Wednesday, July 16, 2008

What is not covered by life insurance policies?

Life insurance Canada is a contract. And just as the insured desires protection, so, too, does the issuing company.

How does the average life insurance company protect itself? By writing policies that protect them from the following five common dangers:

All life insurance policies have a suicide clause that protects the company from individuals intentionally seeking to commit suicide and pass on a death benefit. Two years from the date of issuance is the normal period for such clauses.

Anyone who dies because of an act of war, be he a soldier or a non-combatant, will not be covered by most life insurance policies. It makes sense that an insurance company would seek to protect itself against war related deaths for which it simply could not afford to pay.

3.Hazardous behaviour.
So, too, those who engage in hazardous pastimes such as acrobatic flying or bungee jumping: proceeds of policies may be witheld should they lose life or limb while participating in such activities.

4.Restricted countries.
Any insured who travels regularly to regions where disease or strife regularly claim the lives of locals and/or tourists may also find himself excluded from benefits should he fall victim during his travels. (Many insurance companies simply raise premiums for frequent visits to such regions).

5.Faulty applications.
All insurance policies contain incontestability periods – usually two years – during which an insurance company may choose not to pay if it believes an application was submitted that withheld information or otherwise sought to fraudulently obtain a policy. Even though the insured obtained the requisite inspection report and underwent a medical, most companies lean heavily on the applicant’s input to determine the appropriate coverage and premium. If it’s determined that full disclosure would have denied the applicant a policy (or even lowered his rating), the company is not obliged to pay.

Tuesday, July 15, 2008

Which type of life insurance is best: term or permanent?

The cost of an insurance policy should almost never be the final determinant of which type of product to buy. There are advantages and disadvantages to both term and permanent life policies, and it’s important to figure out one’s personal insurance objectives before making a choice.

Term insurance was designed with cost in mind. It offers inexpensive protection for a temporary period, usually 10 or 20 years, and is normally purchased by those who have a specific objective in mind – usually coverage of a mortgage, line of credit or business loan. For those who worry about leaving such debts behind in the event of an early death, term life insurance offers a simple solution.

A single example will serve to prove the cost efficiency of term life insurance Canada:

A 40-year-old male non-smoker can take out $250,000 of term-20 coverage with Canada Life for $37.58 a year. But that same applicant will have to pay $214.20 a month for $250,000 of 20-pay whole life coverage with Empire Life.

Need we say more?

But for those who desire an investment component to their insurance coverage, term will certainly not do. All the premiums paid into a term life policy are unrecoverable at the conclusion of the term purchased.

Not so with universal life and whole life (permanent) policies, whose premiums are considered “paid-up” and provide cash surrender values and policy loan opportunities for the insured. In many cases the option of what types of securities and where to invest is also left to the discretion of the insured.

For those who seek to purchase life insurance but want more flexibility with their paid-in premiums, the added cost of whole life or universal life policies are clearly worthwhile.

In some cases, a mix of term and permanent insurance may best meet the needs of an applicant with more complex needs. It’s always best to consult with a financial advisor before making such decisions.