time you think you’ll need it – until your debts are paid off, your kids are in university, or you retire. Shop around – price doesn’t always make the policy.

Myth #9: In a single-income home, only the breadwinner needs coverage.

This might sound heartless, but the cost of ‘replacing’ your loved one probably isn’t cheap. You might think that the sole-provider is the only one who should be covered, but think about what ‘services’ the other provides. Likely, if you couldn’t fulfill those duties on your own, you’d have to hire someone to do them for you. The deceased homemaker’s duties, like cleaning and childcare, still cost money.

Myth #10: It’s such a hassle to get insurance.

The insurance man has a nasty habit of bringing out the worst in us. If you, like many others, are afraid of your insurance salesperson, there are answers. You can use simple online tools to compare prices, options and insurance needs. You can request a call back from a licensed insurance expert online. The hassle you feel applying is nothing compared to the hassle your loved ones will feel when trying to manage your debts. At the very least, shop around. You might be surprised by how little a sense of security actually costs.

Melanie
Writer for RateSupermarket.ca

Do you remember those old “freedom 55” commercials? More importantly, does it sometimes seem like 55 is the number of years it’ll be before you’re able to retire? Without a plan, you may just have to keep working into your golden years. Here are a few ways you can start building a proper plan.

Pension planning
A 65-year-old Canadian retiring today is entitled to up to $960 a month from the Canada Pension Plan (CPP) and a further maximum of $526.85 in Old Age Security (OAS) benefits. Nice, but could you live on less than twenty grand a year? It’s a rhetorical question, but the answer is, no. Which is why you need an alternative, additional retirement fund. And even if you’re lucky enough to have an employee pension plan through your workplace, you should know about – and consider – the other options out there.

Registered Retirement Savings Plans (RRSP or simply RSP)
This is the retirement planning vehicle most people are familiar with: Set up an account at your financial institution, make annual one-time or recurring contributions, get a receipt for the total amount to reduce your taxable income for the previous year, and leave the money alone so it grows into a retirement nest egg. As an added incentive to leave it alone, you’ll face a hefty tax bill if you do make withdrawals prior to retiring. (One exception is the Home Buyer’s Plan that allows you to withdraw up to $25,000 towards a down payment, then repay the amount over a 15-year period.)

Tax-Free Savings Accounts (TFSA)
TFSAs are another long-term savings plan that comes with a tax-break incentive. In this case, the interest earned on your investments is non-taxable. In other words, years down the road when you’re ready to withdraw you don’t have to claim that money as income. And, in the meantime, you’re also able to freely withdraw the funds for family emergencies, down payments, and other unexpected needs. Just don’t over-contribute to your TFSA or you will be charged a penalty.
Currently TFSAs are capped at $5,000 a year per person, but one of the Tories’ campaign pledges was to eventually increase that to $10,000 per year. In the meantime, like an RSP, any unused portion of your cap rolls over indefinitely.

Reverse mortgage
Reverse mortgages allow homeowners 60 or older to tap into the equity in their house without having to sell. Various financial institutions offer reverse mortgages in the range of 10 to 40 percent of the equity in the home, paid out in a lump sum or as recurring payments. The house has to be mortgage-free, and you’ll have to pay off any other loans that are secured against the property.
The main catch is the money loaned through reverse mortgages is charged at a higher interest rate than other mortgages, and you’ll slowly eat away at the amount of equity you hold in the home on its sale or your death.

Life insurance
The old joke is that it really should be called “death insurance” since that’s the only part that’s guaranteed. And while banking on someone dying is both a morally and financially flawed plan, life insurance policies do ensure that a spouse and their offspring will be comfortable if (and when) their partner passes away, and the payments are non-taxable.

Income properties
As far as investments go, it seems like a no-brainer. Buy for a low price, charge high rent, and over time your tenants will pay your mortgage for you. If only it were that easy. Consider a few potential drawbacks.
For one, owning a rental property for that long means you’re going to eventually face some substantial capital costs – from replacing the roof or furnace, to at least modest interior makeovers so you can continue to attract top-dollar rents. On the upside, those costs are tax-deductable so you’re better off doing the renovations before you retire, while your income is higher.
On the other hand, if you’d rather not deal with tenant issues in your retirement and plan on selling the place, keep in mind that income properties incur capital gains tax. In which case, you’re better off waiting until after your income level drops to go ahead with the sale.

