Reduced paid-up insurance lets you exchange your whole life policy for a reduced guaranteed death benefit that doesn’t require monthly payments. This type of policy is ideal if you’ve built a steady amount of cash value in your whole life policy and no longer want or can’t afford to pay your monthly premiums. 

While this may seem like an easy way to utilize a whole life policy’s cash value and get away with not having to foot your insurance bill later in life, it may mean the death benefit your family gets is significantly lower than you originally planned. PolicyAdvisor is in the business of providing policies, but we also want to help you reach your financial goals. If you use your cash surrender value to purchase a reduced paid-up policy, it’s vital to understand the terms and conditions of the transactions and what your alternatives are. 

This article explains the details of reduced paid-up policies and goes over situations where it may be beneficial for your financial situation.

What is reduced paid-up insurance?

A reduced paid-up insurance is a type of policy that results when you take the cash value of the policy as the death benefit, rather than the originally agreed-upon coverage amount from a whole life insurance policy. It’s “paid-up” meaning you won’t have to make further premium payments. However, the death benefit is usually reduced compared to the original whole life policy, depending on when you take this option. Some companies may require a certain amount of elapsed time before you can take this option, so it’s always best to check your policy wordings.

What is a non-forfeiture clause?

Non-forfeiture clauses are an insurance option that is included in whole life policies that allow you to receive full or partial benefits or a partial refund of your premiums if you stop making payments, depending on which option you choose. 

You could also receive other non-forfeiture options such as

• Receiving the cash surrender value as hard cash
• Purchasing extended-term life insurance, which converts the cash value of your whole life into a term life policy with the same death benefit – your whole life policy’s cash value generally determines the coverage period
• Using your accumulated cash value to pay your future premium
• Choose reduced-paid-up insurance, which uses your cash value as your new guaranteed death benefit. 

Non-forfeiture clauses are available with universal life insurance, as well. However, with universal life policies, you choose a pre-selected investment portfolio based on your risk tolerance.  As a result, the cash value of your universal life policy changes depending on the performance of the investment portfolio and can change the death benefit of a reduced paid-up policy or the term of an extended-term life policy. 

Ultimately, non-forfeiture clauses are a great way to protect yourself in the event you’re unable to pay further premiums. It provides options on converting the cash value you’ve worked so hard to build.

How does reduced paid-up insurance work?

If you no longer want or can’t afford to pay premiums, you can use the non-forfeiture clause described above. A life insurance company can calculate a reduced coverage based on the cash value of your whole life policy and how much in premiums you’ve paid thus far. 

You can only purchase a reduced paid-up policy with a permanent life insurance policy, like whole or universal life insurance. Read more about the differences between whole vs. universal life insurance. 

Term life policies don’t provide a cash value that can convert into a reduced paid-up policy since the benefit is not guaranteed. You only get the death benefit from a term policy if you die within the allotted period or term.

A whole life insurance policy lets you plan for your death with a guaranteed, lifelong benefit. Some whole life policies offer dividends to policyholders similar to how you receive payouts as an investor in a particular stock. 

You can use these dividends in numerous ways. Of course, you can accept it as cash, but some policyholders prefer other options like reducing their premiums, reinvesting it into a larger death benefit, or adding a term policy. 

Whole policy dividends are flexible and provide holders numerous options to reinvest their earnings.

Which life insurance policies have dividends?

Participating whole life insurance and universal life insurance have the added benefit of policy dividends. Participating whole life insurance combines a whole life policy’s guaranteed death benefit with the opportunity for tax-deferred cash or investment growth. 

The insurer pools the cash or investment portions of participating life insurance policies to invest. These investments can generate surpluses and pay out as dividends to policyholders. Insurers also pay out dividends based on their own financial performance and profits. 

Universal life also has this benefit, but with more choice. With a universal life insurance policy, you get to chose a pre-selected investment portfolio, depending on your risk appetite. Some use the dividends generated from these investments to pay their policy premiums. Because you have this choice of risk portfolio, universal life insurance is usually more expensive—and you may be on the hook for premium shortfalls if your choice of portfolio doesn’t perform as expected.

How much is a usual life insurance policy dividend payout?

Dividend payouts vary with policies and insurers. It generally depends on the financial performance of your insurer and their investment portfolios. Dividend payouts can also adjust based on the competitive environment and whether your policy provides a guaranteed or non-guaranteed payout. 

Your insurer will release a report with their expected returns, but that does not mean the dividends are guaranteed. It is possible to purchase policies with guaranteed dividends, but they are more expensive (more on this below). 

However, even if the company’s investments don’t perform as expected, with participating whole life insurance you won’t have to pay any more premiums than anticipated – you would just get less of a dividend payout.

Financial performance of the insurer

A subset of your insurer’s profitability includes the number of claims they receive. This includes claims for life insurance and the other insurance products that they sell, such as critical illness or disability coverage. 

If an insurer receives more claims than anticipated, it could result in poorer than expected performance. If an insurer gets fewer claims than anticipated, it could result in better than expected performance. The latter could then result in higher dividend payouts.

Your insurer’s financial performance also depends on other factors. Expenses in a year could be higher or lower than expected, which affects their bottom line. 

Pooled investments

Part of participating life insurance is saving and investing on a tax-deferred basis. Insurers thus pool together premium payments into an investment portfolio. Strong investment performance ultimately leads to surplus cash and higher dividend payouts. 

The competition

Insurers compete with one another to attract the premium payments of you and other Canadians. Thus, if one insurance company provides superior dividend payouts, it could push other insurers to dig for extra cash to increase their payouts. 

