How much life insurance in Canada will cost depends on how much coverage you need, and many other factors. Life insurance companies offer a variety of coverage amounts to suit your specific needs, but they come at varying costs. The more coverage you are looking to obtain; the higher your premiums will be. It is important to consider the affordability of your desired amounts of coverage and consider the other factors that will affect the cost of your life insurance.
What are life insurance premiums?
Life insurance premiums dictate the cost of your life insurance. A life insurance premium is the amount of money paid to your life insurance company for life insurance coverage. This payment is usually either a monthly, quarterly or yearly payment, and the duration will depend on the type of life insurance you choose. For instance, term life insurance means you will only pay the premium for the duration of the term. Whereas, permanent life insurance indicates that you will pay the premium for the rest of your life. Your premiums need to be paid in order to maintain the agreed-upon amount of coverage for the duration of your policy.
What happens if I don’t pay my premiums?
In the event that you stop paying for your life insurance premiums, the life insurance company may be able to deny your coverage. This will depend on the specific terms outlined by the life insurance company. A standard term life insurance policy will be terminated as the result of a missing payment, and your dependents will no longer receive the death benefit upon your passing. A permanent life insurance policy may differ due to the cash value accounts. The money in the cash value account will typically be available to help pay premiums after a certain period of time.
Your policy may also come with a grace period. This is the period of time when your policy will not lapse as a result of nonpayment. However, this clause is not present in most policies. If you are concerned about making life insurance payments on time; be sure to communicate this with your life insurance agent or insurer.
How are premiums used by insurers?
Life insurance companies will use your premiums for a variety of financial endeavours. It is important to find a reputable life insurance company that will manage your payments properly and ensure their ability to pay the guaranteed death benefit. Premiums are usually used to:
The key role of life insurance companies is to offer your loved ones a death benefit, to help them stay afloat upon your passing. This means they need to set themselves in a proper financial position that can guarantee the payout on claims. Most reliable insurance companies have a large amount of money set aside in order to cover outstanding liabilities and ensure beneficiaries receive the money owed to them.
Life insurance companies also have their own expenses they need to cover in order to operate. A portion of your life insurance premiums will go towards these operating expenses and help companies pay salaries, buildings and all other expenses.
Life insurance companies may choose to invest money in order to gain a competitive advantage by offering lower costs on their policies. This promotes greater financial stability and extra assurance for policyholders. This is also how they offer whole life insurance policies, which guarantee an increase in the cash value of your premiums.
What factors affect the cost of life insurance?
Your life insurance cost will vary depending on a variety of factors. For example, see this list of things that are considered when you apply to life insurance.
Most of the following will be considered by your life insurance company prior to providing you with a quote:
As you get older, your life insurance will also get more expensive. Insurers calculate quotes based on your specific circumstances, and your premiums will reflect how high-risk you are. As you age, your risk increases, and this is reflected in the increased cost of your premiums.
Life insurance policies typically increase every year that you age. The most substantial increases occur when you become a senior, usually around age 60. This is something to consider when purchasing your policy, and it is important to plan ahead. If you are purchasing a term policy, you need to consider how much your premiums will increase when your term ends. For instance, if you are a 60-year-old choosing to purchase a 20-year term policy when this term ends, it will be very difficult for you to find an affordable policy as you are now 80.
Depending on your age, you may even be denied coverage by life insurance companies, as many have maximum age limits. These ceilings will differ depending on the company and the type of insurance you are looking for.
Your gender is also a consideration for life insurance companies. This is because historical data has indicated that women tend to live longer on average than men. For a life insurance company, this means that women are at lower risk to insure and this is reflected in their lower premiums. This information may be outdated, but there is currently not enough data to change the traditional underwriting guidelines.
Those who are transgender, nonbinary or genderqueer may be asked more questions regarding how they identify, but should not have a noticeable difference in premium costs. Life insurance companies are not allowed to increase rates or deny coverage because of your gender identity, hormone medication or history of gender confirmation surgery. Although they do reserve the right to postpone your application until after the surgery. Most companies do not offer gender-neutral options on their life insurance applications. Most insurers tend to operate based on the gender you were assigned at birth.