Allan
Writer for RateSupermarket.ca

When you have kids, there’s so much more to do. Of course, you have to take care of them, and that sure takes up a lot of time. But also, you need to get certain financial arrangements in order to ensure they’ll be taken care of properly for a long time.

First up is dealing with life insurance. I say it’s first, but in fact, most parents like me take a really long time to get this annoying task out of the way. My son just turned seven and we just got final approval on our policy a few weeks ago. Please tell me you’re not as disorganized as this!

Before the kids, especially when you’re young, you just don’t think about death, or worry about how others will survive once you go. Particularly if you’re a couple who both work, you just assume the survivor will get by. My husband and I relied entirely on mortgage insurance: if one of us died, the house would get paid off, and that’s really all we needed.

But mortgage insurance is associated with some problems: claims can be hard to make (there’s no medical exam before you apply and apparently many have been denied claims for lying — like not mentioning a casual doctors visit or a minor injury) and your premiums stay the same over the life of your mortgage but the value of the insurance goes down as you pay down the principal. As well, when you have kids, your mortgage is no longer your biggest cost. Childcare, clothes and food for wee ones takes up a big chunk of your budget and will be a huge issue of your die and leave your spouse to do it alone.

So, a more comprehensive product such as permanent or term life insurance is in order. Understanding life insurance is not a quick thing. Best to educate yourself on the types of insurance, figure out how much coverage you need using a calculator and compare insurance rates to get the best deal and the best product for you and your family.

The good news about life insurance is while, yes, someone does show up at your house and take blood. But the premiums, if you get them while you are still young and healthy, can be more affordable than mortgage insurance.

Also, you’d better get a will to make sure your assets go to the right person when you die. And get to them quickly: if you die without a will, your money can get frozen while things are sorted out, and your family may go without much needed money for months.

A will is also the place you stipulate who will raise the kids if you both should die. It’s not a pleasant business, and it’s easy to put this task off. But there are wills available online that make the task quick.

Also important is to look ahead to the more cheerful business of your kids’ education. Establishing registered education savings plans (RESPs) early on is an easy and effective way to save for college or university.

First of all, you need to apply for a social insurance number (SIN) for your child. Once that’s done, you can simply visit a bank or go through an investment advisor to set up a plan. Most organizations suggest you put a set amount in each month, and a good advisor will put your kid’s money in a plan geared towards his or her year of high school graduation to maximize gains now and minimize risk closer to when college or university should begin.

One great argument for putting money away in an RESP is free money. The federal and most provincial governments have grants that top up your contributions year after year.

Most financial experts warn against dumping a lot of money into RESPs when you have other obligations: it’s equally important to pay down your mortgage, invest in tax-beneficial registered retirement savings plans (RRSPs) and tax free savings accounts (TFSAs). Keep a smart balance between your family’s financial goals. Kids can work while they’re in school! Also, encourage grandparents to make donations in lieu of gifts and put in a small monthly or even end-of-year payment that’s in keeping with your budget.

Kids take up a lot of time and they do cost us money. But raising a family can also encourage us to get our finances in order — and that’s always a good thing.

Diane
Writer for RateSupermarket.ca

Recently, my partner and I have been talking about marriage. No, there aren’t wedding bells in the air; we’re just curious. They say that marriage changes everything and that when it ends in divorce it’s usually because of money. With all of the things we discuss before marriage – the number of kids we want, if any, the kind of house we’ll live in and its location, and where we see ourselves in 5 years – why isn’t money one of them? My partner and I decided to get ahead of the game and take a closer look at our finances as a couple.