Guaranteed versus non-guaranteed dividends

Dividends can be guaranteed or non-guaranteed, subject to the terms of your policy. You generally face a higher premium if you purchase a whole life policy with a guaranteed dividend. This compensates for the insurer’s obligation to pay a dividend irrespective of their investment portfolio’s financial performance.

By purchasing insurance with a guaranteed dividend, you know the minimum you receive in payouts from the get-go. This certainty is beneficial for people like retirees who need sources of guaranteed income.

What are the dividend options for participating whole life insurance?

Participating whole life insurance can provide dividends in the form of cash, reduced premium deductions, a paid-up additions policy, or an extended/enhanced term policy. Each has its own benefits. 

Cash or money back

Sometimes, simple is best, and what’s more accessible than outright cash? However, you’re often subject to more significant tax consequences by taking the dividends from a life insurance policy in cash form. Because it’s a capital gain, you’ll likely be taxed on the cash you make. 

Premium reductions

Another straightforward method to receive dividends is through a premium deduction. Typically, this is on a dollar-for-dollar basis — i.e., if your life insurance premium is $100/month and you receive $25/month in policy dividends, then your premiums would now be $75/month. 

You also won’t lose any of the benefits associated with your policy or reduce the growth rate of your policy’s cash surrender value. 

Paid-up additions

A paid-up addition is an additional whole life insurance policy bought with your original policy’s dividends. This allows you to increase your death or living benefit by increasing your policy’s cash value. 

Generally, paid-up additions are positioned as a purchasable life insurance rider that’s structured into your policy when you initially buy it. However, some insurers also let you purchase it later on. 

By purchasing paid-up additions, you accelerate the compounding effect of your policy’s cash value and save and invest even more money on a tax-deferred basis. 

Dividends on deposit

This is like a savings account—your dividends are automatically deposited into an account at a compounding interest rate set by the insurance company. You can withdraw this at any time, but the interest earned is taxable. 

Enhanced insurance

You can also funnel your dividends into a term insurance policy to either top up your coverage for a set term or to create a less expensive way to achieve whole life coverage. Enhanced insurance uses a combination of whole and term insurance to meet your insurance needs. Your policy dividends are used to purchase a combination of paid-up additions and 1-year term insurance. The insurer sets up a base whole life policy and, using the policy dividends, purchases a term policy that tops up your coverage to your desired amount. Using this combination structure usually results in a cheaper monthly premium than if you went for a single whole life policy for the same amount of coverage.

Many purchase life insurance for the protection it provides, but don’t put much thought into the process their beneficiaries will go through to get the life insurance payout. During this difficult time, beneficiaries may be unsure how to collect the financial security you have set up for them. Thankfully, claiming a life insurance benefit is a fairly quick and straightforward process in Canada.

Read on to find out exactly what you need to do to make a life insurance claim.

How to file a life insurance claim

If you are the beneficiary on a life insurance policy, you will need to contact the insurance agent or the insurance company where the policy is from. They can then walk you through the process involved in receiving the insurance benefit. This is commonly called filing a claim.

The steps to file a claim are fairly similar among most Canadian life insurance companies.

Step 1: Submit proof of death of the insured
Step 2: Submit the policy contract
Step 3: Fill out the death claim paperwork
Step 4: Tell them how you want to be paid
Step 5: Wait for the claim to be processed
Step 6: Get the payout

Step 1: Submit the proof of death

The claims process starts with submitting the proof of death of the person insured. All claims require the submission of at least one document. This is usually the death certificate. However, based on the dollar value of the death benefit payment, two separate documents may be required.

Documents that prove the death of the insured may include:

• the death certificate
• funeral director’s statement
•  coroner’s report
• obituary
• funeral service program
• funeral home bill
• police reports
• medical records

Depending on the circumstances, the insurance company may request an attending physician’s statement (APS) to certify the cause of death and to verify the medical information that was used to underwrite the policy.

The claims packet sent to the beneficiary will usually specify exactly what documents are required to prove the death of the insured person.

Here are some other things to keep in mind when proving death for life insurance:

• Most insurance companies do not accept a death certificate where the cause of death is yet to be ascertained or is mentioned as “pending”.
• For foreign deaths, many companies require valid death certificates from the country where the death occurred.
• The certificate should be translated into English (or the main business language of the carrier).

Step 2: Submit the policy contract, if available

Along with the claim forms, the submission of the original policy document can help speed up the process. This is the original document that contains all the information relating to the policy for the insurer to cross-check when they first enact the policy. In case you have lost or misplaced the original policy, you should contact the company for a digital retrieval of the document.

Step 3: Filling out the death claim paperwork

This is where you need to provide all relevant information pertaining to your claim. This includes

• the policy number
• the cause of death
• the relationship of the beneficiary or claimant to the life insured
• funeral home information
• any other pertinent information about the death of the insured

Step 4: Specify how you want the amount to be paid

Once you submit the required documentation, the insurance company will cross-check the information and fact-check the claim. As the beneficiary, you can opt for:

• One lump-sum payment: receive the entire death benefit at once.
• An annuity*: the death benefit amount is invested and paid out in the form of a yearly payment. You can receive these payments for life or for a predetermined number of years, depending on the policy.

*not all policies allow for annuity payments.

Step 5: Wait for the claim to be processed

It takes time for the insurance company to process the claim before one receives the death benefit payment. However, insurance companies want to pay out the death benefit as quickly. Paying in a short time frame helps them avoid interest charges that accumulate on unpaid death benefits. Depending on your policy, and if the claim is not subject to any investigation, the processing of the claim may take anywhere between a few days to as long as 30 to 60 business days.

