Top 5 Facts You MUST Know About Life Insurance
Ever wondered if insurers factor in vaping to determine your life insurance premium or how they distinguish vaping from smoking cigarettes? Or are you still deciding if you should purchase life insurance and want to know the options you have? Whether you’re shopping around for life insurance or are already insured, it is always best to educate yourself on the different types of life insurance, how they work, and the factors that impact your premium. We’ve made a list of the top five facts you need to know about life insurance to help you make a decision.
Term Life Insurance is far less expensive than Whole Life Insurance.
Term Life Insurance and Whole Life Insurance are two of the most common types of life insurance – a Term Life policy provides coverage for a specified time, such as 20 or 25 years, and is typically very affordable. You can pick any term length at the onset of the policy, the annual cost is unchanged during the term, and once the term expires, the coverage expires as well.
Term Life Insurance is often purchased by those who have an increased life insurance need for a predictable period. For example, a parent with a 1 year old baby may want to have a much higher total amount of life insurance until that child is an independent adult, at age 21. They would purchase a 20 year Term Life insurance for this increased need. The amount of coverage is often over $1,000,000, and costs can be around $100 per month or even less, based on age, gender, and smoker status.
Whole Life Insurance is guaranteed to pay out.
Whole life is a permanent type of life insurance. That means coverage is in place for life. As long as your premiums are paid, your beneficiary will receive the benefit amount upon your death. Policy premiums for whole life are also guaranteed for life, meaning they stay the same throughout the time the policy is in place. The younger you are when you purchase an insurance policy, the more affordable it will be.
Whole Life Insurance is much more expensive than Term Life insurance as mentioned previously. There are flexible payment options, where you can choose to pay for the policy monthly until age 65, until age 100, or choose to pay up the policy faster in your working years with a “Pay 20” plan.
Whole Life Insurance also provides a way to save for the future. The premiums you pay are invested. It earns an income that creates a cash value for your policy, which you can access in the future. It can be used in many ways such as to supplement your retirement income or help pay expenses.
A Life Insurance Needs Analysis must be completed when purchasing life insurance.
This is a critical first step when you begin to think about life insurance. A needs analysis will present a final number, representing the amount of life insurance you need to protect your family. The analysis is completed based on key information about your current financial position, and your expectations of your family’s financial needs for the coming years.
Life Insurance payouts are often non-taxable.
There are many circumstances where the above may be UNTRUE, but most commonly, the payout made to the life insurance beneficiary is NOT taxed. For this to be the case, the policy needs to be owned and paid for personally by an individual, with after-tax dollars. The beneficiary also needs to be a living individual. While that might sound complicated, in practice it’s very simple: a married couple each purchase life insurance in their own names, with their spouse as the beneficiary. If one partner passes away, the other receives the life insurance payout without the total sum being taxed.
This is a huge selling point for many individuals planning to make a life insurance purchase.
Cigarette smokers pay more for life insurance.
If you ever look to purchase life insurance, you’ll notice that one of the first questions asked is if you smoke. Understandably, cigarette smokers must pay a higher rate for life insurance due to the increased health risks posed by the habit. The increase will vary on many things, but you can expect it to be near 2x the ‘non smoker rate’. Vaping nicotine is treated in the same way and usage of vapes will mean you will be considered as a ‘Smoker’.
What about Cannabis and Cigars? Each insurance company has their own response. Most Canadian life insurance companies consider the ‘casual use’ of cigars & cannabis as permissible within the ‘Non-Smoker’ definitions. For these companies, ‘casual non-smoker use’ is defined as about 1 cigar per month, or 2 cannabis joints per week.
It’s hugely important to be fully transparent about these habits at the time of your life insurance purchase.
If you have anything else in mind you want to know about or ask, a Life Licensed associate at PrimeService can provide you with professional advice and consultation. We can also help you select the best insurance provider and make sure all your needs and requirements are met.