Mackay Insurance Blog
Buying life insurance is never fun. But it doesn't have to be difficult or even stressful.
In fact, life insurance as a product is actually designed to help ease stress, worry and anxiety in your life.
With the right life insurance policy by your side, you can wake up each day knowing your loved ones will be taken care of financially should you suddenly be unable to provide for their needs.
But getting there can feel daunting, especially when you are trying to figure out which type of life insurance product offers what and how much of it all you actually need.
In this post, we aim to demystify and simplify life insurance step by step so you can select the right policy with ease and confidence.
Step 1: Choose Between Term and Permanent Life Insurance
There are two basic umbrella categories of life insurance: term and permanent.
Term life insurance
Term life insurance is the simpler of the two types of life insurance you can buy here in Canada.
Term life insurance gets its name from how it works: the policy is active for a set term and activates only if the policyholder dies. Once the policy term expires, it is necessary to buy a new term life insurance policy to stay covered, and the premium for the next term will generally be higher.
The one exception is if you purchase a convertible term life insurance policy. In this case, you can convert your policy into a permanent life insurance policy as long as you do so before the term expires.
You should choose term life insurance if:
You have debt and just need to know your family has financial protection in place until the debt is retired.
You have a limited budget for life insurance and need predictable premiums.
You are building an investment portfolio elsewhere.
Permanent life insurance
Permanent life insurance is sometimes also called universal or whole life insurance, although there are some important differences about each.
Essentially, permanent life insurance is a type of policy that is, as its name implies, permanent - it stays with you throughout life and your premium is generally the same for your entire life. It also has a value in addition to the amount it pays out when you die, so it is like a combination life insurance policy and investment.
As such, permanent life insurance is often viewed as both a protective policy and an investment policy.
You should choose permanent life insurance if:
You want to add life insurance to your investment portfolio.
You are able to afford the higher premiums for having a cash value to your policy.
You want to offer your dependents a guaranteed death benefit payout.
You are interested in the tax benefits from holding a life insurance policy.
You want the flexibility to access the equity on your policy in emergencies.
Step 2: Decide How Much Life Insurance You Need to Buy
Because the whole topic of life insurance can feel emotionally charged, it can be good to talk through this step in the decision-making process with your insurance broker.
Having friendly, knowledgeable, objective input can really simplify the planning process.
We like to give our clients this simple 4-step worksheet:
1. How much debt are you carrying?
You may have a car note, a mortgage, student loans, credit card debt or all of the above.
In the event your income suddenly ceases, these creditors will be first in line to gobble up any available resources.
So you definitely want to make sure you purchase sufficient life insurance to cover your debts until they are paid in full.
2. Who is financially dependent on you?
Do you have a spouse? Children? Grandchildren? Elderly parents? Pets?
Consider who among your loved ones may find themselves in sudden financial distress if you were to pass prematurely.
3. What is your monthly net income?
At the very least, you want your life insurance policy to be able to cover your ongoing monthly financial obligations (such as debt) plus replace your monthly net income.
4. What are your dependents' future financial needs?
If you are saving for a child's higher education or have an aging loved one who may need future care, these are examples of financial needs to factor in when choosing your policy amount.
Buy Earlier And Pay Less in Life Insurance Premiums
Like any insurance product, life insurance premium quotes factor in a variety of risk variables.
The major risk variable when it comes to life insurance, however, is, well, death. So it just makes sense that you may well pay lower insurance premiums when you are young.
This can be helpful for budgeting as well as future financial and investment planning.
Other Ways to Save on Life Insurance Costs
You may also be able to trim your premium costs by taking advantage of these cost-saving tips.
Ask your employer about group life insurance (employer-sponsored life insurance).
Opt for term life insurance if premium costs are a real issue.
Choose a shorter term up front.
Use a life insurance broker like Mackay Insurance that can shop around for the best rates on your behalf.
Pay for your premiums once annually instead of monthly or semi-annually.
Ask about preferred rates (these can include non-smokers, health history, etc.).
Buy a stand-alone life insurance policy instead of mortgage life insurance.
Get in Touch
Do you need expert, objective guidance to help you protect your loved ones through the purchase of a life insurance policy? We can help! Just complete this simple online form to get a no-obligation life insurance quote.
