difference between life insurance policies

[newhomebuyer]

What is the difference between term life insurance, whole life insurance and mortgage life insurance? Also, if I have a life insurance policy and I'm getting divorced, how will this affect it?

[konfucius18]

Hi newhomebuyer!

The two biggest differences between term life and whole life insurance are the needs and the price. First, you have to think about why you're buying either or in the first place. Term life is the better choice for new families that have a lot of debt. For example, a dual-income family in their mid-thirties with a 250k mortgage with 20 years left, 20k in other loans/cards/credit lines and a young child. Whole life, on the other hand, is great if you have extra cash to spare to give the ultimate gift (50-100k usually) to your spouse or children. It really boils down to what you can afford.

I always suggest people to get both. Get a large amount of term insurance to cover needs that will go away in 20 years (and a possible accidental death because most people do live past the age of 55) and get a smaller amount of whole life insurance to ensure your loved ones can pay for your funeral and other miscellaneous fees.

Mortgage life insurance on the other hand is the most inexpensive and fastest way to get coverage. The application process is very quick and rarely does it involve a nurse coming over to your house to examine your blood, urine and vitals. The only problem is that the face value/money for your loved ones goes straight to the bank, literally. This leaves nothing for your family to do what they need to do the next day after your death. Yes, the house is immediately paid off, then what?

To answer your last question, I think the easiest way to remove an ex-spouse is to get a lawyer first. Then see if your insurance company can change the beneficiary to another family member or your children only.

I hope that helps.

Feel free to email me directly (konfucius18@yahoo.ca) if you have any more questions.

Sincerely,

A non-commissioned insurance branch manager

[engapinuehive]

Sure you can, but its the WORST rate of return About 10 of what you pay into it, goes to "cash value". There are surrender fees.

If I told you, oh, heres a retirement fund, for every 100 you pay in, 10 will be available to you, would that be a good return on your money? Because thats the return on "whole life". Plus, when you "surrender" the policy or take the cash, it cancels out the policy, then you have no life insurance

[peterjems]

Term life insurance is the most cost effective way to ensure the protection of your family in the event that tragedy strikes. The other type of life insurance that can be purchased is Whole Life. Whole life has a cash component as well as a death benefit. This type of insurance is more costly because of the buildup of cash value, it employs the logic of "pay yourself first." Both types of life insurance are a sound investment, but they satisfy different needs. Mortgage Life Insurance is a form of insurance specially designed to protect a repayment mortgage. If the policyholder were to die while the mortgage life insurance was in force, the policy will pay out a capital sum that will be just sufficient to repay the outstanding repayment mortgage.

After divorce it will affect in following way. How long the policy is maintained depends on what the policy was intended for. If it was meant as security for child support, it can be terminated when the dependent children reach the age of majority. Life insurance policies can also be maintained for longer periods of time if the parent so chooses. If life insurance is required to guarantee alimony, it may continue for as long as the alimony payments are required.

[DeniseM]

Whole or permanent life insurance involves high premiums and lifetime payments. The high premiums are on account of a cash value that is given to your beneficiaries, in addition to your death benefit. Since whole life insurance is life-long, you have to make premium payments until your death.

Term life insurance is insurance for a specified period of time. If you outlive the term, you lose all your premium amounts. There is no cash value involved with term policies, so the premiums are very affordable, and in the case of your death your beneficiaries get only a death benefit, which is usually high in comparison to the low premiums.

There are different variants of whole and term life insurance , and based on the riders you choose, you can customize your policy.

Mortgage life insurance works in the same manner as a decreasing term life insurance policy. It is taken out exclusively to pay off your mortgage in the case of your death. Its duration usually coincides with how much time your unpaid mortgage will take to pay off. In the event of your death, your beneficiaries get nothing, and the entire amount will go to your lender. Since mortgage commitments decrease over time, the death benefit too decreases accordingly. Mortgage policies usually have a high cost which adds up to your monthly premium payments, and mortgage interest.

If you are interested in a mortgage payment solution to your life insurance problem, I would suggest taking out a term life insurance instead, since the premiums are low and affordable, and as your mortgage amount decreases, your family can benefit from the money that is left over after paying off your mortgage dues.

When choosing a life insurance company, also check its ratings. A good rating (of A and higher) indicates that the company has a proven track record for paying off claims and has a strong financial reputation. These are important factors when deciding on your final policy as well.

To answer your last question, if your spouse is named as the beneficiary on your policy, and you end up getting divorced, it is possible to allocate a new beneficiary using Designation of Beneficiary form. However, if you are the primary earning member, and you are asked to pay alimony you will have to wait until the court gives you the go ahead on changing the beneficiary on any of your policies or investments. Your legal advisor will be able to help you more on this.

[CFP Oakville]

Ok. here is the five minute lesson on life insurance.

MISTAKE: Failing to buy enough insurance while you are still healthy.

Medical evidence is required when you buy life insurance. This evidence usually consists of a list of questions to elicit your medical history, a brief exam by a nurse, a blood and urine specimen and possibly a report from your doctor. If at a later date you decide that you really need more coverage, the process begins again. If your health has changed you may have to pay higher premiums.