Step 6: Get the life insurance payout

Once the processing is done, you, the beneficiary, will receive the benefit in the payment method requested (lump sum or annuity).

Life Insurance Claims Frequently Asked Questions

Can a life insurance claim be denied?

Yes. There are multiple circumstances under which life insurance companies may choose to deny a life insurance claim. These reasons could be a discovery of false or fraudulent information during or after the contestability period, exclusions on the policy, a lapse of the policy, or more.

Two-year contestability period

The contestability period of an insurance policy lasts two years from the date the policyholder was approved for coverage. This means an insurance company has two years after it issues the policy to void the coverage or adjust the premiums if it discovers an error in a material fact in the application.

A material fact is any piece of information that influences an insurance company’s decision about providing insurance coverage (such as smoking status, known health issues, age, etc) during the underwriting process. Once the two-year contestability period passes, the policy is incontestable. An insurance company can only void or cancel the policy if it can prove the policyholder committed fraud when applying for the policy or in the case of missed premiums.

For example, if, at the time of claim, an insurance company determines the deceased person had misstated their age on the application, it can void the policy and deny the claim only if it can prove that the misstatement of age was fraudulent. If it was an honest mistake (the misstatement was not fraudulent) then the insurance company will pay the death benefit. However, it will adjust the amount of the death benefit to correlate with how much coverage the applicant would have been able to purchase with the premium they paid had the correct age been known.

If the policyholder passes away during the contestability period and any instances of fraud or misrepresentation come to light, the insurer may choose to cancel the policy, refuse to pay the benefit, or subtract money from the death benefit.

False or Fraudulent Information

False or fraudulent information can also result in a denial of a claim. Hiding smoking or drinking habits, or misrepresenting details like age, height, and weight could create problems when a claim is made.

Exclusions

The provider may deny the claim if the type of death was not included in the policy. Death due to suicide in the first 2 years of coverage, homicide*, or death due to engagement in illegal activities, drug abuse, dangerous activities, or the acts of war are some common exclusions.

Note: typically if you are murdered it will still pay out, but if murdered by the beneficiary it will still pay out but to the estate.

Read more about life insurance coverage and death by suicide.

Lapse of Policy

Missing a life insurance premium payment may lead to the cancellation of the policy. If you miss paying your premium on the specified date, take care to inform your insurance provider as quickly as possible. Usually, insurance companies grant a grace period of 30 days and one should settle all your pending payments within that time to ensure there is no lapse in their coverage. Otherwise, all the premiums you paid up to that point may go to waste, and it could prove costly to get coverage again at this later date.

What happens if a life insurance claim is denied?

If an insurance provider has denied your claim, it will generally provide a written explanation detailing the reason(s) the claim has been denied. Once the reason is known and the life insurance beneficiaries can effectively prove that the carrier’s decision to deny the claim is not justified or warranted, the issue could be cleared up.

This can be accomplished by writing an appeal letter for the denial or speaking with a designated representative of the company. If the carrier still denies the claim, at this point the claimant could consider legal recourse.

Can a life insurance claim be delayed?

Yes. A claim may get delayed if they are investigating false or fraudulent information, which could lead to the denial of a claim. Providing incorrect information, death during the contestability period, a delay in filing, and not making proper disclosures about other policies are all valid reasons for a delay of a claim. Additionally, there are some other reasons which can play a role in delaying claims:

• A minor beneficiary, without any trustee designated to their name, may witness delays in getting the proceeds of an insurance policy.
• If the policyholder mentions no beneficiary, the claim goes to the insured’s estate through probate.
• If the policyholder named their ex-spouse in the policy as the beneficiary and they did not update the policy the claim may get delayed

Read more about life insurance and divorce settlements

How long does it take to process a life insurance claim?

Processing a claim may take anywhere between a few days to as long as 60 days or more. For example, if the insurance company suspects that the death happened due to suicide and the policy falls within the two-year suicide exclusion period, it may want to investigate the death more thoroughly and this could take time. However, if there are no issues or cause to suspect the claim, they usually get processed within 30 to 60 days.

Is there a timeline for filing a claim?

Sometimes. Some policies may state that you must file before 90 days to 12 months, others may not. In any case, it is always good to file a life insurance claim as early as possible. If the policy is active at the time of the life insured’s death, all premiums are paid on time, and there are no grounds for the provider to deny the claim, the beneficiary will get the death benefit they are owed in a timely fashion.

How can I use the proceeds from life insurance?

There are no rules about how the life insurance payout can be used. While many policyholders get coverage to soften the financial hardship their death may have on those they leave behind, those receiving the benefit from a life insurance payout can use the proceeds in any way they see fit. Many choose to use it to pay off mortgages, fund education, or for down payments on other properties.

Is interest paid on the proceeds of a life insurance death benefit?

An insurance provider is required to pay interest for the period it takes to process a life insurance claim. However, this may be subject to certain conditions. This period is generally the interval between the date of death of the policyholder and the date of payment.

Are life insurance proceeds taxable?

Usually, the proceeds of a life insurance death benefit are not taxable. However, any excess interest earned on the death benefit while the insurance company held the funds would be taxable. This can happen if there are any delays in a claim being settled (especially after the receipt of all required documents), or if an insurance provider was directed by the policyholder to hold the proceeds for a period before transferring it to the beneficiary.

If the policyholder has made an estate the beneficiary of their policy, the estate’s heirs might need to pay estate taxes

Read more about life insurance and taxes.