Contact us online or give us a call at 888-853-5552.
Life insurance is not the cheeriest topic in the world. No one loves to spend their weekend poring over pamphlets about death benefits and future payout potential.
But we do it because of them – our partners, our children, our parents, even our pets.
We do it because we don’t want to lie awake at night worrying about what will happen to our loves when we aren’t there to care for them. We do it because the unexpected is a smart thing to expect in today’s day and age.
Learn about your life insurance options as we move into the holiday season – perhaps this is the year you give this gift for the living to those you love!
Two Basic Types of Life Insurance
Despite what you may have heard or read, there are really only two basic categories of life insurance: term and permanent.
Regardless of which type of life insurance you select, you can expect to make a premium payment (typically remitted monthly or annually) to keep your policy active.
In exchange for your premium payments, your loved ones can expect protection in the form of a death benefit payout should the unfortunate occur.
What Is Term Life Insurance?
This is the simpler of the two options. Term life insurance is more affordable, faster and easier to apply for. It is a popular choice for singles, young couples and young families.
Term life insurance is designed to provide protection for a specific date range, or term.
After the selected period of time has expired, the insurance product also expires, whether there has been a death payout or not. If you continue to need protection, it is then necessary to purchase a new term life insurance policy.
What Is Permanent Life Insurance?
The second type is permanent life insurance. Here is where confusion often sets in, because permanent life insurance goes by lots of different names.
Some common names for permanent life insurance include whole life insurance, universal life insurance and even term to 100 life insurance. But basically, these are all just types of permanent life insurance with different benefit structures.
Permanent life insurance is also designed to provide protection in the form of a death benefit payout. But rather than having an expiration date, permanent life insurance endures until the policyholder passes, so there is never a need to purchase a new life insurance policy.
There is also an additional benefit in that the policy itself can function as a type of retirement investment product. It can be used in multiple ways while the policyholder is alive and passes the benefits on to designated beneficiaries when the time comes.
Why Choose Term Life Insurance?
Term life insurance is designed to be simple, although we realize it may not seem that way at first glance!
Term life insurance is a great fit if you are single, coupled or starting your family. This is the most popular type of life insurance with these three categories of shoppers because the basic goal is simply to protect dependents in case a primary income stream suddenly disappears, through death.
There are different protection periods to choose from. Term-10 is a policy that lasts for 10 years from the date of issue. Term-20 lasts for 20 years. Term-30 lasts for 30 years.
The premium you pay is calculated based on an average risk over the term you choose. Say you choose a term-10 life insurance policy. On the date your policy starts, the risk of death is probably low. But it will increase slightly every year for obvious reasons.
The premium you pay each year will be an average of all 10 years’ worth of risk. For this reason, your premium will not increase during the course of your policy term.
This is what makes longer-term periods attractive to term life insurance policyholders – you get a locked-in rate that includes the lower risk cost of your younger years.
However, when your policy expires after 10, 20 or 30 years, there is no cash value to you (no payout—payouts are not made unless in the case of death) and you will then need to purchase a new policy.
Why Choose Permanent Life Insurance?
Permanent life insurance is by necessity a more complicated type of life insurance product. This is because it is designed to do more than simply provide protection in the form of a death benefit payout.
The first difference is found in the cost of your premiums. This is because permanent life insurance does not have an expiration date. Your premium costs are calculated based on risk of death from now until you actually do pass, whenever that may be.
So the premium payments you make will be higher than they ever will be for term life insurance right from the start. As well, to keep your payments from skyrocketing later in life, premiums start out higher than they would be in a term life insurance policy and stay that rate.
This is important because your policy actually accrues cash value over and above any future death benefit. Each year, your premium payments are held in reserve and appreciate in value.
If you choose to cancel your permanent life insurance policy, you will then receive a refund based on how much you have paid in over and above what your actual risk to date has been.
Get in Touch
Is it time to think about giving your loved ones the gift of protection through taking out your personal life insurance policy? Our friendly, experienced Mackay insurance brokers are happy to help you choose the policy type that meets your needs!
Contact us online or give us a call at 888-853-5552.
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.
Get in Touch
Contact us online or give us a call at 888-853-5552.
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!