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 This booklet is designed to help
you understand life insurance and
to become an informed consumer.
More information – and help – is
available from your life insurance
agent and company.
Canadian Life
and Health Insurance
Association Inc.
Association canadienne
des compagnies d'assurances
de personnes inc.
TABLE OF CONTENTS
1
2
3
4
5
6
7
8
Getting Started
Life Insurance: What Is It?........................................................................................................2
How Much is Enough?.............................................................................................................2
Do You Need Life Insurance?...................................................................................................2
Life Insurance Policies
What Different Policies Will Do for You....................................................................................3
*Permanent Life Insurance...................................................................................................3
*Term Life Insurance.............................................................................................................5
*Term to 100..........................................................................................................................5
Pricing and Costs......................................................................................................................9
How To Make Your Life Insurance Work for You
Beneficiaries: Who Is the Life Insurance for?...................................................................... 10
Premiums: When and How To Pay Them .......................................................................... 12
Riders: Added Protection...................................................................................................... 12
Special Built-in Safeguards in Permanent Life Policies ...................................................... 12
Policy Loans........................................................................................................................... 13
Policy Dividends: How To Make the Best Use of Them...................................................... 14
The Importance of Your Agent
Selecting a Life Insurance Agent........................................................................................... 16
The Sales Interview............................................................................................................... 17
What You Should Know about Policy Illustrations................................................................ 18
Comparing Policies................................................................................................................ 18
What Happens when You Apply
Most Risks are “Standard”..................................................................................................... 19
When a Medical is Required................................................................................................. 20
Privacy of Personal Information............................................................................................ 20
Medical Information Bureau (MIB)........................................................................................ 21
What If There’s an Error in My Application?.......................................................................... 21
Before Final Approval: the Conditional or Temporary Insurance Agreement..................... 22
Second Thoughts
The 10-Day Free Look........................................................................................................... 23
What about Replacing Policies?........................................................................................... 23
Today's World – Today's Needs
Self-employment: Businesses Small and Large.................................................................. 24
Protecting Your Debts: Creditors Group Insurance............................................................. 25
Using Your Networks: Association Insurance...................................................................... 25
Older? Insurance Can Be Found......................................................................................... 25
“Living Benefits”..................................................................................................................... 25
Life Insurance on Children..................................................................................................... 26
What It’s All about: Payment of the Claim
What Documentation Is Needed?......................................................................................... 27
How Long Does It Take?....................................................................................................... 27
What Does “Contestable” Mean?.......................................................................................... 28
What Exclusions Might Apply?.............................................................................................. 28
Is There a Time Limit to File a Claim?.................................................................................. 28
Is Interest Paid on a Claim?.................................................................................................. 28
How Are the Benefits Paid?................................................................................................... 28
Are the Benefits Taxable?...................................................................................................... 28
Index. ............................................................................................................................... 30
A Short Version of a Personal Needs Analysis......................... 31
Consumer Protection....................................................................................... 32
99 Where to Go for Assistance................................................................... 29
THE BASICS
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Table of
Contents
Caution: This booklet is intended to present a
wide variety of general information on life insurance as simply and as accurately as possible. But
it is not a legal document; over time, court rulings
and legislation may change some of the rules and
conditions stated here. If you have specific questions, check your policy and contact your insurance agent or company.
1
1
Getting Started
Life Insurance: What Is It?
The concept of insurance goes back
to the days of the Romans, but it
wasn’t formalized until the 18th
century. Essentially, it’s a means of
spreading financial risk among a
large number of people who pay into
a fund or pool. In this way, the cost
is minimized for those who suffer an
unexpected misfortune.
Life insurance is a way to protect
your survivors and dependents
against financial hardship. A life
insurance contract or policy is a
legal agreement between you and
an insurance company that guarantees payment of the face value of
the policy, upon death.
A valuable feature of life
insurance is that the benefit
paid to your beneficiary is
almost always tax free.
How Much Is Enough?
How do you figure out how much
life insurance you need? A ballpark
measure sometimes used is
between five and seven times
current net income. But to work out
the specifics of your own situation,
you'll want a financial needs
analysis. It gives you a picture of
the capital your survivors need
when you die. It looks at assets that
would be available to them, liabilities
they would have to deal with, and
continuing family needs for income.
(See the worksheet on page 31 to
work out an estimate of your needs.)
2
A qualified life insurance agent
can help you work out a more
comprehensive financial needs
analysis.
Tip
It's important to review
your insurance needs
regularly. As your family or
business situation changes,
so may your insurance needs.
Beware, too, of future inflation
and the way it could erode
your insurance.
Do You Need Life
Insurance? Thoughts To
Mull over...
■If you are in a personal partnership (usually marriage), how
much do you contribute to the
family budget? If you were to die
prematurely, how would your
survivor(s) get by, especially
dependent children?
■Does
anyone else depend on you
financially, such as a parent,
grandparent, brother or sister?
■If
you are a single parent, what
level of support payments are you
making or getting? How would
these be kept up in the event of
the contributor’s death?
■If
you have a mortgage on your
home, do you want it paid off in
the event of your death?
■If
you have children, do you want
to put aside money to complete
their education in the event of
your death?
■Are
there any other family
members or organizations to
Table of
Contents
whom you would like to leave
money?
■Could
life insurance play a role in
business or farm succession
plans?
2
■Could
life insurance play a role in
paying the taxes incurred when
capital property is transferred
from one generation to the next?
Life Insurance Policies
What Different Policies
Will Do for You
Though it seems there is a bewildering array of policy types and names,
they all boil down to two basic forms
of life insurance: permanent and term.
As a rule, permanent needs should
be covered with permanent insurance, temporary needs with term
insurance. Often, a combination of
policy types does the best job for you.
So, what is a temporary need? A
mortgage; high needs for continuing
income when your children are
young; some business obligations;
and so on.
Permanent needs?
Funeral expenses;
supplementing a
survivor’s income;
covering capital
gains taxes at death,
especially if family
property is to be
passed on to the
next generation; and
children who remain
dependent for their
lifetimes, often due to
a disability.
Permanent Life
Insurance
Permanent life insurance has
several variations: whole life,
universal life, variable life. All
are designed to provide insurance
protection for your entire lifetime, as
long as you keep the policy in force.
Basic features of permanent
policies
premiums: Most permanent
policies have premiums that remain
level over the lifetime of the policy,
even though the risk of death
increases with age. To achieve this,
the premiums
charged in the
initial years are
higher than the risk
you represent then
and are invested to
form policy
reserves that
subsidize the
premiums paid in
later years when
you are older and the
risk is higher.
■ Level
Table of
Contents
■ Cash
values:
These reserves
accumulate as a
3
cash value, or cash surrender
value. The cash value is available
to you if you want to borrow against
your policy or to cancel (surrender)
it. (Usually, the cash value is not
added to the face amount of the
policy, which is paid out on your
death.)