MISCONCEPTION: Cheapest is the best.

That term policy premium might be cheap in year one. But most term policies renew at regular intervals (every 10,20 years) and the renewal premium rises at each interval because it reflects your new age.

In general, a 10 year term policy is the cheapest but by year 13 it is actually more expensive than buying Term 20. In other words, if you think you need coverage beyond 10 years, it is better to chose a 20 year term now.

MISTAKE: Failure to understand your options

So on each renewal the premium rises at each interval as stated above. But you do have options. Most term policies include a free option to convert your policy to permanent coverage before age 65. Converting to permanent coverage make sense especially if you have had a change in health. Even better, you will not require a medical to convert.

The types of permanent coverage eligible for conversion usually include whole life and universal life but these also vary by company. If you buy term coverage do so with a company that offers several options for the converted policy.

MISCONCEPTION: Buying through the internet is cheaper (no commissions to be paid)

Insurance comparison services on the internet say “buy direct and save money”. The fact is, you cannot receive a discount in the price of life insurance by avoiding a life insurance agent. Sales charges and costs (such as commissions) are built into the premium that you pay for any life insurance policy that you buy. You will be paying those built-in charges regardless of where you buy the insurance. Finding and using a local life insurance agent will not cost you more than dealing with someone in another city or province by telephone or mail.

MISCONCEPTION: ***ociation insurance has cheaper rates.
***ociations include organizations such as universities, credit card companies and consumer groups like CAA. Sometimes ***ociation rates are cheaper but in many cases the rates go up every five years. ***ociations are like groups where several insureds are lumped together and pay a premium relative to the group being covered. Even where limited medical questions are asked, the premiums reflect the inability for the insurance company to fully ***ess individuals and the group like rates is charged. ***ociation groups also may offer very limited conversion opportunities. Therefore if you cancel your credit card or if you are no longer a CAA member you coverage is cancelled.

As a smart consumer, obtain an individual insurance quote and compare the products for price, renewal options and conversion options.

MISTAKE: failure to understand that buying term is like renting life insurance.

Permanent (whole life) plans are more expensive in the early years but the premium stays the same for the duration of the contract. Because you pay more in the early years, you have some equity (cash value) in the policy. If you decide to cancel the contract you get the cash value back. However, you have no equity in a term policy. You pay premiums applicable to your age and this rate rises at every scheduled renewal. Because you are paying the true cost of coverage, there is no equity in the policy. If you cancel the coverage 10 years down the road because the renewal rate is too expensive, then you walk away. Bottom line, you are renting coverage briefly and won’t have it when you need it or more importantly when your family needs it!

MISTAKE: paying your insurance premium on a monthly basis

The insurance company charges extra to those who pay monthly as they incur extra expenses to administer monthly payments. If you are able to pay the yearly premium it can save you up to 10%.

MISTAKE: paying extra for benefits (the frills) that you may never use

Waiver of Premium Benefit: the insurance company will waive the premiums if you become disabled. Few people understand that you must be totally disabled in order to be eligible. Also if you have term insurance the insurance company will usually pay only to age 65 while for some types of permanent insurance they will pay the premiums beyond age 65.

Guaranteed Insurability Option: In a nut shell you pay more now just in case you want to buy more insurance in the future without having to provide proof of health. It essentially insures your insurability. However, your premium for the new policy will be at current age rates. One more reason to buy all of the insurance that you need now and at your current age.

Accidental Death Benefit: This benefit guarantees that if you die in an accident, your beneficiary will receive an additional predetermined amount of money on top of the base policy amount Again, I’d say if you need accident coverage buy it rather than depending on an ADB rider hopefully supplementing the amount of coverage your family really needs now.

MISTAKE: buying coverage because no medical evidence is required.

This might sound appealing but in actual fact you will pay more for this insurance and the amount of coverage available will be limited. If you are healthy, take the time to prove it and pay premiums that truly reflect the good risk that you are.

MISCONCEPTION: the premium I see on the internet is what I get.

Insurance companies offer several cl***es of standard rates. Those in the top physical condition and with no risk factors will get the best rate. Premiums on the internet usually default to the top preferred category (the cheapest). However, keep in mind, only a certain percentage of applicants will actually qualify for the best rates.


MISCONCEPTION: waiting until you lose weight or stop smoking in order to get the best rate.

This is just procrastination. Yes, you may pay higher rates now but did you know that if you quit smoking or if you keep the pounds off for one year, you can apply to have your rate re***essed.




Term is great for cheap coverage, but is renting. Insurance companies pay less than 1% of claims.

If you go this route my thoughts (yes I sell insurance) is go term 20 because it is cheaper than term 10.



Do you like the new TFSA? If you want to buy a car for cash and pay yourself back instead of the bank then permanent insurance is the way to go

[Craig Ferguson]

If you are still looking, it is important to "plan" your insurance around your needs - income replacement in the event of death or disability. You must take into account any group insurance (life and disability) you already have, and work a plan around that to ensure your family's lifestyle is protected.

[tinkle]

These all cover different things, basically these all are same but comes with different scheme.