The Wedding

Depending on its size, a wedding can be very costly. As a married couple, this will be the first large debt you’ll have to manage. If money is the main cause of arguments, why begin your journey together with a massive debt? There are some great ways to save money and lower the overall cost of your wedding.  Think backyard wedding instead of an expensive hall, bottle your own wine or look for a used dress that you can turn into a dream gown with a few alterations.   After all, marriage isn’t about the actual wedding – it’s about the life together afterward.

What changes after marriage?

Monthly costs – If you’re moving in together for the first time, you’ll likely see a dramatic decrease in monthly costs. As a couple, whether you own or rent your home, you now share the expense. You also split on bills that were once your own. This includes your home phone service, cable and internet.

Health benefits – Perhaps the most rewarding change occurs if one of you has work benefits, but the other doesn’t. Once you are married, the benefits you receive will be extended to your spouse as well.

Car insurance – Your auto insurance will also change, and for the better. Depending on your individual driving records, you could see a substantial drop in your insurance rate. Be sure to inform your insurance agent if you get married.

Credit – Many couples’ credit increases after marriage, too. Together, they’re worth more, and less of a liability since there’s more income to rely on.

What stays the same?

Unless you agree to pay if off together, the debt you have when you enter into marriage is your own. Your partner is not financially responsible for the student loan you accrued all those years ago. It’s a good idea to talk about this before getting married, as misunderstandings regarding debt can be disastrous.

Other considerations after marriage

You’re a couple now and you’ve got each other to think about. Whereas you might not have considered insurance before, it’s most likely a consideration now. After marriage, most couples look into getting some sort of life insurance, as well as health insurance. It wouldn’t be fair to leave your loved one incapacitated by debt due to injury or death.

So what do couples fight about?

When couples fight about money they are really fighting about three things: debt, savings goals, and day-to-day spending. Communication is key. You’ve each brought different financial goals, as well as different spending habits, into your relationship. First, let’s look at how you can manage your personal finances, and then take a closer look at those problem areas.

Managing finances as a team

My partner and I have lived together for 3 years now and we’ve found what we think is a really good way to manage our money. We’re both the product of failed marriages and understand firsthand the pressures of mismanaging finances.

Together we have a savings account and a credit card, everything else is in personal accounts. The savings account is for future trips, or maybe even a house. The credit card is used to pay shared costs, including rent, groceries, phone, and internet. If we go to the movies together or rent a car, it goes on the credit card. When the bill comes in, we each pay half. This way we never fight about money.

Other couples, especially those of the older generation, don’t believe in our method. They think that it makes it too easy to get out of our relationship. I don’t ever want to get mad at my partner for spending the money he’s earned, and he doesn’t want to be restricted by my need to save. Although our method might work really well for us, it’s certainly not for everyone.

Debt – My partner and I aren’t married, so technically we’re not responsible for each other’s personal debt. In your relationship, you may both have very different financial goals. Talk about how you spend your money and whether or not it’s a good idea to dedicate a certain amount to extra spending each month. This should help minimize excessive spending.

Savings goals – It’s always a good idea to save, but an even better idea to know what you’re saving for. Openly discuss your options with your partner. Perhaps you want to save for retirement. Maybe you’re saving for a down payment on your first house together. Whatever your goals, discuss them with your partner to make sure you’re both on the same page.

Day-to-day spending – How are you going to manage your daily transactions? Do you put all of your money into one account and share all expenses, including personal purchases? Or, do you handle your personal finances much like my partner and I, sharing only the necessary expenses and keeping the rest for yourself? Whatever your decision, again, you need to talk about it.

It’s all about communication

I feel like I’m repeating myself here, but I can’t say it enough – communication is key. If most marriages end because of the mismanagement of money, isn’t it a good idea to talk openly about your finances from the start?

Melanie
Writer for RateSupermarket.ca
 

Congratulations – your new mortgage contract has been signed.

After the task of researching mortgage rates, speaking to a mortgage expert, weighing the options for fixed versus variable, length of term and payment schedules, gathering the appropriate documents and negotiating the details, you can now sit-back relax and forget about your debt for another 3-5 years.

Well, not exactly. Don’t start brushing your new mortgage under the rug just yet. There is one more very important piece to the mortgage puzzle that should not be forgotten – mortgage insurance.