Tip
Before withdrawing any
or all of the available
cash value, ask if there are any
tax implications. A portion of the
cash value may represent
earnings that become taxable
on withdrawal.
■ Non-forfeiture options: These
are choices available to a policyholder if he or she discontinues
premium pay­ments on a policy.
They allow the policyholder to
keep the policy in force or to take
a cash settlement. (For more, see
pages 12 and 13.)
■ Participating
policies and policy
“dividends”: A participating policy
shares in the financial experience of
the insurance company, and policy
“dividends” are declared annually
and paid to policyholders.
Premiums are based on conservative estimates of future expenses,
death claims and interest or other
investment earnings. When
experience is more favourable than
these estimates, a surplus is
created, which allows the company
to credit participating policyholders
with dividends. Because dividends
are based on future experience,
such as costs and earnings, they
are not guaranteed.
4
Dividends can be paid in cash, left in
the policy to accumulate, used to
pay part of the premiums, or used to
purchase additional insurance. (See
page 14.)
■ Non-participating
policies:
A non-participating policy does not
share in the insurer’s earnings and
does not receive any dividends.
Variations of
permanent insurance
Although every permanent insurance policy is designed to provide
you with coverage for your entire
life, the guarantees vary in different
policies. This, in turn, affects the
premium you pay.
life: This is the traditional
policy that fully guarantees the level
of premiums you pay, the death
benefit and the growing cash values
within the policy.
■ Whole
■ Interest-rate
sensitive policies:
Unlike whole life policies, which use
very long term interest rate assumptions, these policies use current in­terest rates, which can be adjusted
periodically if interest rate levels
change. This offers the policyholder
the potential of getting more coverage for less premium, but it involves
sharing some of the risk with the
insurer. Premiums could be increas­
ed if interest rates decrease. On the
other hand, premiums could be
decreased if the reverse holds true.
The most popular and flexible of the
interest-rate sensitive policies is
universal life. It consists of two
parts: life insurance and an
investment account. You decide
what to do with each part of the
Table of
Contents
policy, and you can increase or
decrease your premiums and your
death benefit, within certain limitations. Earnings on the investment
account may or may not be guaranteed, depending on the type of
investment chosen.
“New money” or “adjustable”
policies usually guarantee the
premiums and death benefit for a
specified stretch of time (e.g., five
years) and re-adjust the premiums
and/or death benefit at the end of
the period, according to investment
conditions at that time.
life: Here, the premiums
usually are guaranteed, but the
cash values vary according to the
performance of an investment fund
or other index. The death benefits
may be guaranteed or may vary
with the fund’s performance, subject
to a minimum guarantee.
■ Variable
Term Life Insurance
Term policies provide insurance
coverage for a specified period (e.g.,
a fixed number of years, or to a set
age) and then expire. A death bene­fit is paid only if you die during the
term of the policy.
Renew
a
term in ble and con
vertible
suranc
e
Renewa
renew y ble means tha
term, fo our policy at tht you can
without r a higher preme end of its
other ev submitting me ium,
(Once y idence of insu dical or
of 70 or ou’ve reached rability.
be rene so, the policy the age
means thwable.) Conve may not
option o at you have thrtible
policy fof exchanging y e
insuran r a permanent our
submittice policy, witho
insurab ng evidence o ut
ility.
f
Tip
If your immediate
obligations are large
and the funds available to
spend on in­surance are small, go
for what­ever insurance policy will
meet your needs now. If your
choice is term insurance to start
with, make sure it’s renewable and
conver­tible into a permanent policy. This will give you the flexibility
to make changes later on.
Term policies are commonly
available for terms of one, five, 10
or 20 years, or to age 60 or age 65.
The premiums usually remain level
during the specified term but
increase if that term is renewed
(e.g., premiums would increase
every five years on a five-year
renewable term policy).
Most term policies are non-participating and do not include cash
values or other non-forfeiture
values. Hence, premium costs are
lower than for permanent policies —
at least when you’re younger.
Term to 100
Often categorized as a permanent
plan, term to 100 policies provide
life insurance coverage
through to age 100.
Usually they don’t pay
dividends or include cash
values, though some may
provide other non-forfeiture
values. Accordingly, premiums are lower than for
traditional whole life policies.
Table of
Contents
To compare the features
of different types of policies,
see the following chart.
5
Guaranteed. Usually
remain level.
Premiums
Dividends
Other Nonforfeiture Options
Cash Values
Payable on "participating"
policies. Not guaranteed.
Guaranteed in contract.
Guaranteed and remain level for term of
policy (e.g., 1 year, 5 years, 10 years,
etc.). Increase with each new term.
Guaranteed in contract.
Usually none. (Some long term policies
have a small cash value or other
non-forfeiture value.)
See above.
Most policies are "non-participating" and
do not pay dividends.
To age 100
Guaranteed. Usually remain level.
Guaranteed in contract. Remain level.
Usually none. (Some policies have a
small cash value or other non-forfeiture
value after a long period, say, 20 years.)
See above.
Most policies are "non-participating" and
do not pay dividends.
Flexible. Can be increased or
decreased by policyholder
within certain limits.
Flexible. May increase
or decrease according to
fluctuations in cash value fund.
Flexible. May increase
or decrease according
to investment returns
and level of policyholder
deposits.
Guaranteed in contract.
Most policies are"non-participating"
and do not pay dividends.
Depends on term in contract. Often
renewable for additional terms but
usually not past age 70 or 75.
Term
Life
Term to 100
Types of Life Insurance
Universal Life
Permanent
Guaranteed in contract.
Guaranteed in
contract. Remain
level. Dividends may
be used to enhance
death benefits in
participating policies.
Life
Period of Coverage
Death Benefits
Whole Life
Policy Type
6
Table of
Contents
Disadvantages
Advantages
Cash values tend to be small in the early years. You have to
hold the policy for a long time, say over 10 years, before the
cash values become sizable.
May not be an efficient means of covering short term needs.
Initial cost may be too high for a sufficient amount of protection
for your current needs.
cash, left to accumulate at interest, or used to purchase additional
insurance.
✔ If the policy is participating, it receives dividends that can be taken in
possibilities of continuing coverage if premiums are missed or
discontinued.
✔ Other non-forfeiture options allow the policyholder various
if premiums are missed, or withdrawn if the policy is no
longer required.
✔ Has cash values that can be borrowed, used to continue protection
problems.
✔ Premium cost usually stays level, regardless of age or health
✔ Provides protection for your entire lifetime – if kept in force.
Permanent
Table of
Contents
7
Usually no cash values and no or
limited non-forfeiture values.
traditional permanent policies.
✔ Premium cost is lower relative to
regardless of age or health problems.
✔ Premium cost usually stays level,
kept in force.
✔ Provides protection to age 100 — if
Term to 100
Usually no cash values and no
non-forfeiture options.
