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7 things you've always wondered about life insurance

Danielle Boudreau
Getting life insurance early means avoiding medical exams if you choose to apply later. (Redbook)
Getting life insurance early means avoiding medical exams if you choose to apply later. (Redbook)

How much time have you spent considering the extended warranty on your new smartphone? What about a washing machine or car? After consulting with Google I usually decline the extra coverage — maybe I’m cheap, maybe I like to live dangerously (maybe both).

I’ll admit to spending less time worrying about my own lifespan than my iPhone’s. As unpleasant as it is to consider your eventual demise, it’s something best considered when that day is still far away.

Perhaps the biggest mistake people make is putting off the decision to buy life insurance. As a young adult it will be cheaper, you’ll be less likely to need a medical exam to qualify, and you can protect yourself in the future by ensuring your insurability.

When should I buy life insurance?

“The best time to consider purchasing life insurance is as soon as you become responsible for your own financial obligations,” says Wendy Hope, Vice President, External Relations, Canadian Life and Health Insurance Association Inc. (CLHIA).

Why so young?

If you’re in your twenties, you might still think you’re invincible—and odds are, you’re fine for decades. But the advantage to buying life insurance at a young age is that if something happens to you, there may be car payments, credit card bills, a funeral, rent or a mortgage, and other final expenses that would be covered, explains Saundra Roll, Assistant Vice-President, Business Development and Solutions, Individual Insurance, for Great-West Life, London Life and Canada Life.

The other advantage of insuring at a young age? “Ensuring your insurability,” says

“Ensuring your insurability,” says Roll. “You’re young right now, you don’t have a lot of need for insurance, but that need is going to grow. You might get married someday… have children, a mortgage, and the cheapest time to buy insurance is when you’re young and healthy.”

How do I get guaranteed insurability?

“If you buy [life insurance] at a young age and then want to convert your term life insurance into something more permanent, it’s a simple conversion, not something you’d have to go through medical underwriting again to do,” says Melanie Johannink, an advisor with Sun Life.

Without an existing policy, a person with medical conditions such as a heart attack would be declined for new coverage, or then they’ll be rated, meaning they’ll pay more if they qualify for insurance. Johannink gives the example of a client with diabetes who might have to pay a 50 per cent premium based on their condition.

[An advisor] will come up with an amount of life insurance you should have for today, and there’s also the ability to add a rider to your policy that guarantees your insurability and lets you buy additional coverage in the future without having to provide any medical evidence, explains Roll.

How much should I have?

It depends on a lot of factors—your age, financial obligations, family, employment and more.

CLHIA’s website has a worksheet that’s a good starting point, but hiring a licensed financial advisor who can determine your needs is a good idea.

Will I need to have medical tests to qualify?

“It depends,” says Roll. “Up to a specific base amount, just answer the questions on the application. Over that, depending on your age, you may have a blood test, which tests for things like nicotine. For higher amounts, we might go to your doctor and ask for a report, or have you do an EKG.”

Johannink cautions that you must fully disclose your history to avoid potentially having a future claim denied.

If you’re found to have misrepresented yourself, you could also have a claim re-evaluated based on new knowledge. For example, if a person is found to be a smoker but paid premiums as a non-smoker, they wouldn’t deny the claim but the payout would be adjusted accordingly, says Roll.

“Flag health concerns, so the underwriter sees and makes a decision,” says Roll.

What if I have coverage at work?

This is a pain point for Johannink, who explains that most people think they have a lot of coverage and they don’t, and they don’t realize until they leave their company, or need it.

She gives the example of a couple at 65 years old who are leaving an employer’s plan, and now they won’t qualify for regular insurance, so they’re facing much higher prices.

“Group coverage isn’t portable if you leave your employer, they might be able to convert to an individual plan,” says Roll. “Individually purchased coverage, you can take it wherever you go.”

Should I buy life insurance instead of mortgage insurance?

“Each type of insurance serves a purpose. Mortgage insurance is convenient and it may, in some instances, provide an individual who might not be able to qualify for regular life insurance at all to obtain coverage under certain circumstances,” says Hope.

However, Roll points out that mortgage insurance is a declining balance, with the coverage decreasing as you pay if off, unlike life insurance where the payout is fixed.

As well, your medical situation could change during a five-year term, you might have difficulty getting mortgage insurance again, says Johannink.

Instead, “get your own term life insurance that meets your needs,” she says. “Talk to your advisor about your needs and what’s best for you.”