Bringing you the issues since 1986

View Online Print Edition


Be certain you’re insured for life

October, 2010

When was the last time you looked at your life insurance policy?

Many of us purchase life insurance in our younger years and often do not pay attention to the policies until such time as we receive a notice from the life insurance company advising us of a change or premium increase. I want to highlight important details that should be considered in managing insurance policies. Essentially there are two types of insurance contracts.

Term insurance usually has a guaranteed rate for 10 or 20 years and the premiums increase on the 10th or 20th anniversary as per a guaranteed schedule in the contract. These policies usually terminate between the ages of 70 and 85 and renewal costs in later years are very high. Rarely, the renewal rates are not predetermined and can be set by the insurer.

The second most common type of insurance policy is permanent insurance. Typically, the policy is designed to stay in force for a lifetime. The most popular varieties are whole life insurance, which usually has an accompanying dividend given by the insurance company; universal life insurance, which might or might not have an accumulation linked to external factors such as interest rates or mutual funds; and term to 100, which is a fully guaranteed product with or without guaranteed cash values. The rule of thumb is that the more guarantees available in an insurance contract, the less likely you will run into trouble in the future.

I can’t tell you how many times I have been approached by clients unhappy with their existing product because it did not perform according to their expectations, or more specifically, the expectations implied to them by their broker.

If you are purchasing or have a contract that is subject to variation in company or market performance, it is important to understand how this product will perform under varying circumstances. Insurance companies make their clients sign multiple forms that essentially absolve the company of any responsibility and put the onus on the client.

If you are not sure how your policy actually works, it is worthwhile to have it reviewed by someone who can give you an objective opinion. Policies that were undertaken many years ago have features that can allow retirees to augment their monthly income or provide emergency cash in a time of need.

One strategy I strongly recommend to seniors is to consider changing ownership and/or payer to a trusted family member. Unfortunately, and it is an all-too-common occurrence, an insured person might start to lose their memory or their health starts to decline. As a result, a premium does not get paid and the policy is subject to lapse 30 days thereafter. If the insured exhibits any change in health, the insurer will not reinstate, causing the insured to lose the benefit they had diligently kept for so many years.

This rings particularly true in Quebec, where children have left the province and might not have access to their parents’ affairs. If you do have a life policy, verify it with someone you trust. You might be pleasantly surprised at how valuable an asset it is.



Post a Comment