If premium is not paid, the policy
terminates after 30 days and may not be
reinstated if health is poor.
Renewability of coverage will terminate
at some point, commonly age 65
or age 75.
If renewed, premiums increase with age
and at some point higher premium costs
may make it difficult or impossible to
continue coverage.
insurance without medical evidence
(if it has a convertibility option), often up
to ages 65 or 70.
✔ Can be converted to permanent
because, initially, it is less expensive than
permanent insurance.
✔ Provides more immediate protection
or specific liabilities like a mortgage.
✔ Suitable for short term insurance needs,
Term
Table of
Contents
What about group life
insurance?
If you are employed, you probably
have this form of life insurance
through your employer or union.
Usually, it’s term insurance (and
available to age 65) issued to a
group of people under a master
contract. You receive a certificate
as evidence of your coverage. For
large groups, it is often issued
Pricing and Costs
Setting premium rates for life
insurance is unlike the pricing of
other products where the cost of
materials and production is known.
It is even unlike car or household
insurance, as life policies
may stay in force for 50 years or
more.
Insurance companies have no way
of knowing exactly what their future
costs, investment earnings or
claims experience will be.
Accordingly, they make long term
projections based on statistical or
actuarial experience, using mortality
tables that show death rates at
various ages of the population over
time and making assumptions
about future expenses, interest
rates and mortality rates. These
calculations are made by actuaries
who are professionally trained in the
mathematics of insurance.
without a medical or other evidence
of insurability.
Your group insurance is a vital
element in your total insurance
coverage. But the coverage usually
terminates if you cease to be a
member of the group. Check to see
if the plan allows you to convert to
an individual life policy if you leave
the group or if the coverage
terminates for other reasons.
Obviously, the older you are, or the
poorer your health, the higher the
risk you represent. Fair value is
achieved by pooling similar risks
together. Data and statistics are
gathered and used to “classify”
people by risk groupings. Insurance
prices — the premiums — reflect
the value of the risk assessed. The
lower the risk of the group, the
lower the premium. In evaluating
risk, an insurance company looks at
many factors, such as age, sex,
medical history, physical condition,
and so on. For example, women
ordinarily pay lower premiums
than men. This is based on overwhelming statistical evidence that
women live longer. Lower pre­
miums also apply to non-smokers.
(See page 20.)
Table of
Contents
Fair value
Before your application is approved,
the insurance company has to
assess the degree of risk involved.
9
3
How to Make your Life Insurance work for You
Beneficiaries: Who is the
life insurance for?
The beneficiary is whoever is
named (designated) under the
policy to receive the insurance
money on your death.
This special protection includes
adopted children in most provinces,
but it does not apply to an ex-spouse
unless he or she has been named
an irrevocable beneficiary.
Do you want to name a beneficiary
(e.g., spouse), or leave the money
to your estate or to a trust? If the
money is left to your estate, it will be
subject to probate fees when the
estate is settled. If you choose a
trust, be sure to seek tax advice.
You may name an irrevocable
beneficiary or an irrevocable trust.
This means that you, as the
policyholder, can’t change or revoke
that beneficiary without the latter’s
consent. The money is protected
from your creditors and doesn’t
become part of your estate. (In
Quebec, a spouse is considered
an irrevocable beneficiary, and
divorce automatically cancels that
preferred status.)
Tip
If you name a beneficiary, the money does
not go through your estate but
goes directly to the person or
organization you name.
No probate fees apply.
Creditor protection
The beneficiary designation affects
whether or not insurance proceeds
are protected from your creditors.
Provincial insurance laws provide
that where a spouse, child, grandchild or parent is named as the
beneficiary, the insurance money is
exempt from seizure by any creditors you may have.In Quebec, the
beneficiary must be related to the
policyholder. In other provinces,
such a beneficiary must be related
to the person whose
life is insured.
10
Irrevocable beneficiary
Wills
Note that a designation in a will
does not override an earlier beneficiary designation under an insurance policy, unless the will specifically identifies the insurance policy
in question. (However, even a
specific will would not override an
irrevocable beneficiary designation.)
In one court case, a man, in his will,
had named his present wife as sole
beneficiary to his estate. But he
hadn’t changed the appointment of
his former wife as beneficiary in his
life insurance policy or identified the policy in his will. The court ruled that the former wife should get the money.
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Table of
Contents
the person who is to receive
support money, make sure your
payments are insured.
There are two ways of doing this
using either existing or new policies:
(a) Make it part of the formal
agreement that your ex-spouse
take out life and disability
insurance on his or her life
naming you as beneficiary.
If you want to ensure that the
beneficiary can’t be changed
without your consent, require
your ex-spouse to name you
as irrevocable beneficiary.
(b) Take out a life insurance policy
on your ex-spouse’s life. Name
yourself as beneficiary and pay
the premiums. Then nobody
can cancel the policy and you
have control.
can receive funds on behalf of the
minor. Alternatively, in most
provinces, the insurance money can
be paid into court until the beneficiary can give a valid discharge on
receipt of the money.
Leaving money to charity
You can use a life insurance policy
to make charitable donations. On
your death, the proceeds go to the
organization you have named as
beneficiary. If the charity is registered with Revenue Canada, the
premiums can be tax deductible.
Table of
Contents
What happens if my
beneficiary dies first
or at the same time?
If your beneficiary predeceases you,
the insurance money goes to your
estate unless you have named a
contingent beneficiary. In the case
of death at the same time (e.g., in
an accident), insurance law provides
that the beneficiary is deemed to
have died first. Again, the insurance money goes to your estate
unless you have named a contingent beneficiary.
what happens if my
beneficiary is a minor?
If the beneficiary is under the age of
18, the insurance company can pay
the insurance money to a trustee
(designated by the insured) who
11
Premiums: When and
How To Pay Them
Typically, Canadians choose to pay
their life insurance premiums on a
monthly basis, usually through
automatic bank withdrawals.
There are other options available:
annual, semi-annual and
quarterly payments.
You can limit the number of years
you pay premiums and telescope
them into a shorter time-frame.
Your premiums will be somewhat
higher over those years, but
afterward, your policy is free and
clear. For example, you may wish
to have a permanent life policy fully
paid-up at age 65 so no premiums
would be payable after retirement.
(This differs from the premium offset
concept, discussed on page 14,
which is not guaranteed.)
What if I have to
stop paying premiums?
There is a 30-day grace period after
the due date to pay a premium. If
the premium is not paid by the end
of this grace period, the policy
lapses (terminates). If death
occurs during this period, the death
benefit is paid, but any outstanding
premium is deducted from that
payment. Cash values in a policy
can provide protection against
lapsing (see “Special Built-in
Safeguards” in next column).
Reinstatement of a lapsed policy
can usually take place within two
years on payment of overdue
premiums, plus interest, and
submission of satisfactory medical
evidence.