Enhanced life insurance lets you put whole life policy dividends towards additional guaranteed life insurance coverage. This is possible through a combination of paid-up additions and one-year term life insurance policies. This option is ideal for anyone purchasing a whole life insurance policy and seeking the best premium-to-payout ratio and offers great bang for your buck.

However, enhanced life insurance consumes your whole life policy’s dividends, which you could otherwise withdraw as cash, use to reduce your premiums, or leverage for other purposes. 

As with all policies, how to best use it depends on your own financial goals. PolicyAdvisor is here to explain how an enhanced life policy may benefit your circumstances. This article discusses enhanced life insurance and how you can leverage it.

How to use your life insurance policy dividends 

A whole life policy may provide dividends based on the performance of your insurer or their investment portfolio. You can receive these dividends in a variety of ways to capitalize on the policy’s living benefits. 

• Cash: The insurance company cuts you a cheque for the dividends earned. 
• Premium reductions: The insurance company applies the dividends gained to your premium costs, meaning you pay less. 
• Dividends on deposit: Dividends are put into a savings account managed by your insurer — the account generates interest, and withdrawals are allowed anytime. 
• Paid-up additions: An additional coverage paid for by your policy dividends.
• Enhanced insurance: Increases your current coverage through a combination of paid-up additions and an additional term insurance policy.

Learn more about life insurance policy dividends.

What is enhanced life insurance?

Enhanced life insurance uses your policy dividends to “enhance” your life insurance coverage without additional costs. 

Enhanced life insurance puts your whole life policy’s dividends towards a combination of one-year term insurance policies and paid-up additions. The two combined guarantee a minimum death benefit while allowing cash value to build in the enhanced portion of the whole life policy. 

In contrast, only putting dividends towards paid-up additions cannot guarantee a minimum death benefit because the payout depends on the cash value built up by paid-up additions. The one-year term insurance policies effectively maintain a minimum payout until the paid-up additions’ cash value is large enough to meet the desired payout on its own.

How does enhanced life insurance work?

Your whole life insurance policy has a base coverage amount. When you choose to use your policy dividends from this policy for enhanced insurance, a one-year term and paid-up additions are added to that baseline to increase your overall coverage to the new desired amount. As the cash value of your enhanced policy increases through the paid-up additions, the death benefit from the separate term life insurance coverage is no longer needed; the cash value of the paid-up additions have grown enough to reach your desired coverage amount. 

Any dividends from the enhanced life coverage are reinvested into more paid-up additions, which accelerate the cash value growth of your policy. 

The first year of your enhanced life insurance is likely composed entirely of the one-year term policy. The paid-up additions haven’t had time to build up a cash value. 

In year two, another term policy comes into force with a slightly smaller death benefit. The death benefit should equal the difference between the cash value of your paid-up additions and your desired enhanced life insurance payout. 

The term policy payout gets smaller as time progresses, and the paid-up additions’ cash value gets larger. 

At a certain point, the paid-up additions build enough cash value to cover the entire payout of the enhanced life insurance. The coverage then no longer requires one-year term policies; this is called the “enhanced crossover point.” 

Insurers can’t guarantee an enhanced crossover point because the point depends on your policy dividends. Your dividend may be higher in one year if your insurer or their investments do well or vice versa. 

After the enhanced crossover point, policy dividends no longer go towards one-year term life policies. Additionally, the paid-up additions continue to build cash value through dividends from its own cash value and the original whole life policy. As a result, your payout may exceed your initial desired death benefit, at no cost to you.

Aside from the cost of life insurance in your 30s, you might be wondering if you need it at all. It’s a fair question—at 30 you have so much life ahead of you!

The truth is, even if you have little liabilities and you’re just starting out, you should buy life insurance in your 30s. Depending on the type of policy you choose, you can use life insurance to meet your financial goals now and set up financial security for your family’s future.

Read on to find out the benefits of buying life insurance at a young age and how to get the best deal on life insurance in your 30s.

How much is life insurance in your 30s in Canada?

Term life insurance costs about $25-$30 per month for $500,000 in coverage when you’re in your 30s and a non-smoker.

Your insurance premium depends on various factors including your age, gender, smoking status, lifestyle, and overall health. Smoking almost doubles your life insurance rates in your early years, and then almost triples it by the end of your 30s.

You can read more about what affects the price of life insurance here.

Monthly cost of life insurance by age

To give you a ballpark idea of how much life insurance might cost in your 30s, we’ve crunched the numbers from 30 different Canadian insurance companies to give you a chart with the average cost of life insurance on a 20-year term, divided by gender and smoking status.

Term Life Insurance Cost in 30s – Male, 20-Year Term

*Representative values, based on regular health

The story is similar for women, though initial life insurance rates are lower at this age, with smoking continuing to have a meaningful impact on your costs. Here are some average life insurance rates for females looking for a 20-year term policy.

Term Life Insurance Cost in 30s – Female, 20-Year Term

*Representative values, based on regular health

Those are the average prices for term life insurance in your 30s, but you may be looking quotes for other types of policies. The cost of whole life insurance at age 30 is still affordable, but will be more expensive than term life.

Looking for a more exact monthly rate? Get a quote in seconds from some of the best life insurance companies in Canada. Get the lowest rates on the market by shopping over 30 insurance providers in seconds! Fill out the quote form below! 

Should I get life insurance in my 30s?

Yes! The price of life insurance is way cheaper in your early years. Because of your youth and health, you can lock into lower rates. In your 30s, you have a much longer life expectancy, so the company is less likely to have to pay out a death benefit within the term you apply for. 

