If you don’t already hold a life insurance policy you may be wondering what they’re all about. Check out our info on life insurance in Canada to learn more.
Life expectancy in Canada is one of the highest in the developed world. According to World Health Organization 2015 data, life expectancy for Canadian males is 80 years. It’s 84 for females.
Longer life can extend financial responsibility for loved ones and business partners alike. Life insurance is one way to protect those who depend on you for financial health. It can prevent undue financial strain on family and business stakeholders.
In keeping with our goal to help small business owners learn for success, here’s an overview of life insurance in Canada.
Types of Life Insurance in Canada
There are two kinds of life insurance products in Canada: term and permanent.
Term insurance is the more straightforward product. It provides a death benefit only if the insured dies during the period specified in the policy.
Policies are typically for 10 or 20 years. Some insurance companies offer 30-year terms.
Premiums and the amount of the death benefit are fixed for the duration of the term.
Permanent insurance is also called whole life or universal life. It accumulates cash and provides insurance coverage for the lifetime of the insured.
Premiums don’t increase as the insured ages. Many whole life and universal life products also allow policyholders to withdraw cash value or use it to pay premiums.
Most insurance companies offer riders on both term and permanent life policies. Common riders include critical illness, disability, and coverage for the insured’s children.
Knowing the basic language of life insurance can reduce confusion and improve your buying experience.
The policy owner is the person who signs the policy contract with the insurance company.
The insured is the person whose life is covered by the policy. Many times the insured and the policy owner are the same person. But they don’t have to be.
Coverage is the amount paid to the beneficiary upon the death of the insured.
Cash value is the savings element of a permanent life insurance policy. It is the policy owner’s ownership interest in the policy.
Surrender value is the amount the policy owner receives should they cancel the policy. There are several factors that influence surrender value. These include how long the policy has been in force and accumulated cash value.
Cost of insurance (COI) covers the expenses the life insurance company incurs to hold the policy. With term insurance, your entire premium payment goes COI. With whole or universal life policies, COI is deducted from premium payments. The balance goes to the cash value.
Insurance companies reserve the right to ask anyone applying for life insurance to complete any combination of:
- a medical questionnaire
- lab tests on blood and/or urine
- a physical exam by an authorized physician
Underwriters then use that information to assess risk and determine the cost of insurance.
Sharing of Information
Whenever you apply for life insurance in Canada or the U.S., the insurance company will pull your MIB file. MIB (formerly the Medical Information Bureau) is a member-run, not-for-profit organization. It tracks and shares information gathered from applications for many kinds of insurance.
MIB also reports on how much life insurance coverage has been issued on the life of the person you’re looking to insure.
This sharing of information is designed to improve underwriters’ risk assessment. But it also helps consumers not become over-insured, which can cause financial strain.
Life insurance in Canada is regulated the Office of the Superintendent of Financial Institutions (OSFI).
This independent agency of the Government of Canada supervises registered life insurers. Regulations help ensure life insurance companies can meet their financial obligations to policy owners.
Canadian life insurance companies are also subject to regulations specific to the provinces where they operate.
Who Sells Life Insurance in Canada?
There are two kinds of life insurance agents in Canada. Some are employees of life insurance companies and only sell that company’s products.
Others work for independent brokers and can offer clients products from a variety of insurance companies.
All potential agents must complete the Life License Qualification Program (LLQP). Only approved education providers can offer LLQP.
Upon completion of the LLQP, the prospective agent must pass a licensing exam in each of the provinces where he/she wants to sell life insurance.
Licensed agents can then sell life insurance. Independent agents must also get authorization from each insurance provider to sell their products.
Buying Life Insurance in Canada
Because there are two kinds of agents, you can buy your life insurance directly from many of the larger insurance companies. This can be a good option for people who have an existing relationship with the insurance company.
But using an agent through insurance broker can save you time and money. The agent does the legwork of finding the product with the right features and cost for you. They’re often well-versed in the underwriting process of each life insurance company. Their insight can help speed up the approval process.
Even if you want life insurance from one of the large insurance companies, you can use a broker. The large companies often use independent agents and “in-house” agents, giving customers more ways to buy policies.
For example, if you visit Insurdinary Canada Life Insurance, you can quickly find an agent licensed to sell policies from Canada Life.
Taking Care of Business
Getting life insurance is one of those things you might not like to do but feels good once you do.
It protects your business and family from financial distress in the event of your death. It offers everyone peace of mind. Act today and rest assured tomorrow.
Be sure to check our blog often for more tips and insights for successful business owners.