12
Riders: Added
Protection
A number of options, called riders,
can be added to your policy to tailor
it to your personal needs. For
example:
■ Accidental
death and dismemberment: Guarantees an additional
payment to your beneficiary, often
doubling the amount of your policy,
should you die from an accident.
May also provide payment to you
on loss of limbs or eyesight as a
result of an accident.
Disability waiver of premium:
Pays your premiums and keeps
your policy in force should you
become totally disabled (usually
takes effect once you have been
disabled for a specified period of
time [e.g., six or nine months].).
■
■ Guaranteed insurability:
Enables you to purchase additional
insurance at specified times in the
future without a medical or other
evidence of insurability.
Special Built-in
Safeguards in
Permanent Life Policies
These are called non-forfeiture
options, and they mean exactly that.
If for any reason you are unable to
pay premiums, you don’t have to
lose (forfeit) your life insurance. The
cash value can fund the following
options, spelled out in the contract:
■ Automatic premium loan: The
cash values already built up in
your policy may be used to pay
premiums. Obviously, there are
limits, depending on how much the
cash values have grown over the
Table of
Contents
years. But it does mean you won’t
have to forfeit your policy immediately if you are unable to meet a
premium. It gives you breathing
space to decide what to do about
maintaining your coverage.
Reduced paid-up permanent
policy: Your cash value is used to
buy a lesser amount of permanent
insurance. No further premium
payments are required.
■
■ Extended term insurance: Your
cash value is used to buy the same
amount of insurance that you
currently have, but as term insurance. No further premiums are
required. As the new policy is term,
it expires at some point. How long it
continues depends on how much
cash value is available. Obviously,
the higher the cash value, the
longer the extended term that can
be bought.
■ Interest is charged because the
pricing of your policy assumes the
company will invest those funds and
earn interest.
■ One major advantage is the ease
with which you can take out a policy
loan. No credit checks, none of
the usual hassle. Just request it
through your agent or the branch
office of your life insurance com­
pany. (If you have an irrevocable
beneficiary, you’ll also need his or
her signature.)
■ The loan may be fully or partially
taxable. Check with your insurer
about the tax consequences.
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Policy Loans
The build-up of cash values in a
permanent life insurance policy can
be substantial the longer you hold
the policy. It’s a fund that can be
used, as just mentioned, to keep
your policy in force if you miss a
premium. It’s also available to you
directly as a loan:
You may borrow any amount up
to or close to the total cash value in
your policy, according to your
contract. It can be repaid in a lump
sum or in installments. Any unpaid
balance plus interest is deducted
from the proceeds of the policy at
the time of your death.
■
13
Policy Dividends: How
To Make the Best Use
of Them
Dividends occur in participating life
insurance policies. How you make
use of them is vital to getting the
best value from your life insurance.
These are the most common
dividend options:
■ Increase your coverage: Use
your annual dividends to add extra
amounts of coverage to your policy,
at no cost to you. The most popular
use of dividends, this option is
called paid-up additions or bonus
additions. This option also increases future cash values. Alternatively,
dividends could be used to purchase one-year term insurance.
Enhanced protection: You can
combine the two options mentioned
above by using dividends to
purchase a combination of paid-up
insurance and one-year term
insurance to provide additional
protection equal to a pre-determined amount. As dividends
increase over time, they are used to
replace the term insurance with
paid-up insurance so the additional
protection becomes permanent.
This can be a cost-effective way of
purchasing whole life insurance.
■
■ Reduce the cost of your
insurance: Use your dividends to
reduce your premiums on the policy
every year.
Take as cash: You can, of course,
take policy dividends in cash.
■
14
■ Leave to accumulate: Leave
dividends on deposit with the
insurance company to earn interest
or to be invested in an equity growth
(segregated) fund. Returns on the
latter are not guaranteed. Dividends
left in the policy to accumulate can
be withdrawn at any time and, on
your death, accumulated dividends,
unlike cash values, are added to the
face amount payable to your
beneficiary or estate. Interest
earned on dividends left on deposit
is subject to income tax.
offset: This concept,
also called premium offset, is a
combination of the premium
reduction and the paid-up additions
options. Typically, after premiums
have been paid for a number of
years, say, 10-15 years, future
dividends are used to pay part of
the premiums and the balance of
the premiums is paid by surrendering some of the paid-up additions.
Remember that policy dividends are
not guaranteed and that projections
about when your premium offset
date will take effect may have to be
adjusted if dividends are lower (or
higher) than anticipated. This
option could result in tax reporting to
you as the policyholder, if cumulative dividends exceed cumulative
premiums paid. Be sure to get a full
explanation from your agent.
■ Premium
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4
The Importance of your Agent
Life insurance is a major financial
commitment.
■ Assists the beneficiary in making
the claim.
Just as you seek out expert advisors for other financial needs —
bankers, stockbrokers, and the like
— your choice of a life insurance
agent is a key decision.
■ Assists you with other financial
planning needs (disability insurance, retirement planning, estate
planning).
Your life insurance agent plays an
important role in the financial
planning process. He or she:
Helps you assess your life insurance needs through a financial
needs analysis.
■
Arranges for the purchase of
a policy.
■
■ Provides on-going service, such
as beneficiary changes, review and
updating of life insurance policies.
Agents are licensed and regulated
by the provincial government to sell
and service life insurance. They
may also sell disability insurance,
RRSPs, group insurance and
segregated funds. Those who also
sell mutual funds or other financial
services like stocks or property and
casualty insurance require a
separate license. Not all agents
handle every product.
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Most agents are paid a commission
by the insurance company issuing
the product.
15
Different names
Some agents place business only
with a single company; others (often
called brokers) spread it around to
other com­panies. One category is
not necessarily better than the other.
Life insurance is sold by agents or
brokers, and appropriately licensed
financial planners and stock
brokers. Here, we will simply use
the term agent.
Check out professional
qualifications
Ask about professional qualifications
and training the agent has had.
Agents with a CLU (Chartered Life
Underwriter) or CH.F.C. (Chartered
Financial Consultant) demonstrate
commitment to their professional
development. These programs
require several years of study and
examinations.
Selecting a Life
Insurance Agent
As with seeking out any kind of
professional advisor, ask for
recommendations from someone
you trust. If that’s not possible, try
the Yellow Pages. Phone two or
three agents for a preliminary
interview.
Don’t be shy about shopping
around for the best mix of advice
and premium rates. Bear in mind
that the lowest premium may not
necessarily be the best buy for you;
a policy that does not meet your
needs is no bargain, no matter how
low the cost.
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Let each agent know your priorities.
You are the buyer and the agent
you choose will be working for you.
What to find out about
an agent
How long has the agent been in
business and what company or
companies does he/she represent?
■
Does the agent belong to a
professional association? (See
page 29.) Has the agent qualified
for professional accreditations?
■
■ Is the agent licensed in your
province?
Will the agent provide
references from other clients?
