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FAQS

1. How Much Life Insurance Do I Need?

Ask yourself the following questions:

  • How much of the family income do I provide?
  • If I were to die, how would my survivors, especially my children, get by?
  • Does anyone else depend on me financially, such as a parent, grandparent, brother or sister?
  • Do I have children for whom I would like to set aside money to finish their education in the event of my death?
  • How will my family pay final expenses and repay debts after my death?
  • Do I have family members or organizations to whom I would like to leave money?
  • Will there be estate taxes to pay after my death?
  • How will inflation affect future needs?

Some insurance experts suggest that you purchase five to eight times your current income. However, it is better to go through the above questions to figure a more accurate amount.

2. Who can take out a policy on my life?

Only someone who has an “insurable interest” can purchase an insurance policy on your life. That means a stranger cannot buy a policy to insure your life. People with an insurable interest generally include members of your immediate family. In some circumstances your employer or business partner might also have an insurable interest.
Insurable interest may also be proper for institutions or people who become your major creditors.

3. Must my beneficiary have an insurable interest?

No. If you buy a policy on your own life, you become the owner of the policy. As the owner, you can name anyone as beneficiary, even a stranger!

4. Why is term life often called “temporary” insurance?

Insurance agents sometimes refer to term insurance as “temporary” because the term policy lasts only for a specific period. It is probably no more “temporary” than your auto or homeowner insurance. Just like term, those types of policies provide coverage for a specific period of time, and must be renewed when that period ends.

5. Why are some insurance agents reluctant to sell term insurance?

An agent may believe term is risky, but only because you could have a hard time buying a policy in the future if your health deteriorates or you cannot afford the higher premiums. Commissions could also be a reason for an agent who discourages term.

6. What do I get when I buy term insurance?

You have bought and received the company’s guarantee that if you die during the term of the policy, it will pay a death benefit to your beneficiary.

7. Does that mean I’ve wasted my money if I don’t die?

No more than you have wasted money by buying car insurance but never having an accident. You’ve purchased peace of mind. With term life insurance, if you die during the term, you know the company will pay your beneficiaries.

8. I understand my permanent policy would be “fully paid up” at age 65. What does that mean?

“Fully paid up” means just that. You have made enough premium payments to cover the cost of insurance for the rest of your life.

9. What is a “participating” policy?

That is a policy that may pay you dividends. You have a chance to “participate” in the company’s earnings. A life insurance dividend is actually a refund of part of your premium. When a company collects more money in premiums than it needs to pay death claims and maintain the insurance pool for future claims, the company may pay dividends at the end of that year.

10. An insurance agent has suggested that I buy term instead of whole life. Does it make sense to buy term and invest the difference?

“Buy term and invest the difference” has been a popular sales slogan for term life. The pitch compares term, the least expensive form of life insurance, with other kinds of life insurance.

Example:

  • $100,000 death benefit at age 35
  • Annual whole life premium: $1,800
  • Annual renewable term premium: $250
  • Difference: $1,550

What are your choices?

1. Buy whole life. The “difference” is used to keep your premiums lower than the actual cost of insurance as you get older.

2. Buy term. You keep the difference.

In addition, make sure you consider the following:

  • As you get older your term premiums will increase to keep up with the cost of insurance;
  • If you invested the difference, you could use your investment to pay the higher cost of insurance;
  • If you spent the difference you will have to dip into other savings to pay higher premiums; and
  • If your health deteriorates you may not be able to buy a new policy
11. For 10 years I paid the insurance company $1,000 every year. That’s $10,000! But when I cashed in the policy they sent me only $5,800. Where did the rest of my money go?

The rest of the money paid for insurance. You were entitled to only the cash surrender value – that is, the amount you had paid to “pre-fund” insurance in your old age. The amount would have been even less if you had borrowed money that had not yet been repaid.

12. What happens to the cash value in my policy when I die?

When you die, the insurance company will pay the death benefit. No matter how much cash value you may have had in the policy the moment before you died, your beneficiaries can collect no more than the stated death benefit. Any loans you have not repaid (plus interest) will be subtracted from the death benefit.

What options for the payment are available?

You can chose to pay, Monthly, Quarterly, Semi Annual, Annual. By cheque, direct debits, credit card.

The result: your beneficiary could wind up with less than the face amount of the policy.

The exception: some whole life policies pay both the death benefit and the cash value when you die.

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