After your mortgage has been approved, you should consider protecting yourself against the event that you are unable to make your payments. It’s natural not to want to think about this, but if something were to happen, you and your family will be glad you did.

To navigate the tricky world of mortgage insurance, we’re talking to Craig Ferguson, a licensed insurance broker with over 20 years of experience. He has a wealth of knowledge and hates to see Canadian consumers get taken advantage of by insurance agents selling unnecessary or overpriced products. We like his style.

RSM: Thanks for talking with us Craig. Why don’t you start off by telling us about the difference between default insurance and mortgage insurance?

Craig: When it comes to insurance, the terms alone can be confusing enough! Mortgage loan insurance or mortgage default insurance is typically required by lenders when you are buying a home or looking for mortgage refinancing and have less than a 20% down payment based on the property’s value. Mortgage insurance is typically offered by your bank or lender and it’s a form of mortgage protection if you are unable to pay your mortgage.

The bottom line is both products protect the lender, not the borrower’s family. There are other products out there, such as mortgage life insurance coverage that can better protect the borrower.

RSM: Can you tell us a bit more about the specific downfalls of mortgage insurance?

Craig: Well, I think there are 3 main points to cover here. Firstly, it’s expensive; second, you may need to re-qualify more often then you think; and finally, the application form leaves room for errors that could have serious consequences. Let’s look at each of theses issues in turn.

Mortgage insurance is expensive for a variety of reasons, one being the potential length of risk. If a plan covers 25 years versus say ten, the risk to the insurer is greater, and is reflected in a much higher cost. Given that the most common amortization period for a first time mortgage is 25 years, most people will take out a mortgage insurance plan that covers that period of time. It may seem great to have a 25 year plan, but reality does not match theory.

For the second point, the argument often made for mortgage insurance is that it will cover the outstanding mortgage balance for the duration of the mortgage. But this may not be the case.

In today’s economic climate, the odds of staying with one lender and/or one mortgage are unlikely. When a mortgage loan is paid off, renegotiated or refinanced, the mortgage insurance terminates at that point, and the borrower is faced with the challenge of re-qualifying for the coverage again. This is the case even if they were to stay with the same lender!

This presents the issue of increasing rates upon mortgage refinancing, and no protection if health issues make re-qualifying a problem.

And the final issue, since mortgage insurance is designed as an “easy application” product, it may only have six to ten very loaded health questions. Should the applicant answer “no” by mistake, when he/she should have answered “yes”, it could result in a claim being denied. And, this is why you hear of so many stories of mortgage insurance not paying out.

RSM: So what should consumers do in order to protect their mortgage?

Craig: A product that addresses all of the fallbacks of mortgage insurance is life insurance. This can be a cheaper alternative to mortgage insurance and offer additional benefits.

RSM: What are the benefits of life insurance?

Craig: The main benefit of life insurance is money when needed. It’s as simple as that. Other benefits include:

That’s just to name a few.

RSM: At what stage should someone look at protecting their mortgage? And how much coverage should they look to purchase?

Craig: This question is a good one, but shouldn’t it really be: at what stage should a person look to ensure protection of his or her family? It’s often a myth to assume a paid off mortgage results in easy street.

For example, let’s say we have a husband and wife, both working, and pulling in equal shares of income (not uncommon in today’s society). Let’s assume net after tax income is $5,000 per month.

Say their mortgage payment is $1000 per month, representing only 20% of the family’s net income. But usually, at the end of that month, there is little left over (again, not uncommon in today’s society). This would suggest that the loss of a loved one representing 50% of the family’s money each month would not be satisfied with the removal of only $1000 of total expenses. Where’s the other $1,500 coming from?

There’s a reason the banks operate on debt ratios – they understand that there are greater expenses than a mortgage that a family needs to consider. The banks and lenders act responsibly, but do we as borrowers think the same way?

You could look at covering the mortgage, or you could look at how much insurance is really needed. Most often, term insurance is a low cost way to not only save money over the cost of mortgage insurance through the lender, but the best bang for your buck to ensure your families lifestyle is protected.