■
Tip
What you’re looking for in
an agent is someone who
is knowledge­able; understands
your insurance needs and what
you can afford; can explain your
insurance options in plain language; and will continue to
be a trusted advisor.
The Sales Interview
Once selected, an agent will sit down
with you to discuss your financial
goals. This is when frankness and
trust must be established.
Be prepared to answer personal
questions about your finances and
family. Tell the agent what you need
and what you can afford. What you
tell the agent is kept confidential.
■
■ Don’t accept only one solution to
your life insurance needs. Avoid
anyone who tries to sell you a
particular plan and won’t suggest
alternatives.
■ Ask for proposals in writing
(policy illustrations).
Watch out for any suggestion that
you surrender your present policies.
(See pages 23-24 for more about
“replacements”.)
■
Ask questions. This booklet
helps you to frame questions,
such as:
■
• What exactly is guaranteed in the
policy and what is not — including premiums and benefits?
• Are any benefits from the policy
subject to income tax?
• What post-sale service does the
agent provide?
Once you’ve decided to purchase
a policy, read the application form
thoroughly before signing. Your
signature authorizes the insurance
company to confirm your medical
history on a confidential basis.
(See pages 20-21 for more about
safeguarding the privacy of
personal information.)
■
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Tell the agent you expect delivery
of the policy, usually within 30 days,
at which time he/she should fully
review the policy with you. If the
policy is not what you thought you
had bought, you can change your
mind. (see page 23.)
■
17
What You Should Know
about Policy Illustrations
The policy illustration shows
different cost-related features (cash
values, dividends, death benefits,
premiums) at various durations of
the policy. Some of these features
are not guaranteed (such as
dividends) or may be tied to investment returns (such as some
components of universal life
policies). A policy illustration is just
that — an illustration, designed to
show you how the policy would
work given a certain set of assumptions. If those assumptions change,
the policy would perform differently.
The illustration is not a legal
document. Your policy contract is.
Questions to ask about the policy
illustration:
■ Comparing term policies is
relatively straightforward, pro­vided
that the parameters are the same
(e.g., $150,000 five-year renewable
term insurance for a 37-year-old
female non-smoker). Compare
what the premium is today for each
policy, but also add up what the
premiums will be over a 20- or
30- year period. Renewal increases can vary significantly between
policies.
Are the premiums used in the
illustration guaranteed? Could they
fluctuate and under what circumstances?
■ Use present value to calculate
what all future premiums would cost
in today's dollars. The computer
software that many agents subscribe to can do this.
■ The illustration will probably
show policy dividends (if applicable)
at the level currently being paid by
the insurance company. What
would happen to the performance of
your policy if dividends fell? If
dividends rose?
■ Comparing permanent policies
with other permanent policies is
more difficult. Are the policies
participating or non-participating?
What features are guaranteed?
What interest assumptions are
made?
■ Is the death benefit guaranteed?
If not, what factors is it tied to?
■
If there is an investment component to the policy, what rate of
return is assumed? What would
happen to the performance of the
policy if the rate of return were
lower? If it were higher?
■
18
Comparing Policies
Comparing the values of one policy
with another can be difficult,
especially given the different
features and characteristics each
may have. But here are some
pointers should you decide to
make comparisons:
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5
What Happens When You Apply
Once you make your decision
to purchase a policy, you fill in
an appli­cation to the insurance
company.
The application asks for your name,
age and other identifying information and spells out the amount and
type of insurance policy for which
you are applying, who you have
named as beneficiary and how you
wish to pay premiums. Typically, it
also includes a health questionnaire.
The intent of the questions is to
obtain information necessary to
establish the nature of your risk and
to issue the policy.
Your signature on the application
authorizes the insurance company
to contact your attending physicians
and hospitals to confirm information,
and to contact the Medical Informa­
tion Bureau (see page 21).
The application is then sent to the
insurance company’s underwriting
department, which reviews it for
completeness, assesses the risk
presented, and decides if the policy
can be offered on the basis for
which it has been applied.
The larger the amount of insurance
applied for, the more extensive the
information needed to assess risk.
As indicated earlier, many factors,
most commonly age, sex, condition
of health, medical history, family
medical history, financial situation,
occupation and dangerous activities
are taken into account before an
application is approved.
Tip
Be up-front when
answering the questions
on your application form. Life
insurance is a “good faith” or
“bona fide” contract and requires
full disclosure by the applicant
and insurer. withholding or mis­
representing information could
make your policy null and void.
Most Risks Are
“Standard”
The insurer’s objective is to issue a
policy, not to turn away clients.
About 96 per cent of applicants for
life insur­ance receive the coverage
they apply for and qualify for standard premium rates.
Every effort is also made to insure
others who are higher risks. Many
of those who because of, say, poor
health or hazardous occupation, are
likely to produce — as a group — a
rate of mortality higher than normal,
are offered life insurance as
sub­standard or special-class risks.
To reflect the higher risk, higher
pre­miums may be charged, or
other mo­di­fications may be made
to the policy.
Only four per cent of those who
apply for life insurance are declined.
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Once a policy is issued at standard
rates, the company cannot later
charge a higher premium or add
other restrictions because you have
become a substandard risk.
If your policy is issued on a substandard basis and the cause for this no
longer exists, the company will
consider removing the extra pre­
mium or other modifications — if it is
told about your change of situation.
19
Healthier lifestyles
rewarded
A sign of our times is that nonsmokers get life insurance at
substantially lower rates than
smokers. This reflects the lower risk
they present. Usually, a declaration
that one is a non-smoker when a
policy is applied for and has been so
for at least one year is sufficient to
obtain the lower rates. Some
companies also offer preferred rates
if you meet additional indications of
a healthy lifestyle (e.g., fitness,
weight control, low or no alcohol
consumption).
When a Medical Is
Required
Each insurance company sets its
own rules for confirming the information supplied in the application
and the health questionnaire.
Requirements typically vary according to age and the amount of
insurance. The older
you are, the more
likely that health
information will be
confirmed, for
example, by a
statement from your
personal physician
or by a medical or
paramedical
examination. To
illustrate, a company
might stipulate that
no medical is
required for up to
$200,000 of coverage up to age 35.
But for those in the
46-50 age group, a
20
medical could be required at
$50,000 coverage. Such confirmation might be required for lower
amounts if the available information
is incomplete or indicates a possible
problem. These are illustrations
only. Your agent can explain the
requirements more fully.
For large amounts of life insurance
or where an unfavourable health
history is involved, the company may
request other evidence such as an
electrocardiogram or other test.
Privacy of Personal
Information
■ Life insurance companies
recognize the importance of
protecting the confidentiality of
the personal information they
obtain. All employees of insurance companies, agents, brokers,
or anyone else acting for an
insurance company, must comply with strict privacy rules.
■ The consent of
the individual is the
bottom line. Most
personal information is obtained
directly from the
individual who
applies for a policy.
