It’s a great idea to use the services of an insurance broker when selecting your life insurance policy. Brokers are trained insurance experts with knowledge of a wide variety of policy options and can point you in the right direction based on your specific life circumstances and financial needs.
As insurance can be a complex product, it’s important to have a full understanding of your policy terms before signing that dotted line. Here’s a list of questions to ask your broker when choosing your coverage.
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1. What are your qualifications?
First things first - it’s important to vet your insurance professional. Ensure they’re qualified and well informed on a variety of insurance options and not simply selling a product provided by an associated bank or lender. Your insurance professional should be a Certified Financial Planner, Chartered Financial Consultant, or a Chartered Life Underwriter.
2. Are you paid commission?
Does your advisor have a hidden agenda? With so many policy options available to choose from, it’s important that your advisor take an objective stance. The last thing you want is to be sold on coverage that isn’t your best fit, just so your advisor can pocket an extra dollar.
Fixed-fee advisors who do not collect commission are more likely to base their suggestions on your personal needs, rather than products promoted by their affiliations or parent lenders.
3. How much coverage do I need? How did you determine this?
Determining your required coverage is based on two main factors: the outstanding financial commitments you have, such as a mortgage, car payment or student loans, and the amount required to replace your income in order to provide for your loved ones on an ongoing basis. Your advisor should determine your required coverage based on your specific financial situation - using general statistics or coming to a ballpark amount should raise a red flag.
Your advisor should also take into account coverage you may receive from other sources, such as work benefits or even coverage offered on a credit card. For example, 30% of Canadians said in a Desjardins Group study that they did not know whether their credit card included travel insurance, while 32% say they're aware, but know little about the coverage itself.
4. Who is my insurance carrier?
A benefit to using a broker is that they have access to a wide variety of insurers and policies. However, it’s still important for you to feel 100% secure with the insurer before purchasing their product. Ensure the carrier is reputable: look into their credentials, track record and how long they’ve been in business. You can also look up an insurer’s fiscal rating using services provided by credit and financial services raters such as Standard & Poors or AM Best Company.
5. How long is my term?
If you’re purchasing term insurance, be aware of when it expires and when you’ll be required to renew or re-qualify. An insurance broker should also be able to help you choose the right insurance term length. For example, if you’ve recently bought a new home, it could be a good idea to take insurance out for the length of the mortgage, though the birth of a child could make permanent life insurance the right choice.
6. Do I need to take a medical exam?
Some insurance policies, particularly term insurance, require that you be examined by a doctor to confirm your state of health in order to qualify for coverage. This assessment is used by the insurer’s actuaries to determine your risk of death before the term is up - and the chance the insurer will have to actually pay out the policy. This is why healthy people pay less in premiums, while unhealthy or older policyholders are charged more for the same coverage.
Some insurance types, such as permanent insurance, don’t require a medical exam to qualify, but are priced much higher than term options.
7. Is there a surrender or cash value?
Is it possible to receive the cash value of the life insurance policy prematurely? Some policies, such as permanent life insurance, accumulate a cash value over time as premiums are paid. This equity can be tapped into before maturation on a borrowing or surrender basis. Surrendering refers to permanently withdrawn money from a policy, resulting in a smaller payout on maturation, or the discontinuation of the policy in exchange for its total value. This is a frequently overlooked insurance feature - only 44% of respondents know that not all insurance policies come with a surrender value.
8. What if I become unhealthy?
If you’ve been deemed less insurable due to a medical issue such as a heart attack or activities such as smoking, being reassessed after a period of time may decrease your insurance premiums. Inquire if there are ways to reduce your insurance rating through healthy life choices or medical treatments. In the case of smokers, premiums are often almost double than those for non-smokers. Quitting for at least a year can re-qualify you for non-smoking rates.
10. What if I’m disabled?
What happens if an accident or illness renders you unable to work and pay your insurance premiums? Some features, such as disability riders or premium riders, can be added to your insurance coverage to waive payments in case the policy owner becomes unable to earn income. Some policies also automatically include this coverage.
It’s also important to know how your insurance company defines disability; coverage may only be applicable if you’re unable to work at any job, or may only extend to your current occupation.
If you become chronically ill and require specialized care, your coverage may offer accelerated death benefits, which can cover the cost of medical bills before death.
11. What are the policy exclusions?
What activities or causes of death make the insurance policy null and void? Can coverage be refused in the case of the discovery of a pre-existing health issue?
12. What happens when my policy ends?
Is it better to renew your term policy, or re-qualify altogether? Is it possible to upgrade to a permanent policy, and is it in your best interest? Should you let your coverage expire? Your insurance advisor should be able to assess your next steps and create an ongoing insurance strategy for you.
13. Does my death benefit include inflation adjustment?
What will $1,000,000 look like in 30 years? While your coverage may seem adequate now, it’s important to look ahead and consider changing economic conditions. Make sure that your coverage isn’t prone to factors that could decrease its value over time.
14. What guarantees are included with my permanent life insurance?
Should national interest rates go down, or the insurance company faces fiscal difficulty, would your coverage still be guaranteed? Ensure you know what’s included in your coverage, regardless of external causes.
15. What if I can’t pay my premiums?
Is there a grace period in the case you are unable to pay your premiums? With most policies, those with insufficient funds often have 30 - 70 days to make their payments, followed by a six-month window where they can set their coverage back up with identical terms. You may also have the option of a premium holiday, but may face months of backed up payments when your policy is re-activated.
Permanent policyholders have the option of borrowing against the policy’s cash value, referred to as an automatic premium loan. If the money is intended as a loan, it may be subjected to interest, often around 5%, or it can be considered surrendered from the final face value of the policy.
Questions About Your Broker
The first step in choosing the right insurance policy is choosing the right broker. Here are a few questions you can ask your broker regarding who they are and what they do, although some of these questions will have to be answered through research. The answers to these questions will help you to determine whether or not the broker you’re speaking with is the right choice for you.
- Does your broker have a good reputation?
- How long has your broker worked in the industry?
- How knowledgeable is he or she about the industry?
- Can you meet with their staff?
- How often will your broker be in contact with you?