Protecting your family's future
Caring for others
Families make sacrifices for each other. You may have children now or later on. You may have a mortgage. Sacrifices include preparing for the future. Insurance helps transfer financial risks. The challenge is with the costs. You can get coverage for less with term insurance. Getting insurance takes time and health can change suddenly. You benefit by putting protection into place sooner.
What are your real risks?
The Know Your Risk calculator from Canada Life shows the likelihood of the following happening before age 65:
- disability: can transfer with disability insurance
- critical illness: can transfer with critical illness insurance
- death: can transfer with life insurance
Transferring each of these risks is a way to get peace of mind.
Reminder: you only qualify for insurance before you need insurance.
When you're getting a mortgage, what happens if something happens to you or your spouse? Your mortgage payments and expenses don't stop.
You may be tempted to get mortgage balance insurance through your mortgage lender. This is quick and simple. Your premiums can be bundled with your mortgage payments. Since you're less likely to shop around, there's less need for the lender to be competitive. You may think you'll get a lower mortgage rate or better terms if you get insurance from the lender. That's called "tied selling" and is illegal under section 459.1 (1) of the Bank Act.
Is insurance from your lender your best choice?
Personally-owned insurance — disability, critical illness, life — gives you advantages. While many points also apply for your disability and critical illness insurance, the following focuses specifically on the advantages of personal life insurance:
- Lower premiums: you usually get an additional discount if you pay annually.
- Personalized premiums: your premiums are based on factors such as your health and tobacco usage. With lender insurance, healthy people pay extra to subsidize less healthy people who pay less based on their true risks.
- Guaranteed premiums: you receive a policy contract that usually guarantees your premiums.
- Lower tax rates: premium tax in Ontario is 2% and built into your premiums. Lender insurance is charged provincial sales tax (8% in Ontario) which is likely added on top of your premiums.
- Portability: your coverage stays with you even if you move, change lenders or repay your mortgage.
- Level death benefit: your coverage doesn't decrease. With lender insurance, the death benefit matches your outstanding mortgage balance, which decreases (even though your premiums don't).
- Choice of the face amount: can be higher than your mortgage so that you can leave funds to help with ongoing living expenses and the education of your children.
- Choice of the term: typically 10, 20 or 30 years; lender insurance is tied to the term of your mortgage, which may be five years. What happens after that?
- Choice of beneficiary: you decide who receives the death benefit (and can assign contingent beneficiaries in case your primary beneficiaries have passed away); with lender insurance, the beneficiary is the lender. You are paying retail prices to protect the lender who could buy insurance at wholesale prices.
- Conversion to permanent insurance: you may not see a need for permanent insurance now but your views may change. This option is included in most term life policies at no extra cost. It lets you convert some or all of your term life insurance to permanent regardless of your health.
- Underwriting at the time you apply: this process includes looking at your current health, past health and family history. Depending on your age and face amount, you might require a paramedical exam and a report from your doctor. This rigorous process determines whether you qualify for insurance and assigns a fair premium for the risk. With lender insurance, the underwriting takes place at the time of a claim ("post-claim underwriting). That means you don't know if you were covered. If your family's claim on your policy is rejected, the premiums get refunded but that's a much smaller amount than the death benefit would have been. How do your loved ones cover the mortgage now?