If information is
required from any
other source, the
individual concerned will be
notified, and his or
her written authorization will be
obtained whenever
possible. And no
information will be
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used for any other purpose or
disclosed to any other party without
the individual’s consent, unless
required by law.
■ If you want to know what per­
sonal information an insurance
company has in its records about
you, you can, with proper identification, write to the company and
request it. A fee may be charged to
cover the administrative costs.
Medical information may be
released to you only through your
personal physician. Also, you may
correct what you believe to be
erroneous personal information.
If you do have a concern or
complaint, each insurance company
has an officer to handle enquiries
and complaints regarding personal
information.
■
Medical Information
Bureau (MIB)
This is a non-profit association, with
a membership of about 750 life
insurance companies, formed
almost 100 years ago for the
confidential exchange among its
members of factual underwriting
information. Its sole purpose is to
serve as an alert against fraud or
misrepresentation. When you sign
an application, you authorize the
insurance company to contact
the MIB.
Where the applicant has a condition
significant to health or longevity, the
insurance company provides the
MIB with a brief, coded report.
These reports are mostly of a
medical nature, but other factors
such as an adverse driving record
or participation in hazardous sports
are also taken into account. This
information will only be disclosed to
another MIB member to which the
individual has applied for insurance.
An insurance company may not
decline an applicant because of the
information obtained from the MIB
but can use the report as a basis to
request further information.
Confidentiality is closely safeguarded.
Tip
Not everyone who
applies for life insurance has a file with the MIB. In
fact, only about one in 10 does. If you want to see if the MIB has a file on you and to verify the information, you can contact:
The Medical Information Bureau, 330 University Avenue, Ste. 501
Toronto, Ontario M5G 1R7
[416] 597-0590
What If There’s an Error
in My Application?
Failure to provide accurate and
complete personal information
could invalidate your insurance
coverage. Occasionally, an applicant may discover that a fact has
been omitted or innocently mis­
represented on the application. In
that case, the insurance company
should be notified immediately so
that any necessary adjustment can
be made. If such errors are discovered when a claim is submitted, the
company's action will depend on the
nature of the misinformation. For
example, if the age has been
reported incorrectly, the insurance
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21
company will usually adjust the
benefits accordingly and pay the
claim. However, if smoking status or
other vital information has been
misrepresented, the insurer may
deny the claim and pay only a
refund of premiums.
By law, a life insurance policy,
including the application, is incontestable after two years. After that
time, except for fraud, a company
cannot deny a claim because the
information you provided was
incorrect or incomplete. (For more
information, see page 28.)
Before Final Approval:
The Conditional or
Temporary Insurance
Agreement
If you pay the first premium with
your application, the agent usually
provides you with a conditional or
temporary insurance agreement.
22
This gives you interim life insurance,
under certain conditions as outlined
in the agreement, during the time it
takes the insurance company to
review your application. Sometimes,
the interim coverage takes effect
immediately and other times, it
doesn’t take effect until all evidence
requirements have been met.
Check with your agent.
Tip
Keep your insurance
policy with your financial papers. It’s a good idea to
keep a photocopy of the front
page of the policy, along with
your agent’s name and number,
in your safety deposit box, if
you have one. Give your beneficiary(ies) a photocopy, too, and
let them know where you keep
your policy.
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6
Second Thoughts
If you change your
mind, after all —
the 10-day free look
There is a “satisfaction-or-yourmoney-back” guarantee on most life
insurance policies. It’s called a
rescission right.
Exactly as stated, you merely return
your policy to the insurance com­
pany within 10 days of receiving it.
Premiums paid will be refunded.
If your policy has been in force for a
long time before you receive the
policy, say, a couple of years, an
insurance company might turn
down your request to rescind the
policy. This is because you have
been covered and the company
would have paid a claim if you had
died during that period. So, make
sure your policy is delivered soon
after you buy, and that you review
it promptly.
What about Replacing
Policies?
At some point you may decide, or
someone may urge you, to consider
replacing your existing life insurance policies.
One key piece of advice: Proceed
with caution. Certainly, there are
some occasions when a replacement is in your best interests. And
just as certainly, there are occasions when it is not. Think through
the reasons for wanting to make a
change. review your needs and
objectives and what different
policies can do for you. Remember
that it may be possible to alter your
existing policies to meet your
current needs at lower cost. Here
are some tips to help you decide
what’s in your best interests.
Should You Replace a
Policy? Some
Considerations
1. Have a clear picture of your
insurance needs and objectives.
Work through an updated
financial needs analysis.
Consider the budget you have
to meet those needs.
2. Review your current policy. If it
no longer fulfills your needs,
could it be altered to do so? If
you have dividend options in an
existing permanent insurance
policy, can you use them to
increase coverage? Don’t
hesitate to ask your existing
agent or insurance company for
help with this review.
3. Be aware of the pros and
cons of both your current and
proposed policies:
■ Do
you fully understand
the values of your current
policy (guaranteed values,
accumu­lated dividends,
future values)?
■ Are
you losing tax advantages or creating a tax
liability if you change plans?
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■ What
are the cost implications of being older today
or perhaps not in the same
health as when you took out
the policies? What evidence
of insurability is required on a
new policy?
23
■ Are
there circumstances
where your new policy does
not pay benefits (e.g., a new
two-year suicide provision)?
(See page 28 .)
■ ■
If the new policy is term, is it
guaranteed renewable and
convertible to another type
of policy without evidence of
insurability?
Are premiums guaranteed?
If not, when would they
increase? What is the
maximum level to which they
could rise?
5. If you decide to go ahead with a
replacement, the agent recommending the replacement must
complete a Life Insurance
Disclosure Form. It’s intended to
help make you fully aware of the
pros and cons of both policies.
This form must be properly
and fully completed. Read it
carefully before signing.
Tip
Make sure that the new
policy is issued and in
force and that you review
it carefully before you request
termination of your old policy.
Termination requires a written
request from you. The Life
Insurance Disclosure Form
cannot be used for this purpose.
4. What are the professional
qualifications of the agent(s)
involved? What level of service
and commitment can you rely
on? Will the agent get a
commission on the new policy?
7
Today's World — Today's Needs
Self-employment:
Businesses Small
and Large
If it is necessary to assign the policy
as security, a portion of the pre­mium
is deductible as a business expense.
Self-employed individuals have a
need to protect their stake in their
businesses. This means liability
and disability insurance, group
insurance for employees, and life
insurance for themselves and their
key people. Here’s how life insurance can be used:
■ To fund a buy-sell agreement,
and to provide surviving partners or
shareholders with the cash to buy
out the deceased’s share and to
keep the business going.
As collateral for a business loan,
some­times at the request of the
finan­cial institution making the loan.
■
24
To insure the key people in the
company. Life insurance is often
used as a safeguard against
financial loss to the firm caused by
the death of the owner, a partner or
a key employee.