And the time for this is really “yesterday”.

RSM: What is the difference between whole and term life insurance? And which option is best?

Craig: Whole Life insurance is designed to provide coverage for life, with, usually a guaranteed premium, but that is not always the case. Term insurance, provides coverage for set periods with a guaranteed premium (say for 10 or 20 years), and a guaranteed renewal premium at a higher rate. But, most term plans are flexible because they also allow for “conversion” to a whole life plan without providing a health check at that time. The rate will then be the rates for the age at conversion to the permanent (whole life) plan.

Which should you choose? It really boils down to need first, solution second.

For example, a doctor has at his disposal a prescription pad, and can order any drug he chooses for a given patient. Do all patients get prescribed the same drugs? Of course not.

The doctor should first assess the patient’s health, determine where it hurts, and look to provide a long-term goal to address the health issues.

Similarly, the insurance broker must assess the financial risk of the client. He must determine the amount of life insurance needed to cover off a good percentage of income over time (usually to retirement), and also consider pension fulfillment needs, which we should discuss more, perhaps in another session.

People without drug coverage need to pay out of their own pocket, and doctors usually make decisions on what to prescribe based on ability of the patient to pay the bill. The same consideration should be made for life insurance.

First, the amount of insurance to protect the client should be determined, and only then should the affordability of the plan type be addressed.

In my experience, based on need, clients that have mortgages, families and several years to retirement, should look at the lower cost, higher payout of term life insurance. And in most cases a ten year term is a good option.

RSM: So a ten year term policy is the best option?

Craig: It is important to understand that insurance needs change as life changes. For that reason, the average life insurance plan, whether bought as whole life or term tends to change every 5 to 7 years.

The extra premium paid to the insurer during that period (if the term was longer than what you held the plan for) would be lost. So the best option is to buy the plan that best represents the closest term before your needs change.

If you’ve had a whole life plan or say a 20 year term plan and have changed to another plan of insurance then you are a case in point. The additional premiums that you paid could have gone towards paying down your mortgage.

RSM: What health checks are required for life insurance coverage?

Craig: When you apply for a personal life insurance plan, the insurance company will ensure your health is good by conducting a form of checks and balances. They will often order a doctor’s report if there are any grey areas and also cross-reference the answers to the application. Depending on age and amount applied for, there will be a nurse called to perform other tests and ask questions related to health history. Additional health or avocation questionnaires will also be used to paint the proper picture. The process is relatively painless yet thorough in ensuring full disclosure.

The insurer is more likely to challenge the applicant up front for health conditions that may not even be known to the applicant, but in doing so, this ensures that at claim time there is little to be challenged. Often the insurer will suggest results are sent to the family doctor to be discussed and dealt with. A mini-physical is a complimentary byproduct for those that refuse to visit the doctor regularly.

Very important to the integrity of the process, there is less likelihood that the applicant’s answers alone will form the basis for the contract. That is the protection you want, trust me! I like to call it being put through the ringer for your own good. The technical term is called pre-claims underwriting.

Creditor/mortgage insurance is riskier because the process looks more closely at you only at claim time. The term is aptly named post-claims underwriting. It’s unfair to challenge insurability after the fact. Despite the fact that premiums have been paid in good faith, the coverage your family relies on may be at risk of not being there.

RSM: What types of questions do you recommend consumers ask an insurance agent before they make a purchase?

Craig: The first and most important is to ensure the agent can justify the reason for the amount of insurance suggested.

Second, did the agent take into account other insurance already in force, and make recommendations as to why they should be kept, or why they should be discontinued.

Third, and this is off topic but an important part of insurance planning, did the agent consider what would happen if you live? In other words, what if you were to become disabled? Is the agent concerned with ensuring your income will continue in all circumstances, disability or death?

If you’ve found a good insurance agent, you should expect to pull out all of your insurance documents including employee benefit books and pension statements.

Insurance selling should be in direct proportion to insurance planning.

RSM: Thanks for your insights Craig!

Next time, RateSupermarket.ca will talk to Craig about insurance requirements for the self employed.