Life insurance provides you peace of mind that your future loved ones will have financial security. Even if you don’t have a partner or children yet, you may within your 10, 20, or 30-year term.

Life insurance can be used in your future for…

• Your (future) child’s college education cost
• Outstanding debts
• Mortgage debts 
• Income replacement if you are a primary breadwinner
• End-of-life costs (funeral expenses)
• To borrow against while you’re still living 

You can get all of that for around $25-30/month now. The best part is, if you lock in your rates now, you keep them for your entire term. Or if you get permanent coverage, you lock in rates for life. There’s no better time to buy life insurance than right now! 

How much life insurance does a 30-year-old need?

A young Canadian in their thirties, with a new mortgage, young children, and a partner who also earns an income would need at least $500,000 in coverage to cover their remaining house payments and child-rearing expenses and cost of living for the next 20 years. You may very well need even more than that.

But how much life insurance you need at 30 years old depends entirely on your own personal situation – it’s even possible that you need no term life policy at this point in your life. If you are backpacking through Europe and paying for pints by washing dishes at your hostel, we agree, that now might not be the time.

To find out exactly how much coverage you’ll need, use our life insurance needs calculator. By filling out some simple information, we can tell you how much coverage you’ll need to meet your financial goals in your 30s and beyond. 

What life insurance is best in your 30s? 

There are many options for life insurance when you’re in your 30s!

To know which policy is best for you, see our full description of the different types of life insurance. 

How do I buy life insurance in my 30s?

Your 30s are an exciting time! You may be hitting many major life events like getting married, buying a house, or starting a family. All of those milestones come with financial responsibilities that you need to protect. To get a better idea of which policy is best for your goals in your 30s, get customized term life insurance quotes in minutes.

Still not sure how much life insurance you need? We’re always happy to chat.

For many young people in their 20s, fitting life insurance costs into their monthly budget is hardly a priority. And that’s understandable. In your 20s, you’re still figuring out what your life will look like—and how to pay rent in an ever-inflating economy. Plus, you probably don’t have dependents or many significant financial responsibilities yet.

But that doesn’t mean that you shouldn’t consider signing up for a life insurance policy. In fact, your 20s may be the best time to buy. Let’s take a closer look.

What is the average life insurance cost for a 20 year old?

The average cost for life insurance for a 20 year old is about $10-20 per month for $500,000 in coverage. In your twenties (especially your early twenties), age won’t be a factor in driving up premium costs. In fact, the cost difference between 20 and 29 is usually less than a dollar.

The exact cost will depend on factors like your specific health, gender, and lifestyle. Other factors, like your smoking status, having pre-existing health conditions, or participating in any extreme sports, can have an influence on your monthly cost of life insurance.

Take a look at the chart below to understand what the average premiums are for a term life insurance policy in your twenties.

Life Insurance Premiums – Male, 20-Year Term Life Insurance

*Representative values, based on regular health

The cost for a 20-year term life insurance policy is the cheapest for women in their 20s. See the rates for life insurance for women in the chart below.

Life Insurance Premiums – Female, 20-Year Term Life Insurance

*Representative values, based on regular health

Life insurance premiums are typically paid every month – like phone bills or mortgage payments – so you should ensure the payment fits into your monthly budget without too much trouble. That said, many insurance companies offer a policy discount if you opt to pay for your coverage annually.

To find out exactly how much life insurance will cost you in your 20s, check out our quoting tool below!

What life insurance is best in your 20s? 

There are many options for life insurance when you’re in your 20s! When you’re young and (presumably) have a good medical history, most insurance options will be the cheapest you’ll ever get. Term life insurance may be best for most people in their 20s, but permanent coverage may be beneficial for you as well!

To know which policy is best for you, see our full description of the different types of life insurance. 

How do I buy life insurance in my twenties?

If you’re looking to secure a term or permanent life insurance policy in your twenties, look no further. The insurance experts at PolicyAdvisor are available to help you find the right policy for your needs and budget. We bring you instant, customized life insurance quotes from Canada’s top insurance providers, as well as any additional support you need. 

When completing a permanent life insurance policy application, there are several payment structures available. While many opt for monthly or yearly premium payments for the duration of their policy, it is also possible to choose quarterly, annual, or limited payment options. So, which one is the best deal and will give you the most bang for your buck? We’ll explore these options in further detail, with a special focus on limited pay life insurance options.

How much does life insurance cost?

The cost of life insurance varies from person to person. Policy type and benefit amount play a big role in determining the cost of life insurance premiums, as do the age, health, smoking status, and occupation of the insured. For instance, a term life insurance policy has lower premiums than a whole life insurance policy; a 30-year-old non-smoker will have significantly lower premiums than a 30-year smoker, and a person with a history of medical conditions may have higher premiums than someone deemed healthy.

All that to say, the cost of life insurance is highly subjective to your individual circumstance and how the insurance company underwrites those circumstances. To navigate this topic in more depth head to our posts on the cost of life insurance and the cost of whole life insurance. You can also use our life insurance calculator to see how much you can expect to pay for the policy of your choice.

What are my payment options for term life insurance?

When purchasing a life insurance policy, there are a few payment structures to choose from. Term life insurance is straightforward: you either pay premiums every month or some insurance companies provide the option to pay premiums annually and offer a discount if you choose to do so.

What are my payment options for whole life insurance?

Permanent life insurance, including whole life insurance policies and universal life insurance policies, have several more options for payment because of their lifelong coverage period.

Read more about the difference between whole life insurance vs. universal life insurance. 

