What does life insurance cover or not cover? Who can or cannot take out a policy? Discover the answers to these questions and many more.
Buying life insurance for yourself and your loved ones is a big step. The experience can be very personal and not always pleasant.
- Perhaps talking about your health or thinking about death makes you feel uncomfortable.
- You might also wonder if your questions will raise doubts about your health or your motivations.
However, it is by finding the answers to some difficult questions that you will gain the courage to make the right decisions for you and your family.
Will I raise my advisor’s suspicions if I take out a significant life insurance policy for my spouse?
In real life, it’s impossible to insure an adult without their knowledge. It’s not like in the movies! Moreover, the age and income of the insured person are key factors in determining the amount of the policy. Insurance is meant to replace their income for a certain period. Life insurance does not serve as an estate plan.
For example, the maximum could be 25 times the annual income for someone under 40 years old. Suppose your 35-year-old spouse earns $80,000 per year. You could insure them for up to $2 million. This cap decreases as one approaches the normal retirement age. Between 50 and 60 years old, for instance, the insured amount could drop to 10 times the annual income. Therefore, your insurer might limit your new policy to $1.5 million for your 55-year-old spouse earning $150,000 per year. The amount of insurance you request must make sense. The need for coverage must be clear. If you want a multi-million dollar policy for your spouse when their income is not of that magnitude, your advisor may be surprised.
Can I get life insurance despite my health condition?
It depends on the nature and severity of your health condition. Currently, an early diagnosis and effective treatment can extend life expectancy in many cases. These advancements are reflected in insurance pricing. The best way to find out if you are insurable is to speak with an advisor. Once your insurability is confirmed, you will need to submit a full underwriting application. However, if a healthcare professional states that your condition is serious, your insurance may cost more.
If you are completely uninsurable*, you can still take out a “guaranteed acceptance” policy. In this case, there is no need to answer questions about your health. The coverage amounts are lower (typically not exceeding $25,000), but they can help families cover funeral expenses.
Would you like to learn more about optional life insurance?
* (You are considered uninsurable when you cannot obtain a conventional insurance policy due to an excessively high risk of death.)
Can I buy life insurance if I have a dangerous hobby?
It depends on how dangerous the activity is. Suppose you’re learning to skydive. To make their decision, the underwriter studies the mortality rates* of skydivers. Their conclusions can vary and may even lead to a direct refusal to insure you. However, they could accept you with a higher insurance premium. Your policy could also cover various causes of death, excluding those related to skydiving.
* (Insurance companies rely on mortality tables to determine your life expectancy. They take into account known risks related to your health and lifestyle.)
Am I too old to buy life insurance?
In general, the older you are, the more expensive life insurance becomes. This is because the longer time goes on, the higher the risk of death. Term policies often have an age limit for purchase, which corresponds to the duration of the contract.
For example, you could have:
- A 10-year term life insurance policy up to age 75.
- A 30-year term life insurance policy up to age 55.
But why would you want life insurance if you no longer have dependents or a mortgage? Because it could help pay for your funeral expenses. Alternatively, the non-taxable death benefit could help your children manage inheritance costs. You can buy permanent life insurance, whether you’re in your 50s, 60s, or even 70s.
Continue reading: Is it too early or too late to get life insurance?
Does life insurance cover COVID-19?
Yes. In 2020, Canadian insurance companies paid out $154 million in individual or group life insurance claims for deaths attributed to COVID-19. This is according to a report from the Canadian Life and Health Insurance Association (CLHIA). In total, insurance companies paid out $14.3 billion in individual or group life insurance claims.
Does life insurance cover suicide? What about murder?
Life insurance covers death by suicide, provided the policy has been in place for at least two years before the person’s death. Rules may vary between insurance companies, so it’s important to read the fine print. Insurance companies also cover death by homicide, as long as the beneficiary is not the perpetrator or involved in the murder.
Can I take out an insurance policy for someone who is not a family member?
Yes, if you have an “insurable interest” in that person. In other words, their death could put you in financial difficulty. For example, you could insure your business partner as a beneficiary, because he or she helps you run your business. The insurable interest is a rule that prevents people from profiting from someone else’s death. If the insurable interest is not well demonstrated in your application, the underwriter may contact you for more information.
Translated with DeepL.com (free version)
Do I need to list my spouse as beneficiary?
Spouse, children, friends or even charity… You can name anyone as beneficiary as long as they have an insurable interest in your life. Married people normally name their spouse or children, as they are the ones most affected financially by the death.
What happens if I’m still alive when my term life insurance expires?
Term life insurance covers you for a set period (or duration), such as 20 or 30 years. At the end of this period, the policy ends (unless you renew it or convert it to permanent life insurance). People often buy term life insurance because they feel they only need it for a limited time. This may coincide with the duration of a mortgage or their children’s independence.
In general, term life insurance also costs less than permanent life insurance. But once the term has expired, it could be considerably more expensive to insure you. Why would that be? Your age, which will be higher than when you first took out the policy, or your health, which may have deteriorated. However, you may still need life insurance at that time. This could be the case, for example, if you are financially supporting an adult child or grandchild. It may be possible to renew your term life insurance at a higher price, or to convert it to permanent life insurance under certain conditions.
Continue reading : Term or permanent life insurance? What you need to know to make the right choice
Will I receive the money in time to pay for the funeral?
As the beneficiary of a life insurance policy, you can submit a claim as soon as you receive proof of death. The funeral home normally provides several within two or three days, once all arrangements have been made. If your claim is straightforward, the earliest you can receive the money is 10 to 14 days after submission. Most funeral homes have no problem waiting for the death benefit to be paid. However, it’s best to confirm this information when you make the funeral arrangements.
Who can I ask more questions to about life insurance?
An advisor can answer your questions and explain how life insurance works. He or she can also direct you to the best option for you.
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This article is intended to provide general information only. Sun Life Assurance Company of Canada does not provide legal, accounting, tax or other professional advice. If necessary, please consult a specialized professional who will conduct a thorough review of your legal, accounting and tax situation.
