What are the pitfalls to avoid when purchasing life insurance? Find answers here.
Wait before buying life insurance? Yes and no
It can be advantageous in certain specific contexts…
Several factors are considered by insurers to determine the cost of the premiums you have to pay when you take out a life insurance policy. Among these, there are criteria relating to the insured, including health status or his status regarding the use of tobacco, alcohol or non-prescription drugs.
Knowing that by answering yes to one of the questions concerning these criteria, you could see the cost of your premiums increase, you may be tempted to postpone this business of buying life insurance instead of not telling the insurer the truth (which would simply be a false statement).
Why postpone tomorrow? Quite simply to reach an objective, oh how honorable, before returning to the insurance company like losing weight, quitting smoking, lowering alcohol consumption, having a better state of health …
Your insurability and your age are linked so, if not, it doesn't pay to wait if you can afford it
Most of the time, these goals imply long-term changes. If in the end, achieving these objectives allows you to benefit from a reduction in premiums, it should not be forgotten that age also has a role to play and significantly, on your insurability.
How? 'Or' What ? Over time, we become less and less insurable, because for ordinary people, with age, we are more likely to suffer from health problems and die. It is therefore not surprising that the premium for a young insured is more affordable than for an older insured.
It is therefore generally more advantageous to take out life insurance now to benefit from protection in the event of the unexpected rather than taking your time.. Moreover, once you have reached the objectives that you set for yourself, you can always declare the change that has taken place in you to the insurer in order to obtain a reclassification of your contract.
Among the pitfalls to avoid for life insurance: choosing too little life insurance
If you choose too little insurance compared to the needs for which you have taken out life insurance, the consequences could probably be :
- A payment by the insurer in an amount that does not cover the immediate expenses (debts, mortgage balance, funeral expenses, etc.) of the family, especially if you die early enough
- The financial difficulty of the family who cannot maintain their standard of living for the years following your death
How can I do ?
To obtain sufficient coverage, consult an insurance professional (financial security advisor, direct insurer, insurance broker). This will allow you to:
- Understand the insured amount you can afford
- Defining family expenses as well as debts for the years to come
So, you clarify your life insurance needs and are able to determine an adequate value in terms of the amount insured in order to benefit from appropriate coverage, but also within your reach.
Other mistakes to avoid while taking out and during life insurance
Don't shop for your life insurance
Among the advice we want to give you regarding choosing your life insurance is shopping! For such a large purchase in a lifetime, it is important to shop around.
With this web platform, you can call on the expertise of one of our partners (insurance brokers or financial advisers in the province of Quebec) for free to sort out excellent life insurance policy offers for you so as not to receive only the best. This saves you time and allows you to spend it on other activities.
Failure to be honest with the insurer and make a false statement
The most common cases are distortion of the truth (state of health, healthy lifestyle, family history, etc.) or evenomission of important information.
The purpose of such a maneuver? Benefit from lower cost for life insurance. However, this will undoubtedly have unfortunate consequences. :
- The insurer refuses to make the payment
- Your life insurance is canceled
Ultimately, by doing so, you will have compromised the financial security of your family and it is as if you paid your premiums for nothing …
Do not name beneficiaries
In this case, upon your death, your life insurance policy may be subject to approval, which is unlikely to benefit your tax heirs. By naming your beneficiaries, be specific to allow for no misinterpretation.
If you were to designate a minor child, a child with special needs or a dependent adult, it is best to create a trust for them and make them the beneficiary of your life insurance policy.
Appoint a single beneficiary to your life insurance, without designating subsidiary beneficiaries
In the same case as a contract without designated beneficiary, if your only beneficiary dies while you are alive, the proceeds of your life insurance policy are paid to your estate and can probably be approved.
To this end, the distribution of your assets will come from the decision of a judge. In this case, paying the death benefit to the family may take some time. It should therefore be understood that in the presence of a subsidiary beneficiary in your life insurance contract, this beneficiary receives the payment of the proceeds of the policy if the first beneficiary should die while you are still alive.