Standard

With a standard permanent life insurance policy, the policy owner is expected to make regular premium payments over the course of their lifetime. These payments keep the policy active and ensure continued coverage as well as a death benefit paid to the beneficiary. The standard payment structure for permanent life insurance has lower individual premiums payments than other options. Most policyholders choose to pay their premiums on a monthly or annual basis using this standard payment structure, but there is another option called limited pay.

There is a large difference between using an insurance agent and a brokerage. Sometimes you will hear people referring to them as an insurance intermediary, which is somebody who plays a major role in the process of insurance placement (in simpler terms, somebody who helps you find a great insurance policy).

If you’re an individual or small business owner, you will likely purchase an insurance policy using an insurance agent or broker. Your average insurance broker is meant to represent the client (or customer) themselves, as they are not appointed by an insurance provider. You’ll likely come across either a broker, agent or company in your search for coverage as you interact more with the insurance industry.

Using an insurance broker

Insurance brokers are professionals who represent the customer and search for the best possible policy according to their needs. They’ll work closely with clients to research optimal coverage options, as well as go through the quoting process. Insurance agents often serve an insurer’s best interests, while brokers are more focused on keeping the customer happy by identifying specific needs for their policies or helping find a policy with the lowest insurance premiums.

Seeing as brokers don’t work for the insurer themselves, they don’t have the power to manage your insurance claims. While they cannot manage claims, when you purchase your insurance through a broker they can give you professional advice while you search for your insurance quotes. They’ll help you figure out an optimal price point, as well as consider what sort of options (like riders or deductibles) apply to your policy.

Using an insurance agent

Insurance agents sell insurance products to customers directly through an insurer. They help people select the right insurance to buy, but they are generally representatives of the insurance company they work for. Captive agents tend to represent one insurance company, while independent insurance agents often represent multiple.

Selling policies on behalf of the carrier means they have some skin in the game when it comes to you choosing their particular policy. While rare, there may be times when an insurance agent is focused on making a sale (as opposed to making sure you get the perfect insurance policy). Insurance agents don’t tend to offer as many options as brokers since they are limited to the specific companies they work for (and policies those companies offer).

The importance of insurance brokers

Most insurance brokers aren’t just in it for the money. When you decide to work with an insurance brokerage, you don’t have to worry about feeling limited – you can purchase insurance products and get insurance quotes from multiple companies, as opposed to just one. They’re going to point you in the right direction and help you find the best policy possible.

Having access to insurance brokers is advantageous for most people. Without them, not only would you be limited in regards to your policy options, but also which companies you’re able to receive insurance quotes from.

Versatility is an obvious selling point for brokers, so if you’re looking for a more “personal approach” to your insurance, using a broker’s services is the best solution. An insurance broker will provide you with an unbiased opinion on the policy provided by any insurer, as they aren’t “tied” to one carrier (like an insurance agent).

Insurance brokers are also more likely to support you when compared to an agent. If you’re not satisfied with the product and want to switch your insurance company, an insurance agent will go to great lengths to persuade you from leaving their company. Whereas, in the same circumstances, an insurance broker will be able to assist you in finding a better solution with a different company’s insurance offerings.

For true flexibility and the ability to see all of your options before committing to a policy, purchasing insurance products through a broker is ideal.

Are all insurance brokers the same?

While some insurance brokers are going to seem more beneficial than others, many Canadians are choosing to work with digital insurance brokers these days. This is especially true given restrictions on in-person meetings and places of business due to COVD-19 to mitigate transmission risk.

For example, a digital life insurance broker like PolicyAdvisor gives you a chance to get life insurance quotes from multiple companies without leaving the comfort of your home (not to mention critical illness insurance, disability insurance, mortgage protection, and more). Digital brokers can generate and provide insurance rates much faster and the ability to apply online is something most people would favour over the traditional insurance buying experience of years past.

Other reasons to consider a digital broker:

• More choice; digital brokerages like PolicyAdvisor matches you with coverage options from more than 30 Canadian insurance companies
• Speed; you can compare quotes instantaneously instead of waiting for multiple brokers or agents to get back to you
• Unbiased advice; the advisors at PolicyAdvisor don’t work on commission and are dedicated to finding you the best insurance policy you can afford and guiding you through policy applications.

How do insurance brokers make money?

Insurance brokers are often paid by commission for their services, so they’re going to benefit from getting you the best policy possible. The insurer pays brokers a certain percentage that is determined differently by each carrier.

If you decide to cancel your policy or stop making payments, the broker you’re with may have to repay the commission they’ve received back to the insurance company. As a result, it means most brokers are focused on getting you the best policy for your needs so that you retain the coverage throughout your term.

They could also decide to charge you a broker fee, which always has to be disclosed to the buyer beforehand. Your province may have a restriction when it comes to broker fees, but just remember that they’re typically nonrefundable. Broker fees are not always applicable and are not permitted in certain provinces or on certain kinds of coverage, so be sure to check your provincial insurance regulations before making such a payment.

What kinds of coverage can you get through an insurance broker?

Insurance brokers work within several fields including:

• Life insurance
• Critical illness insurance
• Disability insurance
• Health insurance
• Auto insurance
• Home insurance
• Travel insurance

How does insurance regulation work in Canada?

Insurance regulations in Canada are handed down from both Federal and Provincial levels. Canada’s 13 provinces and territories in total have the right to regulate markets when it comes to insurance sales. This means they are effectively the insurance regulator and that they get to decide who gets to sell insurance, as well as what type of insurance they’re able to sell.

