Mackay Insurance Blog
Life insurance is that one product no one really wants to buy while they are living, but no one really wants to die without having it, either!
Even bringing up the topic of life insurance—when to buy it, how much of it to buy, how long to buy it for—can be a touchy subject between loved ones.
The truth is, life insurance isn’t easy to talk about! It gets even tougher once it is time to actually pick out a policy and iron out all the details of what, when, and how much.
In this post, we take a close look at the number one question most individuals, couples and families today have when it comes to life insurance: When is the right time to purchase a life insurance policy?
The Most Popular Time to Buy Life Insurance
Certain times in life can bring up the topic of life insurance more naturally.
Getting married is one of those life-changing transitions that can prompt discussions about future financial planning.
For some couples, and especially those who want to start a family together, this can be a key moment to decide to take out a life insurance policy.
The hands-down most popular time people decide to purchase a life insurance policy is with the arrival of their first baby.
For most of us, this is the first time in our lives when we have a dependent who totally relies on us for everything they will need in life.
Taking out a life insurance policy can feel very reassuring in the sense that while you can’t control what may happen to you tomorrow, but you can control whether your baby will be provided for if the unthinkable occurs.
Another popular time to think about taking out a life insurance policy is when you are approaching retirement age.
This is the time in life when most people’s minds turn to thoughts of aging, making a will, repaying any outstanding debts, making end-of-life arrangements and leaving something behind for loved ones.
The Best Time to Take Out a Life Insurance Policy
There is a big difference between the most popular time to purchase life insurance and the best time to purchase life insurance.
Investopedia points out that the best time to take out a life insurance policy is when you are born!
If you think about it, this strategy makes sense. You are as young as you will ever get, and presumably healthier than you will ever be again. You have no medical history to complicate approval or hike premium prices.
You have your whole life ahead of you to let your policy appreciate (which is especially important if you are buying life insurance as an investment).
Of course, you can’t purchase a life insurance policy for yourself when you are born, but it’s a very smart thing for a parent to do for a child.
There are two ways to take out life insurance on your child’s behalf. You can purchase a whole life insurance policy in your child’s name and then transfer policy ownership on their 18th birthday. Or you can pay a little bit more on your own term life insurance policy to add coverage for your child.
The Benefits of Purchasing Life Insurance
As the Government of Canada points out, life insurance is designed to provide some very specific benefits to loved ones in the event of your passing.
The life insurance payout is a tax-free lump sum payment. It can be used to pay for funeral and burial services, pay off debt, take care of dependents and loved ones or be put into an estate or trust. It can also be used to contribute to a charitable cause.
But the number one benefit that many people cite as their main motivation for purchasing a life insurance policy is simply peace of mind.
Types of Life Insurance Policies
As with any major purchase, your main reason for purchasing a life insurance policy will and should inform what type of policy you purchase.
There are two main types of policies: term and permanent. There is one basic difference between these two policy types: term life insurance expires and permanent does not.
Term life insurance is the simplest type of policy. The main reason to purchase term life insurance is to have some type of protection in place for dependents or to repay debt if you pass during the term of the policy.
Permanent life insurance offers two different subtypes: whole and universal.
Whole life insurance provides a guarantee that premium costs will not increase during the life of the policyholder along with a guaranteed death benefit payout.
Universal life insurance is the most flexible type of life insurance coverage. This policy type offers lots of options for how and when you pay your premiums, how you use accumulated earnings and the amount of the death benefit payout.
Making the Choice to Open a Life Insurance Policy
Even from this brief overview, you can see that making the choice to open a life insurance policy can get complicated quickly.
You have all kinds of choices and decisions, from when to open your policy to what type of policy to open to how long that policy will remain active.
Then you have decisions about how much coverage to take out, what to do with that coverage (especially if you have an investment-type policy) and who to name as your beneficiary.
The most important thing to remember here is that there is no one “right” time for everyone to take out a life insurance policy. There is only the time that is right for you.