■
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■ To provide protection to the
business person’s family against the
debts of the company. Unless the
company is set up as a limited
company, the individual (and his or
her estate) assumes full personal
responsibility for the business debts.
Protecting Your Debts:
Creditors Group
Insurance
Did you know that your mortgage or
car loan may become fully payable
upon your death?
Creditors group insurance offered
through lending institutions and car
dealers repays the loan in the event
of your death and sometimes
disability. At the time of a major
credit purchase, you may be
advised of this option.
Before you sign, be aware of any
restrictions or exclusions. Some
policies may not pay a claim if it's
related to a pre-existing condition or
suicide. There may be age limits.
Also, check to see if your existing life,
accident, disability or sickness
insurance is sufficient to pay off your
debts, or could be increased to do so.
Using Your Networks:
Association Insurance
Downsizing, contracting-out, selfemployment — signs of the times
that mean some people no longer
have group insurance at their place
of work.
Here’s a suggestion: Don’t overlook
your memberships in professional
associations, clubs, alumni groups,
unions, lodges or other affinity groups.
Find out if you can obtain life, health
and disability insurance through a
blanket group plan (association
insurance) that covers members.
Such plans can be a cost-efficient
way of augmenting your existing
in­surance coverage. But be aware
that they can also be changed or
discontinued by the sponsoring
group.
Older? Insurance Can
Be Found
There may be times when older
people see a special need for extra
life insurance. If you are in good
health, you can obtain life insurance
at premiums that reflect your
present age.
But what happens if you are not
insurable?
A few life insurance companies offer
guaranteed issue plans — that is,
life insurance policies that are
issued with no medical questions
asked. Typically, up to $25,000 will
be issued to those between ages
50 and 75.
Be aware that restrictions apply if
death occurs within the first two or
three years of taking out the policy.
Read the contract.
The OmbudService for Life and
Health Insurance can supply
the names of the com­panies
that provide guaranteed issue
products.
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Living Benefits
Many people suffering from a
lengthy and terminal illness, such
as AIDS or cancer, find themselves
financially strapped to cover the
growing expenses of care and
infirmity, especially if they do not
have adequate disability insurance.
25
Life insurance companies have
responded to this need by making it
possible for the terminally ill to
receive a partial pre-payment
(called living benefits or acceler­ated
benefits) of the death benefit from
their existing life insurance policies.
Guidelines vary from company to
company, but, typically, a percentage of the death benefit up to a
certain limit is allowed.
A claim must be accompanied by
medical documentation that the life
insured is terminally ill. Sometimes
a release from the beneficiary
acknowledging the pre-payment is
also required since it will reduce the
amount he or she gets.
26
Tip
Information about living
benefits may be obtained
from your agent or insurance
company.
Life Insurance
on Children
The primary reason for life insurance is to provide income to those
who would suffer financially from
the life insured’s death. That means
having insurance on the breadwinner(s) is the priority. It is unusual
for a child to be an important source
of family income.
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Some parents arrange to have a
small amount (e.g., $5,000) of in­surance on each child through a rider
on their personal insurance or by
taking dependent insurance through
their group insurance at work.
Other parents choose to take out a
separate policy insuring the child.
It gives the child a head start, at low
premiums, on what will be one of the
cornerstones of his or her financial
portfolio as an adult.
And if the policy has a guaranteed
insurability rider, the child will be
able to purchase additional insurance in the future, regardless of
disability or illness.
8
What it's All about: Payment of the Claim
It is the responsibility of the beneficiary or his/her representative to set
the wheels in motion to file a claim.
Tip
If the policy is individually owned, contact the
agent, who can assist you with
the claim. The company branch
office or head office can also
help.
If the insurance is through a
group, such as an employer or
union, con­tact the group benefits
administrator.
What Documentation
Is Needed?
In most cases, a claimant’s statement on a form provided by the
insurance company, and proof of
death, doctor’s statement or death
certificate are all that’s required.
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How Long Does It Take?
Life insurance companies are
dedicated to considerate and prompt
payment of death claims. Efforts are
continually made to speed up the
process. Payment can usually be
expected within a week to 10 days of
27
presenting the insurance com­pany
with full documentation.
However, there are some circumstances that can slow down the
pro­cess (e.g., if the cause of death
re­quires investigation, or if death
occurs within the “contestable”
period).
What Does
“Contestable” Mean?
It means that the insurance com­
pany has the legal right, during the
first two years of the policy, to
contest its validity on the grounds
that information material to the risk
has been held back or misrepresented. If it has been, the policy can
be voided and premiums returned.
If there is a death during this twoyear period, there may be inquiries
that could result in a delay in the
payment of the claim, or even in its
denial.
After the policy is in force for two
years, the company cannot contest
it except in the case of fraud, that is,
a deliberate misstatement of fact.
An example of fraud is a smoker
who declares himself/herself as a
non-smoker in order to get a
reduced premium.
What Exclusions
Might Apply?
Individual policies normally contain
a two-year suicide clause. If death
is due to suicide and occurs within
two years of taking out the policy,
the claim is not paid. If a suicide
occurs after the two-year period, the
claim is paid.
28
Group insurance plans pay for
suicide deaths. Creditors insurance
may not.
Your policy may also contain
clauses that exclude claims or limit
coverage for other reasons, for
example, where death results from
an act of war or from terrorism.
Is There a Time Limit
to File a Claim?
Yes. This is stated in the policy and
normally ranges from 90 days to 12
months. Claims filed after that may
be considered, depending on the
circumstances and the insurer’s
ability to confirm the coverage.
Is Interest
Paid on a Claim?
Yes. Most companies pay interest
from the date of death. The rate of
interest is consistent with the rate of
interest paid on policy proceeds left
on deposit with the company. This
interest is taxable.
How Are the
Benefits Paid?
Most beneficiaries choose to
receive the life insurance proceeds
in a lump sum. But depending on
the contract, there may be other
settlement options available.
These include taking the money as a
life income in regular payments, or
leaving the money on deposit with the
company and collecting the interest.
Are the Benefits
Taxable?
As a rule, the death benefit of a life
insurance policy is not taxable.
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9
Where To Go for Assistance
For assistance with your life
insurance needs (purchasing or
altering a policy, making beneficiary
changes, or making a claim),
contact your agent or the branch
office of the insurance company.
If you are dissatisfied with a product
or service, there are several steps
you can take:
■ Talk it over with your agent, the
branch/agency manager, or the
policyholder service department at
the company’s head office or
regional office. Many companies
have toll-free numbers.
■ If
you believe there has been a
breach of ethics, contact the agent’s
professional association:
Advocis
390 Queens Quay West,
Ste. 209,
Toronto, Ontario M5V 3A2
Consumer Assistance
Consumers with questions or complaints about their life insurance
company or life insurance coverage
can call the OmbudService for Life
and Health Insurance (OLHI) for
bilingual information and assistance.
The OLHI is an independent service
that provides free information and
assistance.