Craig Ferguson Insurance Services has been providing Individual & Group Insurance solutions since 1991.

This is great for the global online retail market, but unfortunately, Canadian retailers aren’t helping to top up these numbers. You see, we’re behind the rest of the Western world when it comes to the array of products and services that should be offered to consumers online. Whether it’s groceries, furniture or clothing. Sure, Canadians are still shopping online, but many of the products we’re purchasing aren’t always coming from our own country.

So why is Canada slow to catch up when it comes to buying local when online shopping? Well, according to JC Williams Group, Global Retail Consultants, it has more to do with consumers being less than satisfied with what Canadian retailers have to offer compared to the overabundance available south of the border.

Canadian online shoppers are looking elsewhere for deals and products.

According to Wishabi.ca, a Canadian personal shopping engine, there has been an outstanding increase of 1000% in cross border purchases compared to April 2009. Over 63% of consumers have gone online within the last month alone to find deals and goods. Of that number, over 15% have made purchases from a US merchant.
With the Canadian dollar at attractive heights, and access to low priced US products through our computer screens, can you blame shoppers for not buying local?

Retailers around the world have caught on to offering their products online, yet Canadian retailers still aren’t taking advantage of the popular resource over 85% of their consumers visit every day – the internet. Several of Canada’s leading department stores including The Bay, Canadian Tire and Walmart, only allow consumers to browse products online and add desired merchandise to a shopping list. Consumers must then go into the store to actually purchase the product. It’s no wonder shoppers who simply don’t have the time, are immobile, or have no access to these stores are turning to other online (mainly U.S.) retailers.

But turning to the States isn’t always an option – you wouldn’t want to buy your groceries from an online company in Florida. And when it comes to shopping online for financial products, it’s best to make sure that you’re looking at a local website to avoid any confusion with various government regulations.

Shopping around for the best financial product isn’t exactly easy. Just like our major department stores, financial institutions post their products and rates on their websites but it typically stops there. If you’re interested, you must then call to book an appointment or continue the long process of calling around or doing online searches to find the best interest rate or product for you.

It can be quite time consuming visiting different websites in search for the best deals out there. In fact, the additional research we have to do defeats the whole purpose of shopping online. Isn’t the Internet supposed to be there for our convenience?

Price Comparison Websites Help Save Time

Price comparison websites help us research products and view a list of prices from different retailers in one place. These sites keep us in tune with what to expect when we do set out to shop, whether online or off, and educate us to make wise choices when purchasing the products or services we’re researching. In the UK and Australia, such websites are extremely popular, growing at an annual rate of 30 – 50% per year! And the products go beyond clothing and electronics too, instead allowing consumers to compare groceries, vacations, car rentals, as well as mortgage and life insurance rates.

Companies like RateSupermarket.ca, for example, are surpassing Canadian retails when it comes to utilizing the power of the internet to reach consumers. “Online shopping is something we all should be doing with ease by now, but instead it’s difficult for Canadians to shop and compare within our own country.” Says Kelvin Mangaroo, founder of Canada’s one and only independent financial rate comparison website. “At RateSupermarket.ca we allow consumers to quickly and easily compare different mortgage rates offered by Canada’s big banks, mortgage brokers and specialty lenders like ING Direct and PC Financial.

Just like online stores take out the step of physically visiting a store to look at and purchase a product, RateSupermarket.ca allows consumers to go to their website and shop around from the comfort of their own living room. Once they have determined the best product for them, they can then arrange to speak with the broker or lender to get more details and apply.

Whether it’s shopping for the perfect gift, or the perfect mortgage, the Internet should work to our benefit, providing us with the information we’re looking for with a simple click of the mouse. Canada may be behind right now when it comes to providing consumers with an array of online selection, but with sites like RateSupermarket.ca, Wishabi.ca and PriceCanada.com, consumers are finding it easier every year to shop within the country rather than look longingly south of the border – except for a few choice items from Target every now and then.

Caroline
PR@RateSupermarket.ca

I’m terribly sorry to break it to you like that, but facts are facts. There is a very good chance you are not going to get out of this lifetime alive.

