Basics of Life Insurance in Ontario
Whether you are a small business owner or an employee who works for someone, you may face the option of having or not having a life insurance policy. Though it may seem confusing, the basics of Life Insurance in Ontario can be pretty simple. There are 2 main categories of life insurance and then there are some subcategories for each. Actually, all policies are based on 2 main principles, the premium, and the death benefit. The premium is what you pay monthly or annually for your life insurance policy. When the insured passes away, the beneficiary gets death benefit if the policy is still active and paid up to date.
What Is Life Insurance & How Does It Work in Ontario?
Life Insurance is a contractual policy that you purchase from an insurance company by paying a premium. In return for your timely payments, the insurance company pays a lump-sum tax-free amount when you die, to your beneficiaries. For example, if you purchase a $100000 life insurance policy, the insurance company pays your beneficiaries that amount.
Know What You Need Before Buying a Life Insurance Policy?
Before you buy life insurance policy, it is necessary to know what your needs are and how to protect your family if you die suddenly. You need to decide which type of life insurance you need to purchase and how much term coverage. Get to know the insurance broker or company that you want to buy the life insurance. Also get answers to all your questions and doubts about the life insurance product you are buying. Review your policy at least every year to know that it does cover your needs with changes and additions in your life. Read the fine print in your policy to check that you are not buying something extra that you may not need.
Is It Necessary To Have Life Insurance?
Most people believe that if you have dependents then you must have life insurance and if you can afford it. You may feel it is necessary to have life insurance only if you have dependents. However, there may be cases in which you may have to cover your own funeral expenses. At this time, having a life insurance may help.
Types of Life Insurance Policies & Riders in Ontario
There are 2 main categories of life insurance; Term Life Insurance and Permanent Life Insurance.
Term Life Insurance
This type of life insurance has a fixed term ranging from 5 years to 30 years. You may pay more for a higher term and less for a shorter term. After the term expires, the policy coverage ends. If you wish, you may renew the policy and also undergo a medical check-up again. Most people select the term of life insurance on the basis of future needs of their family. These may include your children going to university or some other milestone etc. That may be the reason that families usually choose Term Life Insurance over permanent life insurance. They find it more practical and simple to decide on.
Some key facts about the Term Life Insurance policies are as follows:
- If the insured dies before the term expiry then the beneficiary will receive a payout that is the face value of the policy.
- In case the policyholder does not die before the policy expires, then the policy expires with no payout.
- Usually, there is an option to renew for another term.
Permanent Life Insurance
The Permanent Life Insurance does not expire and may often include cash accumulation account. So, a part of the premium that you pay for the policy goes into this cash account that accrues interest. When the policy matures, this accumulated fund is also paid out as a benefit. This type of policy covers you for life and you do not have to worry about renewal. Under this policy, there are 3 subcategories; universal life, variable life and whole life insurance policies. While whole life has less flexibility, you may discuss with your insurance company as to what suits you better.
Then there are various policy riders that you may add to your policy as per your requirement as follows:
Replacement of Income
If you are the main earning member then adding this rider to your life insurance policy will help your family. It will take care of your dependent’s needs if you unexpectedly die.
Any debts such as mortgages etc. may be paid with this rider and your family will not have to sell the home. They can still manage the standard of living even after you are gone.
Child Care and Education
This policy rider takes care of the children education and child care. Any education and boarding costs, post-secondary school costs also comes under this policy rider.
Funeral Expenses And Estate Planning Fees
Expenses towards funeral costs and planning your estate could turn out to be expensive. To take care of this, you may add this policy rider. Estate planning could turn out to be a cumbersome task but this policy rider could help to settle the fees.
Average Cost of Life Insurance in Ontario (2017)
There are many factors that affect the cost of life insurance in Ontario. These include the type of policy, amount of coverage, age, driving record, smoker status, health condition, occupation and your gender. You may go for a medical exam as per the insurance company and the coverage amount. On an average, in Ontario, an individual may spend close to $700-$900 per year for a Term Life Insurance policy.
What Factors Affects Your Life Insurance Premiums?
Your Life Insurance Premiums are calculated on the basis of various individual factors as follows:
This is a primary factor and affects the policy premiums a lot. The younger you are the premiums will be higher. Since life insurance policy is paid out when the insured dies, the insurer may want to ensure that this does not happen soon.
