Tag Archives: insurance

The 13 biggest Life Insurance mistakes: Experts’ perspectives

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By Lorne Marr, CFP

Special to the Financial Independence Hub

There are numerous life insurance mistakes Canadians are making, and who qualifies better to talk about these mistakes than life insurance experts? We asked numerous life insurance experts to weigh in on the top life insurance mistakes they have seen throughout their careers.

You can find a summary of their replies in the above chart, with more detailed explanations following in their segments (% shows how often a particular mistake has been mentioned).

The top three mistakes are:

1.) Putting off your life insurance purchase until it is too late, or not getting life insurance at all (especially in your younger years).

2.) Not doing a needs analysis and not understanding all possible risks resulting from being underinsured.

3.) Not leveraging the benefits of a permanent life insurance policy due to its higher cost, though there are numerous benefits to this product in the long run.

Tony Bosch, Development Hub Financial

Tony Bosch – Executive Vice President Broker Development Hub Financial

“Life insurance is a key component in most financial and estate plans”

Three key mistakes people make when purchasing life insurance:

  1. Not doing a needs analysis: The first step in any life insurance purchase should be to do a proper needs analysis. People often fail to look at the big picture when buying life insurance. The calculation of how much insurance you need should be more detailed than just having your mortgage paid off or replacing a certain multiple of your income. In determining your life insurance needs it is necessary to determine what amount is actually necessary to “allow your family to maintain their standard of living and pay off outstanding debt”under “less than ideal circumstances,” factoring in that the grieving process and the time to recover emotionally may take several months or even years. Life insurance should provide “financial confidence.” allowing a family time to adapt and adjust to life without a loved one.
  2. Product selection: Life insurance, unlike most forms of insurance, can come in a variety of payment options from low cost term insurance to permanent policies that can build substantial tax sheltered cash values and can help solve estate planning needs and/or serve as an alternative investment. The problem arises when the product selection overrides the need. Clients with a limited budget may be attracted by product features causing them to choose a permanent product with a lower face amount than is required. A family with three kids may like the idea of a shiny sports car but may need a mini van. It is critical to first define the amount of protection required and then choose the product or combination of products that meet this need within a given budget.
  3. Choosing a solution based on price and/or convenience rather than contract guarantees and flexibility: A simple example may be purchasing loan or mortgage insurance through a lending institution. Although this may seem like an easy and convenient solution, it may require additional underwriting at the time of claim, which could result in a claim being denied. A basic renewable and convertible term plan underwritten by an insurance company may take a little more time to set up, but in most instances provides a better and more flexible policy that can adapt to your changing needs.

Life insurance is a key component in most financial and estate plans. Working with an experienced and trusted independent advisor will help make sure you and your family get the life insurance you require with the flexibility to adjust to your changing needs.

Michael Liem, Canada Protection Plan

Michael Liem – Canada Protection Plan Regional Vice President

“Don’t put it off until it is too late.”
  1. Putting it off until it is too late: Even though Canada Protection Plan can help get life insurance for people with medical or lifestyle issues, I think it is always best to get insurance when you don’t need it and when you are healthy. It’s not how much you can afford, but rather how healthy you are that gets you the best insurance options.
  2. Not telling anyone about your life policy: People get a life insurance policy but when they pass away, some beneficiaries don’t even know about it. I always suggest that advisors should acquire contact information for the beneficiaries and where possible, introduce themselves because these beneficiaries will most likely be contacting the advisor to make a claim.
  3. Regularly reviewing a client’s policy: So many advisors provide the initial policy but never review them. People’s lives are constantly changing and they may need to adjust or add more coverage. If an advisor never contacts their client, then they should not be surprised when the client switches their business to another advisor.
Lawrence Geller, L.I. Geller Insurance Agencies

Lawrence Geller – President of L.I. Geller Insurance Agencies

 “Everyone has asked to either renew the existing policy or buy a new policy.”

Of the many people who have assured me over the years that they only needed life insurance for a maximum of 10 years, every one has asked to either renew the existing policy or buy a new policy to replace the one that was renewing. Even then, most have deluded themselves by thinking that they would not need the coverage when the term of the contract ended, and almost all have wanted coverage at the end of the term.

Not a single client who bought a guaranteed paid up whole life policy has ever told me that they made the wrong choice of coverage, although many have told me that they wished that they had purchased a larger amount of life insurance.

Daniel Audet – Vice President Assumption Life

Daniel Audet, Assumption Life

“Don’t gamble on being uninsured.”

The top life insurance mistake, from a consumer’s perspective, has to be the choice to gamble on being uninsured (or underinsured).