And nobody knows how or when their time will come. Some live long, healthy, wonderful lives, slipping away while in a peaceful sleep, while others suffer more unexpected deaths.

The only control we truly have is what we leave behind, whether we’re 32 or 102 when we cash in our chips.

That’s why life insurance is such an important part of life planning, especially in your early years of adulthood, when debt load is often the highest – when you are most likely to have high university, credit card, vehicle and mortgage debt.

If you die unexpectedly, you are not off the hook for the debt you have piled up over your lifetime. If you have a spouse or dependents, the responsible thing to do is to purchase life insurance to ease the burden on your grieving family, because at such a tragic time the last thing your loved ones need to be doing is worrying about how the mortgage is going to get paid.

There are two ways to determine how much you want your life insurance policy to be for, said Chris Karram, a life insurance broker with SAFEBRIDGE Financial Group.

“The first is more of the old school way of doing things, and simply involves defining how much income one would want to replace for their family, if something happened to either spouse,” Mr. Karram told RateSupermarket.ca.

Once that number is clear, simply work backwards to determine how much capital is required to provide that kind of income for life, assuming a reasonable return of 5% to 6% annually. That figure then becomes the amount of life insurance you need.

The second way, Mr. Karram said, is to do a complete ‘financial needs analysis’.

“This process is a little more involved and will look at issues beyond just your income,” Mr. Karram said.

“You will need to know how much debt is currently outstanding, how much you’d like to put away for your child’s education, whether you’d like to give a gift to charity or family, and so on,” he said.

Doing the financial needs analysis allows you to define exactly how long you would like your income to last after you’re gone. If you feel your benefactors will only require 10 years of your salary to live comfortably, then purchase accordingly.

The financial needs analysis is quickly becoming the norm in the life insurance industry because people want to make sure their loved ones have a guaranteed, specific amount of income that will not only pay off their short- and long-term debt, but also set them and their family up for a pre-determined length of time.

The process to obtaining life insurance is fairly straight-forward. Once initial contact is made with a broker, and early details are ironed out, an application process – which normally includes a short health exam – will begin. Being completely honest when applying for life insurance is absolutely key, Mr. Karram said.

“Very few people are ever declined outright for coverage, but misleading or lying on an application can, and most often will, lead to a claim being denied in the future,” he said.

So if you’re a smoker, tell your broker. If genetic heart disease runs in your family, check that box on your form. If you don’t, your family may pay the price if your lifestyle or heritage catches up to you.

Otherwise, there are few risks to life insurance, Mr. Karram added. If you provide the insurance company with proper – and true – information, your policy will cover you for just about anything and anywhere. But criminals need not apply – most life insurance companies will not pay “if the insured is killed in the commission of a criminal activity”, Mr. Karram said.

“For most people that shouldn’t be an issue. Otherwise, how you die is not as important as long as the insurance company had all of the relevant information they needed prior to their approval of your new policy.”

Life insurance provides a tremendous amount of flexibility and options, which is why it can seem so confusing to some, Mr. Karram said. Depending on what kind of policy you own, you can – on occasion – opt to take a premium holiday depending on how long you have owned the policy. This is not an option available on all policies, so be sure to confirm with your advisor if that is something that exists with your specific policy.

“If you happen to miss a premium payment due to insufficient funds or something else, you generally have 30 days to make that payment back to the insurance company and maintain the current ‘in force’ status of your policy,” the SAFEBRIDGE Financial Group broker said.

“If you are unable to do so, your policy will lapse on Day 31, however you will have a six month window to ‘reinstate’ your policy with the identical terms from when you set it up.”

This relates to your death benefit, premium, policy date and beneficiaries. The catch here is that you will be asked to make up the premiums missed as far back as six months, which can be a daunting task for some, Mr. Karram added.

Nobody likes to think about death. We all envision ourselves enjoying our twilight years to the fullest, but unfortunately, the unforeseen happens every day. Research a life insurance policy that works for you, contact a broker and protect yourself and your family should the unthinkable happen.
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