Fail to update your beneficiary designation form
This can result in your assets not being passed on to the person of your choice. Among the events with which it is important to review your designation of beneficiaries, you can note these:
- Death of a beneficiary while you are still alive
- Tell your loved ones where to find information about your life insurance policy so they have no trouble making a claim after your death.
- If you lose your beneficiary designation form when you have already revised your beneficiaries, in the event that the beneficiary (ies) is (are) not designated by law or the contract, the instructions you previously gave to the insurer apply.
Thinking that once you buy the policy, you no longer have to think about it?
Needs evolve at each stage of life. For example, if you have reached retirement age, disability insurance (to compensate for loss of income) is probably not the insurance you need most.
Insurance advisers generally advise to systematically assess your needs and your situation every two years so that you can ask your insurer to reclassify your contract or to change your insurance policy.
However, you do not have to wait for this period. Certain important events in life should lead you to reassess the situation:
- Baby birth
- Acquisition of real estate
- Change of income bracket
Fail to pay premiums
Doing so will compromise your coverage and your family may not even be covered when you die.. In fact, if you do not pay your premiums, the insurer generally gives you 30 days to settle the payment, otherwise your protection will end on 31e day.
In order for your policy to be effective again, the insurer may require certain conditions, such as a new medical examination.
Many things to know about life insurance
Group life insurance does not always cover all of your needs!
For what reasons ? Here are a few :
- It is generally no longer valid once you no longer work for your employer
- Most of the time, you only get a basic type of protection
- The insured amount is often predetermined
To benefit from sufficient cover, you can consider your group insurance as supplementary insurance and take out individual life insurance to cover the rest.
Also, mortgage life insurance (mortgage protection through life insurance) is, in the long term, more attractive than mortgage loan insurance (offered by the mortgage lender)
Certainly, the insurance offered by the lending institution will ensure you cover the balance of your loan on your death as well as the payment of monthly payments in the event of disability. However, here is a pretty striking little summary:
|Mortgage life insurance||Mortgage loan insurance|
|The insured amount does not change even if you have finished paying your mortgage||Decrease in protection as the balance of your mortgage is paid|
|The amount of the premium does not change||The amount of the premium does not change even if the insured amount decreases with the payment of the mortgage|
|You can designate the beneficiary (ies) of your choice, free to choose the use of the payment received from the insurer||Your mortgage lender is the beneficiary of the insurance policy|
|You continue to be insured despite the payment of the mortgage||You no longer have coverage once the mortgage is paid|
|You do not need to subscribe to another life insurance in the event of a change of mortgage lender, a move or the sale of your property||A change of mortgage lender, a move or the sale of your property requires you to take out other mortgage insurance|
Buying life insurance for your child is really not a priority
Losing a child is not supposed to affect you financially: normally, it is not the children who provide the income for the family, but the parents. It may be cruel to imagine, but the death of a child decreases instead of increasing the expenses of a family.
It is therefore interesting to take out life insurance for parents who generate income. (not for children) so that when they die, the family can receive a substantial sum to maintain their standard of living, to meet immediate expenses, etc..
In the case of a child or family member who cannot be independent, life insurance is still taken out in your name so that he or even a trust for him is even better, can be the beneficiary.
Also, you can purchase permanent life insurance knowing that you have a genetic disorder that may have been passed on to your child to allow them to benefit from coverage, as they may have difficulty getting insurance through after.
A life insurance policy doesn't have to cost you the eye to keep you and your family financially secure. An insurer or insurance broker can advise you on the product that suits you without breaking the bank, whatever your case. (even if you face certain health problems).
Besides giving you these tips for choosing your life insurance and providing real security for your family, a die our partners (insurance brokers in your area) also offer to shop with you to help you find the best quote.
To do this, we invite you to complete the form on this page. It’s a practical and fast service accessible to all in Quebec. In addition, it is without engagement !