LIMRA reported a year ago in 2019 that 32 per cent of Canadian households do not have any life insurance coverage, while 56 per cent of Canadian households do not have any individual life coverage. Everyone would agree that there are more pleasant things to consider and address than the risk of dying prematurely, and that may be the reason why so many Canadians are shying away from a proper assessment. More likely, the observation comes from a knowledge gap of the risk and associated loss. Many Canadians would not necessarily consider themselves as gamblers, meanwhile the chosen approach of not buying insurance (or not buying enough) is very similar to that of a gambler’s behavior. The gambler “invests” a little wager with a small probability of a large payoff. In comparison the non-insured “saves” paying a small premium hoping he/she wouldn’t die with a significant financial burden. Both types of gamblers have small amounts involved when compared to what is at stake, and the odds of the event, while relatively small, can have a significant impact. They are just at both ends of the spectrum: the casino gambler hoping for the big win, and the life gambler neglecting to consider the major financial loss.

Turning a blind eye to the needs of paying final expenses, replacing income, paying off the mortgage, or paying the estate bills, and choosing not to be insured (or underinsured) is essentially just like gambling the financial state of the loved ones left behind. Several Canadians, when asked why they do not own life insurance, have stated they could not afford it (27 per cent) or that they had other financial priorities (25 per cent). Continue Reading…

Small Business owners are subsidizing big Insurers during Covid

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By Robert J. Crowder

Special to the Financial Independence Hub

Small owner-managed businesses ravaged by Covid-19 are subsidizing big insurance companies during this pandemic and don’t even know it. In many cases, they have been paying for several months the full cost for employee health and benefits plans while all or most services are no longer provided. And if they are now starting to get a reduction in premiums, it’s not enough.

Since mid-March, dentists and other professional healthcare providers such as chiropractors, physiotherapists and massage therapists have been shut down, with the exception of emergency treatments. But small businesses continued to pay full benefits premiums while their employees didn’t use these services.

The numbers tell the tale

The value of premiums paid during the coronavirus pandemic has been truly staggering. Three-quarters of Canada’s 600,000 small businesses have employee benefits plans and over the past three months they paid out approximately $1.6 billion in premiums for benefits coverage at a time when virtually no services were provided. Keep in mind those same businesses and the business owners were suffering because of Covid.

Using claims data since the pandemic began (representing thousands of Canadian small businesses), it is clear that the number of claims for health and dental services is down 50% with some components of benefits plans, such as dental visits, down as much as 95%!

A real-life example

Let’s take an actual owner-managed small business, a distribution facility with 25 employees. The owner pays $9,500 per month in premiums for an employee benefits plan with a major insurer that includes comprehensive health and dental coverage. As the Covid crisis unfolded in mid-March, company sales plummeted dramatically and customers held back payment, causing an acute cash crunch.

As the crisis deepened, the owner was able to reduce non-essential expenses and negotiate a reduction in rent. Benefits represented a major part of expenses but actual usage came to a halt for dental and paramedical services. The owner asked his insurer to temporarily pause unused coverage in order to conserve cash, which would have meant a savings of over $6,000 per month, but was told it wasn’t possible.

By mid-June the company had paid out almost $20,000 in cash during a crisis when not a single employee had been to visit a dentist, physiotherapist, massage therapist or any other practitioner covered under the benefits plan.

Too little, too late

Thus, most small businesses paid full premium for their benefits plans in March, April and May, and only in June did some start to see any credit from large insurers, some of which are now offering future credits to mitigate lower numbers of claims. More on this in a moment. But still, that is $1.6 billion of unnecessary premiums that small business owners could have used to stabilize their businesses and keep people employed during the height of the crisis when their cash flow was severely impacted. Continue Reading…

3 long-term ways to build Wealth

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Image by Unsplash

By Gary Bordeaux

Special to the Financial Independence Hub

Money is a consistent focus in the life of an individual. This makes sense, because nothing comes for free, so one needs money in order to get by. Therefore, working for a living is an essential part of participating in society. However, there are means by which one may accrue wealth, and it is wise to invest early and often in order to maximize prosperity later on in life. Proper investment now means an increase in overall financial security. Here are a few ways you can reap the long term benefits of long term savings.

Stocks and Investments

Investing is a tried and true strategy of increasing wealth, but it’s not without its own potentially more substantial risks. Stock trading involves making value judgements and predictions, as the buying and selling of stocks depends on a company’s net worth at the time of a given transaction. This means that there is an inherent risk in buying stocks, as the value may actually decrease and is likely to fluctuate in general.

A keen eye for business trends is an essential part of trading stocks successfully. Likewise, investing directly into a business requires good business sense. Investing in a business has a steeper upfront cost, but this is countered with a more substantial payout. Investments are how many businesses get up and running to begin with, as it provides an alternative to paying that tremendous cost out of pocket. The upshot for investors is that any return on that invest is coupled with interest, though the return itself is never guaranteed.

Retirement Fund

A retirement fund is another form of long-term savings that is focused on end of life security, but the intended purpose is that of providing ample income for retirees so that they can live without financial worries once they have left the workforce. Without a retirement fund, retirement benefits are often insufficient, meaning that one may need to wait much longer to retire safely or come out of retirement in order to make ends meet.