Times are always changing, and that means the types of insurance available to you are likely going to follow suit. With digital brokers like PolicyAdvisor, you can rest assured that the ways you compare and apply for insurance coverage will evolve to match your needs. When you want to feel confident that you’re covered for the future, working with an insurance broker is one of the better choices you can make.

The information provided herein is for general informational purposes only. It is not intended and should not be construed to constitute legal or financial advice.

One’s insurance needs vary throughout their lives. Generally, less coverage is needed in one’s young and single years. But, needs do increase after major life events such as getting married, buying a house, and having children. Then, as more time passes, debts and obligations decrease, and coverage needs decline simultaneously.

So how does one ensure they have the right amount of insurance coverage throughout their lives? More importantly, how does one ensure that we are not overpaying for coverage that we may not need in future years?

One solution is laddering, also known as a life insurance ladder strategy, a comprehensive plan that ensures you have multiple coverages in place to address specific needs and periods of your life and are paying only for the amount of coverage you need during these periods.

How does a life insurance ladder work?

At its most basic level, life insurance laddering entails purchasing multiple life insurance policies with different coverage amounts and durations. Each of these individual policies expire at different times. They are chosen to address specific protection needs for specific periods of time in your life. For example:

• a 10-year policy to cover your outstanding student debt
• a 20-year policy to help protect your children from their youngest years until they can complete their education and gain financial independence, and:
• a 30-year policy to cover the amortization period of your mortgage

This can be executed two ways: through a base life insurance policy with term life riders added to it. Or by purchasing a set of individual life insurance policies, purchased simultaneously.

You can save substantially on your combined life insurance premiums by enacting an insurance laddering strategy, especially through a base-policy plus rider strategy.

How to save money on life insurance with a ladder

Foremostly, you purchase the bulk of your coverage when you need it most, using favourable rates due to your age.

As time passes, and you catch up to expiring debts like large loans or mortgages, your coverage will be timed to also decrease as shorter duration policies terminate. Once those policies terminate, you no longer pay their premiums.

Some insurance companies also offer discounts on premiums when an applicant takes out multiple policies and/or riders.

Lastly, laddering offers a great way to combine and mix term life and permanent insurance coverage. A policyholder can have permanent life insurance as their base policy, and add one or more term riders layered on top to achieve the coverage they need.

A life insurance ladder can seem confusing, but a real-life example tends to help those curious insurance seekers understand the concept better.

For example, say you’ve just finished a specialized graduate program like medicine or law. You’re now starting your career, getting married, perhaps starting a family, and purchasing your first home. Wow, that’s a lot to cover, but not an uncommon situation for many first entering their professional careers.

And while it is a lot to cover, those obligations all occur over different time periods. Your student debt can be taken care of in 10 years, your children most likely leave your care in their 20s, and your home will be paid off in 30 years. You need the most coverage in those early years, but once your obligations have diminished in the last years of your mortgage, you simply don’t require the same amount of coverage.

Here’s what a life insurance laddering strategy versus just term life insurance might look like in that situation.

*Premium figures for a 32-year-old non-smoker male.

Do I need a life insurance ladder?

Using a  life insurance ladder is largely dependent on your future plans. For many people, expenses decrease over time and, correspondingly, so do their coverage needs. For example, once you’ve paid off your mortgage and children are financially independent, the amount of insurance you actually need would be much less than before.

Laddering is for you if:

• You have large – but temporary – obligations: A mortgage or other debts, cost of living for children, funding children’s education, and other needs that taper off slowly as you age. Although you need a large amount of immediate coverage, this will greatly decrease as time passes.
• You have pre-existing health conditions or hazardous hobbies/travel plans that will result in higher future insurance rating, and thus increase your cost of insurance down the road.

But, if you don’t have solid plans for your future, a life insurance ladder may not be your best option at the moment. If you are very young without any liabilities or dependents, simple term life insurance may make more sense for your immediate needs.

This is also true if you want to leave a large financial legacy for your loved ones, irrespective of your needs.

How a  life insurance ladder differs from a single term life insurance policy

Can I use a ladder strategy to increase my coverage over time?

Speaking strictly on a technical level, a ladder strategy refers to coverages purchased at a single point in time. And if you purchase multiple coverages with varying lengths at one time, your initial coverage will always be of the highest value and reduce with time as shorter duration coverages lapse.

You cannot establish coverage that only starts a few years later since it will require new medical underwriting at that point in time.

So, while not laddering as we described it above, you can always purchase multiple life insurance policies over time that allow you to increase coverage. Additionally, some life insurance providers and policies have the option to increase your coverage amount once the policy goes into force. This is typically accomplished through optional policy riders such as guaranteed insurability – though, additional premiums are required for this rider.

How do I start a life insurance ladder strategy?

Most major Canadian insurers allow a form of life insurance laddering through their coverage options.

Some insurers such as RBC allow you to layer multiple term riders on top of your base coverage, within one policy. Others, such as BMO, let you apply for multiple separate term life policies simultaneously, to implement a ladder strategy, while availing a multi-policy discount on the premiums.

PolicyAdvisor can suggest the best ladder strategy for you, as well as the right insurer to match your needs. Schedule a call today and start building your own insurance ladder with one of our licensed insurance advisors.

It is possible to buy a life insurance policy for someone else. Generally, most people are shopping for insurance on themselves: they are intending to be both the policyowner and the life insured. But, that’s not always the case; sometimes you as the buyer and proposed owner of a policy may need to purchase a policy for someone like a loved one or a business partner.