If you are a smoker seeking life insurance, you will face drastically higher life insurance premiums due to the health risks associated with smoking. Statistics indicating that smokers are 23 times more likely to develop lung cancer increases the risk to insure you, and the cost of your insurance will reflect that. Smokers can pay anywhere from 30%-300% more than non-smokers. While there may be no-medical insurance options that will not consider your health record; these options are already considerably more expensive than their alternatives.
In the event that you have quit smoking, your life insurance premiums may still be higher for a period of time. In order to be classified as a non-smoker, you need to have been smoke-free for at least a year. The longer you stay smoke-free, the cheaper your insurance will get over time.
Casual smoking is still considered smoking by life insurance companies due to its highly addictive nature. Even if you only smoke a single cigarette, this will count negatively towards your application. Vaping is also often considered the same as smoking to life insurance companies. Many companies have updated their policies on marijuana, but consuming it may still have a negative connotation and will vary from company to company.
Health has a tremendous impact on life insurance premium costs as certain health conditions are considered risky to insure. Your health and medical history will usually be obtained through a life insurance medical exam which permits access to your medical records. If you have a health condition and are looking for support on finding the right life insurance, read our blog about getting life insurance with many different types of medical conditions.
Insurance companies will look at:
Your family medical history is important for life insurance companies to consider due to the genetics involved. Trends in your immediate family’s mortality may indicate a higher chance of you suffering from illnesses or diseases. Illnesses and conditions that suggest a genetic predisposition include:
If it is found that you suffer from serious health conditions such as cancer, heart conditions, lung conditions and mental illnesses, just to name a few. Your quote will likely be quite high; you may even be denied insurance. In these cases, you can look into no-medical life insurance options, including simplified issue life insurance or guaranteed issue life insurance. Both these options are more expensive than their medical exam included counterparts, but will provide you with some coverage for peace of mind.
Your life insurance application will also cover information about your lifestyle. Your occupation and hobbies may reflect a high-risk lifestyle that makes it riskier to insure you. This will be considered by your insurer and may be reflected in the cost of your premiums. Some factors that they perceive as red flags include:
If your driving record showcases history of DUIs, reckless driving convictions or suspended licenses; you are seen as higher risk. This will increase not only your car insurance but also your life insurance as you will be perceived as a reckless driver. This makes it difficult for a life insurance company to offer you lower premiums.
Financial factors that may negatively affect your life insurance include bankruptcies. Most life insurance companies will typically deny you coverage if you have filed for bankruptcy in the last five years. Your credit score is also a risk some life insurance companies may consider because they fear you will be unable to afford the periodic premiums.
Most of the previous factors are out of your control or based on previous life decisions. But two factors you can cater to your life insurance needs include the type of life insurance you are applying for and life insurance riders.
Type of life insurance
The type of life insurance you choose will directly affect the cost of your premiums. Life insurance is split into 2 major categories: term life insurance and permanent life insurance. These categories are split further into more specific types of policies.
Term life insurance is the more affordable option of the two with lower premium costs. However, these policies do come with an expiration date. Permanent life insurance guarantees coverage for your entire life, but comes at a higher price. Types of permanent life insurance include whole life insurance, universal life insurance and variable life insurance. All these policies vary in costs and the potential for the cash value of premiums growth.
Life insurance riders
Life insurance riders offer additional coverage to create a more all-around protection plan for your beneficiaries. They offer the advantage of extra financial protection beyond your traditional life insurance coverage and sets you up for more unexpected circumstances. However, they do add additional costs to your policy and will result in higher premiums.
Some examples of riders include:
- Critical illness insurance riders
- Family insurance riders
- Accidental death and dismemberment insurance riders
- Benefit structure insurance riders
Riders are a great way to customize your life insurance policy to best suit your needs, but not all riders are right for you. The best way to determine what riders you need is to talk to an insurance advisor.
Contact Protect Your Wealth today at no cost to learn more about what riders suit your needs and enhance your life insurance.