Continue Reading…

Coping with the Unexpected: 4 surprise costs and how to deal with them

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Image by Michael Longmire/Unsplash

By Nat Juchems

Special to the Financial Independence Hub

Our finances can be a source of stress and frustration at the best of times. For many of us, our budgets account for our expenses for the month, with perhaps a little left over for savings and disposable income. Which can make it particularly difficult when the unexpected occurs.

There are, of course, a variety of solutions to emergency situations. However, in the heat of the moment these can lead us to the financial band-aids that solve the problem in the short term, but perhaps put us at a long-term financial disadvantage. Credit card payments, loans, and financing may well be quick fixes to stressful issues, but you may find it difficult to cope as time progresses and your circumstances change.

We’ll take a look at a handful of the most common unexpected expenses that may arise. What are some useful, intelligent financial responses to these? Are there low-cost preparatory steps you can take to fend off larger-scale consequences?

1.) Medical Expenses

There’s certainly an element of injustice in the fact that people so often go into debt as a result of illness. However, the current US health system isn’t always well designed to provide adequate care without incurring huge bills. So, in the absence of complete systemic overhaul, what are your options for unexpected healthcare?

Of course, the simple preventative answer is to take out adequate health insurance. It can be tempting to just select the plan with the lowest monthly premium, but this could find you seriously out of pocket; particularly as lower premiums are usually leveraged by higher deductibles. That said, if you can mitigate this effect by investing a little from each paycheck into a Healthcare Flexible Spending Account (FSA). The funds paid into these accounts [in the United States] are deducted from your paycheck, but are not subject to tax. The amount accumulated can then be used to help pay for deductibles, co-pays, and indeed anything not covered by insurance in the event of an emergency.

If you have been involved in an accident that was the fault of a third party, it is certainly advisable to seek assistance from personal injury lawyers. While we all want to avoid unnecessary litigation, fair compensation may be obtained in order to cover your emergency and ongoing medical expenses. This may not be an adequate short term solution, so it can also be useful to find ways to minimize your initial outlay. Attend walk-in clinics in place of large hospital emergency rooms if appropriate, look into prescriptions of generic drugs rather than brand names.

2.) Funeral Expenses

None of us like to think about the passing of ourselves or those closest to us. However, we have to accept that death is one of the few guarantees we have in life. That said, for all its inevitability, death can take us by surprise; with the costs associated with it adding additional stress to our emotional pain.

Funerals are notoriously expensive affairs. When an unexpected death occurs, we can understandably tend to opt for solutions that place the responsibilities of organization on third parties such as funeral directors. It’s worth noting that these are usually the most expensive options, and don’t usually provide us with the opportunity to do our due diligence in investigating the necessity of services which drive prices even higher.

The fact is, there is no legal requirement in any U.S. state for a funeral director to take charge of planning and executing a funeral. It is perfectly possible for you to undertake a low-priced, meaningful ceremony. Cremation is usually one of the most cost-effective methods of handling the remains of a loved one, with the cost of cremation urns certainly tending to be lower than caskets. In fact, if you donate the body to scientific study, the remains are usually cremated and returned to you free of charge.

If you are set on burying a loved one, there are certainly options which can keep costs low. Direct burial — a process which forgoes a viewing in favor of almost immediate interment — can be around the same price as cremation, and does not require the additional expenses associated with preparation of the body. Also be wary of “extras,” such as gaskets on caskets; these are ostensibly to protect the remains after burial, and can raise the price of the casket by as much as $800.

3.) Vehicle Problems

Vehicles can represent one of our more substantial investments. Not simply in the material cost of the vehicle itself, but also its maintenance and ancillary charges such as insurance and road tax. It’s no shock, then, that when something goes wrong with our vehicles, it can be a costly affair. Continue Reading…

An outline of the various types of life insurance policies

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By Lorne Marr, CFP

Special to the Financial Independence Hub

There are a variety of life insurance policies available in Canada: the best type of plan depends on the insured’s needs and budget. The following is only a snapshot of the different types of plans.

In general, life insurance policies are classified according to two criteria:

  • By length of coverage
  • By medical exam requirements

Let’s look at each of this classification in detail.

Types of life insurance based on coverage length

Life insurance in Canada is generally grouped into two major types, if it is about coverage length: temporary insurance and permanent insurance.

Here is a breakdown of these insurance types and below you will find a detailed description of each type:

Term life insurance type

Term life insurance policies cover short-term needs. Term coverage is the simplest form of life insurance. It provides the largest benefit for the minimum amount of premium. The insured can use the benefits offered by this coverage to pay off debt or to fulfill any other need. The premiums on these policies start off low, but increase as the insured gets older. Term policies can typically last for 10 years, 20 years or 30 years, but Industrial Alliance offers a Pick-a-Term policy: the insured can pick his/her Term from ten to 40 years.

If you are interested in Term Life Insurance, click here to get a Term Life Insurance quote.

Permanent life insurance type

This type of life insurance provides insurance protection till the policy matures, as long as the insured pays the premiums on time. The four major types of permanent insurance are Whole Life, Universal Life,  Limited-Pay, and Term 100. Continue Reading…