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Life insurance is not the easiest topic to tackle. However, it is one of those topics your family will be relying on you to address—a true labour of love if ever there was one.
This is because life insurance is a reliable way to provide for your family's financial needs if the unthinkable should happen and you no longer can. Once you can work your way past the discomfort of thinking about this, the rest of the process is reassuringly practical: what type, how much, how long, and so forth.
In this post, learn the basic mechanics of how life insurance works so you can make the right decision for your family.
Types of Life Insurance
With life insurance, you have a variety of policy choices to consider. Each policy type revolves around the same two basic principles:
The policy premium. This is what you will pay to take out the policy, typically per month or annually.
The policy death benefit. This is what your beneficiary will receive should you pass away while holding an active life insurance policy.
There are two basic types of life insurance in Canada:
Type 1: Term life insurance
Term life insurance is simple and basic. It is also the least expensive type of life insurance, which can especially appeal to young families just starting out. This life insurance product gets its name from how it works. You buy term life insurance for a period of time called a "term." A policy term can be 5 years, 20 years, or more.
Here are the three basic things you need to know about term life insurance:
If the policyholder passes away before the term expires, the named beneficiary will receive a payout in the amount of the policy's face value.
If the policyholder does not pass away before term expiration, the policy simply expires.
Typically, the policy contains an option to renew for another term.
Term life insurance, due to its simplicity and practicality, is often the policy of choice for families. But in some situations, buying a more involved life insurance policy such as permanent life insurance can make good sense.
Type 2: Permanent life insurance
Permanent life insurance and its two subtypes—universal and whole life—are viewed as investment vehicles in their own right, similar in some ways to mutual funds or retirement funds.
So with permanent life insurance, your premium is comprised of two parts:
A premium towards pure life insurance.
A premium towards investment.
There are certain situations when a permanent life insurance policy may be the perfect solution to vexing financial issues, such as high current investment-related taxes or high anticipated capital gains tax on an estate released after probate to beneficiaries.
Typically, universal life and whole life insurance will differ in how the investment portion is handled and the degree of flexibility the policy holder has in determining how that portion gets invested.
The most important aspect here is to try each policy type on for size and see which one is a better fit.
How to Save Money on Life Insurance Premiums
Regardless of which life insurance product you select, the amount you pay in premiums will be directly related to the following:
Whether or not you smoke
Whether or not you drink
Your family health history
Your level of fitness
Your driving record
The amount of life insurance you take out
So already you can see some clear ways to control the costs of what you have to pay in insurance premiums. However, even if you have some issues in your medical history that may drive up premium costs, there are other ways to save money as well:
Bundle your life insurance policy with other insurance products. If you purchase life insurance with an insurer you already do business with, you may be eligible for what is called a "multi-policy" discount.
Buy your policy in the first six months after your birthday. This way, your age rounds down for underwriting purposes and you can potentially qualify for a lower premium.
Turn down the "guaranteed life insurance" option. This option lets you skip the medical exam portion of qualifying for life insurance—for an extra fee. So there is no need to choose this type of policy unless you are in poor health.
Pay your premiums annually instead of monthly. Often, an insurer will reward the reduction in their administrative expenses by giving you a discount on your policy costs if you pay annually.
Renegotiate your premiums if your driving record improves. If an offense times out on your record, you can ask your insurer to review your premium costs again and potentially qualify for a lower rate.
Ask about additional discounts. A couple of examples are if your employer has a special deal with an insurer or if you belong to an organization that qualifies you for a discount.
Talk to Mackay Today
Mackay Insurance Brokers has been invested in providing our customers with the lowest rates on the best insurance products since 1977. Today, we proudly serve more than 5,000 clients in the Belleville, Ontario, and surrounding areas. Our staff has a combined 165 years of insurance industry expertise and we love putting that knowledge to work for you!
You can contact us by phone at 888-853-5552 or online. Don't wait: let us help you achieve peace of mind in knowing your family is well taken care of, no matter what the future holds!