That said, you can’t just choose someone you see on the sidewalk and purchase them life insurance. There are stipulations around insurable interest and consent. Read on to find out why and how you might buy life insurance for someone other than yourself.

How life insurance typically works

Life insurance is an agreement between you and a life insurance company, where if you die, they will pay a death benefit: a lump sum of tax-free money to someone you choose. In exchange, you agree to periodically pay them an insurance premium: a small amount of money over time.

How buying life insurance for someone other than yourself works

When you purchase life insurance for yourself, it’s usually because you envision someone needing your income should anything unfortunate happen to you, but the opposite can also be true. There can be people in your life, that should they die, would not only be a sad situation, but also represent a financial burden for yourself, your extended family, or your business.

In these situations, it is possible to take out a life insurance policy on someone other than yourself, as long as you can prove insurable interest and inform them of the life insurance policy you are taking out on them.

What is insurable interest?

Insurable interest is the technical term insurance companies use to describe your vested financial interest in the life of another person you seek to insure. Basically, to arrange insurance on the life of another person, you must prove that the insured person’s death would financially burden you. An insurance contract that you purchased on the life of a third person would not be considered legally valid unless there was a financial loss to you from the death of the insured. Insurable interest is the thin line that distinguishes an insurance contract from a wager.

In some cases like spouses, life-partners, parents, and minor children, insurable interest is considered obvious and you will not need to provide further evidence. With friends and business partners, however, insurance companies may scrutinize the situation more diligently and ask for further evidence of any shared finances or financial agreements.

Who can I buy life insurance on?

In addition to being able to buy life insurance on yourself, you may also choose to insure any of the following:

• Your spouse or partner
• Your child or a child of your spouse or partner
• Your grandchild or a grandchild of your spouse or partner
• Your parents or grandparents
• Your business partner or employees
• Anyone you have an insurable interest in

Why do I need to inform the person I am covering with a life insurance policy?

To cover an individual other than yourself with a life insurance policy, you require their explicit written consent. This is for several reasons. For starters, they need to sign the policy application so you can submit it to the insurance company. As well, there is more than likely medical underwriting, which could entail in-person medical exams or a medical questionnaire they would have to complete.

Minor children are exempt from the consent and signature requirements of life insurance application.

Reasons to buy someone else a life insurance policy

As we mentioned above, there are several situations where you are financially dependent on someone else and face financial hardship should something happen to them. Below are some of the reasons why buying someone else a life insurance policy makes sense.

Can I buy life insurance on my spouse or partner?

Covering a spouse is one of the most common reasons for buying a life insurance policy for someone other than oneself. If both you and your spouse or partner work, you may rely on your dual income to manage your financial obligations such as mortgage payments, raising children, higher education costs, paying down debt, and more.

But if you are the sole breadwinner, there are also reasons to buy a life insurance policy for your partner. Having a financial cushion should something happen to them can allow you to take time off, fund counselling services for yourself or your children, or generally help with any expenses that may accompany their unfortunate passing (funeral expenses, settling their estate, etc).

Can I buy life insurance on my former spouse or partner?

Yes, you can as long as you have insurable interest. If you have children together and share custody, then you may rely on your former spouse’s financial support in raising them. As well, some divorce agreements stipulate that ex-spouses must provide a life insurance policy as part of spousal support.

Can I buy life insurance on my parents?

Yes, if you are in any way still financially dependent on your parents, either through co-signed loans or business interests, you can consider buying them a life insurance policy to cover those. You can also consider purchasing a smaller permanent insurance policy for your parents to cover funeral and other end-of-life expenses.

Can I buy life insurance on my child?

Yes, you can buy life insurance on your children. And, as mentioned above, you don’t need the explicit consent of minor children to purchase them a life insurance policy.

In fact, many parents consider buying children’s insurance; you may choose a whole life insurance policy purchased for a child early in life. It provides coverage in the short term should anything happen to your child, to cover funeral expenses, and to support time off work. That said, you hopefully never utilize the death benefit, and instead lock in your child’s future insurability and provide them with an investment option through the policy. They can choose to keep the permanent coverage, or use the policy’s cash value to fund a big purchase like a car, house downpayment, or higher education.

For the same reasons you may consider coverage for your parents, you can choose to cover adult children as well if you share or have cosigned a debt, or rely on them for your financial well-being.

Can I buy life insurance on my business partner(s)?

While an insurance company will perform its due diligence in proving insurable interest, it is possible to buy life insurance for a business partner. In many cases, a business partner can be essential and integral in your company’s success. Covering them in case of an unexpected passing can ensure you keep your business afloat or obtain control of the business in what should be a tumultuous time while you reconfigure operations.

Providers such as Manulife offer policies like Business Term to cover specific business-related insurance situations like this.

Alternatives to buying life insurance for someone else

If you are not prepared to purchase a life insurance policy for another individual, there are alternatives. Life insurance riders like a child term rider or parent protection rider can provide coverage in the event of the passing away of these people in your life, though coverage is typically limited to the $20,000 – $30,000 range. In the case of child riders, you also obtain the option to lock in future insurability for your children once they are no longer minors.

Another simple alternative is speaking with the individual you plan on insuring and suggesting they take out their own coverage and name you or someone else (children, parents, other business partners) as the beneficiary.

How do I apply for life insurance on someone else?

As we mentioned at first, your initial step will be to determine your insurable interest in this person, and to inform them of your coverage plans. This can seem daunting, but by reaching out to a licensed insurance broker from PolicyAdvisor, we can quickly help you figure out your insurable interest and create the best insurance plan for that situation.