As per statistics, women may outlive men so they may be paying fewer premiums towards life insurance for the same face value. The higher average life expectancy of women make a huge difference while calculating premiums.
Your insurance company may base the calculation of your premiums on your body weight and other health conditions. For example, a person with a lean body with no known health problems may pay less than an obese person. Even if the person does not have any health problems currently, the obesity may mean that there could be future issues. The ideal ‘healthy weight ratio’ may vary from one insurance company to another.
This a huge lifestyle factor when your insurance company calculates your premiums. Heart diseases and other forms of serious life-threatening diseases are linked to smoking. Hence the insurance company calculates a higher rate of premiums for smokers. Some insurance companies also offer a smoking cessation program to encourage quitting smoking.
Most importantly, any existing medical issues will affect your premiums. If you have any health conditions that result in higher premiums could be life-threatening ones. The medical conditions that could reduce your overall life span could hike your premiums too. The insurance company asks you to fill out a medical questionnaire and they also have access to MIB. The MIB (Medical Insurance Bureau) is a database that has your medical history and you may not hide anything since MIB has all records. In the market, there are also options for getting a life insurance policy without any medical exam. However, these may offer limited coverage amount and may have a host of pre-existing conditions that are exempt from coverage.
Family Medical History
Certain health conditions are hereditary and may affect the lifespan of the insured. Any medical issues that have a genetic nature may mean higher risk. So, the insurance company may assess your family medical history. Mostly, the insurance company may consider your immediate family relatives such as parents, grandparents, and siblings etc.
Type of Occupation
Some occupations may be riskier from the point of view of an insurance company. This may affect in how they calculate your premiums too. For example, a firefighter may be a job with more risk than a typist. Sometimes if the occupation is very risky then you may be denied coverage. Or you may end up paying very high premiums. Usually, in such situations, there may be an association for the occupation type that you belong to. These associations may provide a sort of blanket coverage but with its own limitations.
How Do You Determine How Much Life Insurance You Need?
It is a difficult decision when you have to determine the coverage amount for life insurance.
Cost of premiums
Though it does not have to be expensive, the cost of life insurance may be as per the policy type. Term life insurance, Universal life insurance, and whole life insurance may all have their own categories of premiums.
Along with protection, some life insurance policies may also give a savings component. For example, Term life insurance is just a simple policy. Whereas, whole life insurance builds up guaranteed cash value and you may borrow against that. Universal life insurance also has a cash component that you may borrow against. When you actually sit down with the policy documents and check each policy type then you may know which one suits your needs more.
Policy Pay Out
For a life insurance policy, the beneficiaries do not have to pay tax when the insured dies and they get a payout. There could be probate fees but there are no taxes on the death benefit.
Term policies renew and could be once every 10 years, 20 years etc. In case you have a convertible term life insurance policy, then you may convert your policy into a permanent policy. This will have the premium rates locked in so that it will not increase even after the age of 65 years.
How to Find Cheap Life Insurance in Ontario Life Insurance?
You may use a life insurance rate calculator tool and within a few minutes get multiple quotes. When you have many quotes to choose from then it is easy to make a comparison and know the benefits and cons of each. It’s a simple form that asks you some personal information relevant to your policy and that’s it. The calculator searches for multiple insurers and this not only saves you time. But you also get a no-obligation quote for free.
Is Life Insurance a Good Investment?
It depends on your perspective of your potential health issues that could or not be genetic. If you think about the premiums, it is very small in return for the large payout in the event of the death of the insured. But here the difference is that the policy is paid out to the beneficiary and the insured does not get anything. You may buy the least expensive, term life insurance and then free up the rest of the money for investments. On another note, you may be able to send your kids to University or buy a house by borrowing against the cash component. The investment component of life insurance policies are not guaranteed but may at times grow or decrease. Just like many other things in life, there is no guarantee that your life insurance investment may increase significantly.
Tips on Saving on Life Insurance Policy
- You may bundle your existing insurance products with the same provider and also purchase life insurance from them. So, you get a multi-product discount
- Purchase your policy within the first 6 months after your birthday so that the insurance company rounds down for underwriting and may qualify for a low premium
- Decline the guaranteed life insurance option unless you know you are in poor health. This lets you not get a medical exam but for an extra cost.
- Pay your life insurance policy premiums annually instead of monthly
- When your driving record changes for the better then you may inform and discuss your policy premiums with your provider. You may qualify for a better rate.
- Check if you could get more discounts such as an employer or association discount.