Call the OLHI from anywhere in
Canada:
In Toronto: 416-777-9002
À Montréal: 514-282-2088
Toll Free/Sans frais:
1-888-295-8112
Website: www.olhi.ca
Independent Financial
Brokers of Canada (IFBC)
306-30 Eglinton Ave W
Mississauga ON L5R 3E7
Autorité des marchés financiers
Place de la Cité, tour Cominar
2640, boulevard Laurier
Bureau 400
Québec (Québec) G1V 5C1
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■ Or, you may wish to register a
complaint with the Superintendent
of Insurance in your province who is
responsible for the licensing of
agents and consumer issues. In
some provinces, that office may
refer you to the provincial Insurance
Council, which governs agents’
licensing and conduct.
29
i
Index
Accelerated benefits................................. 26
Life insurance on children................ 26 - 27
Accidental death and dismemberment.....12
Living benefits.................................... 25 - 26
Actuary........................................................ 9
Medical Information Bureau..................... 21
Agent, selection of............................. 15 - 17
Minor beneficiary.......................................11
Applying for a policy.......................... 19 - 22
Mortality tables............................................ 9
Association insurance.............................. 25
Non-forfeiture options............... 4, 6, 12 - 13
Automatic premium loan...........................12
Non-participating policy.............................. 4
Beneficiary..........................................10 - 11
Non-smoker rates..................................... 20
Bonus additions........................................ 14
Paid-up additions.......................................14
Cash value............................. 3, 4, 6, 12 -13
Participating policy...................................... 4
Claim, making a................................ 27 - 28
Permanent life insurance..................... 3 - 7
Comparing policies....................................18
Policy........................................................... 2
Complaints................................................ 29
Policy loans................................................13
Conditional insurance agreement............ 22
Premium offset...........................................14
Contingent beneficiary........................10 - 11
Premium waiver.........................................12
Convertible term insurance........................ 5
Premiums...............................................9, 12
Creditors group insurance........................ 25
Pricing and costs........................................ 9
Creditor protection.....................................10
Privacy of personal information........ 20 - 21
Disability waiver of premium.....................12
Reduced paid-up insurance......................13
Dividends...............................................4, 14
Reinstatement............................................12
Divorce.................................................10, 11
Renewable term insurance........................ 5
Enhanced protection.................................14
Replacement..................................... 23 - 24
Extended term insurance..........................13
Rescission right........................................ 23
Face value.................................................. 2
Riders on policies......................................12
Fair value.................................................... 9
Settlement options.................................... 28
Financial needs analysis...................... 2, 31
Substandard or special-class risks...........19
Grace period .............................................12
Suicide...................................................... 28
Group insurance......................................... 9
Temporary insurance agreement............. 22
Guaranteed insurability.............................12
Term insurance..................................... 5 - 7
Guaranteed issue..................................... 25
Term to 100........................................... 5 - 7
Illustrations......................................... 17 - 18
Terminal illness.................................. 25 - 26
Incontestable..................................... 22, 28
Underwriting...............................................19
Irrevocable beneficiary..............................10
Universal life......................................... 4 - 7
Lapsed policy.............................................12
Variable life.................................................. 5
Level premiums.......................................... 3
Whole life.......................................... 4, 6 - 7
Life insurance disclosure form................. 24
30
Table of
Contents
A Short Version of a Financial Needs Analysis
This work sheet will help you to estimate how much your estate would be worth if you
were to die today, what income flow it can generate and what other sources of income
are available to your survivors.
(A) Estimating the Income-Producing Assets of Your
Estate
Assets
Add
Life insurance
(including employer-provided)
Savings, cash
Investments
RRSPs
Other
Total
(1)
Liabilities
Add
Final expenses
Outstanding uninsured debts
(mortgages if not insured, credit
card balances, income taxes, etc.)
Total
Subtract Liabilities from Assets
(2)
(A)
(B) Determining Income Needs
Monthly income needs
Available income
From estate (multiply A by 0.00225,
see note below)
From C/QPP or other pension
From employment
Other
Total
Find difference between (3) and (4). If income
needs exceed available income,
proceed to Step (C).
(3)
(4)
Table of
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(B)
(C) Calculating Capital Needs
Multiply monthly income shortfall (B) by
12 to determine annual shortfall.
(5)
Divide (5) by assumed net after-tax interest rate
(e.g., 2.7 per cent), as in Step (B) to determine Additional
Capital Required to meet your survivors’ income needs.
(C)
Note: As an illustration, assume that the income-producing assets of your estate could earn a gross return of 4.5 per
cent a year. This equates to a net after-tax annual interest rate of approximately 2.7 per cent. Using this assumed net
interest rate, each $1,000 in your estate will provide an income of approximately $27 a year, or $2.25 a month.
The income earned will rise and fall with interest rates, and will be affected by your actual tax rate.
31
CONSUMER PROTECTION
What is Assuris and
How Does It Protect the
Consumer?
Assuris protects Canadian policyholders in the event that their life insurance company should fail. It provides
coverage for life insurance policies.
Assuris guarantees that policyholders
will retain up to $200,000 or 85% of
the promised death benefit, whichever
is higher. If the policy includes a
savings or cash value component,
Assuris guarantees that the policyholder will retain up to $60,000 or
85%, whichever is higher. For more
information contact the Assuris
Information Centre at 1-866-878-1225
toll free, or see the Assuris website at
www.assuris.ca.
What Is the Role of
Government Regulators?
Most life and health insurance
companies that operate in Canada
are regulated for solvency by the
federal government through the Office
of the Superintendent of Financial
Institutions. The Autorité des
marchés financiers performs the
same functions for companies
incorporated in Quebec.
These regulators inspect companies
to assess their safety and soundness.
In addition, the companies must
submit annual financial statements to
the regulators.
Provincial government agencies
regulate the licencing and conduct of
agents, contractual matters and
issues relating to consumer service or
complaints.
32
How Do I Choose an
Insurance Company?
If you belong to a group plan that
provides life coverage, the group
sponsor (typically an employer, union
or association) chooses your insurer.
If you decide to buy individual life
coverage, there are many sources of
information about companies that
offer it. Rating agency reports, articles
from the business press and annual
reports from the companies themselves—available at public libraries or
on the Internet—can all provide useful
insights. Your agent or broker also can
be an excellent source of information
about a company. References from
family members, friends and trusted
advisors are probably the best basis
for making a decision, though.
Table of
Contents
This booklet is published by the Canadian Life and Health Insurance Association Inc.
(CLHIA). The CLHIA is a national trade association that represents the collective
interests of its member life and health insurers, which together account for 99 per cent
of Canada’s life and health insurance business.
Table of
Contents
©
Canadian Life and Health Insurance Association Inc., 2012
November 2012
Table of
Contents
Canadian Life
and Health Insurance
Association Inc.
Association canadienne
des compagnies d'assurances
de personnes inc.

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