Term insurance is temporary life insurance coverage. Term insurance is initially the lowest cost life insurance protection that you can buy for individuals, families or businesses. It is designed to cover a variety of temporary insurance needs such as income replacement, loan-mortgage-debt coverage, buy sell, & key person etc. Common premium structures for term products increase the amount of premium payable at the following intervals: 1, 5, 10, 15, 20, 30 years. The most commonly purchased term products are Term-10 and Term-20. Term insurance is also available with level pay periods and coverage periods of 65 and 75 years. Term to age 100, or T-100 may sound as if it is a term insurance plan, is in fact a permanent insurance solution. Term to 100 provides coverage at the same premium through to age 100, with no increase in price.
Generally, coverage can be renewable and convertible (R&C) and renewable and non-convertible (R&NC) up to specified ages depending on the product selected.
In the sense that the coverage can be kept after the initial term period is over, but at a new cost to reflect the increase in age of the client. Term coverage is usually only renewable to age 75 or 85, or in some case to age 100. At the end of the renewable age, the insurance coverage is generally no longer available. The insurance coverage then expires.
Convertible in the sense that the temporary term coverage can be converted to a permanent life insurance plan with the same carrier. Generally the premium rates upon conversion are higher that the term rates, as the new coverage will be permanent in nature and premiums can be level and payable to age 100 or less and life coverage last to age 100.
Term insurance following factors:
Term insurance rates are basically categorized into two areas. Regular (or standard) and preferred. Both regular and preferred underwriting consider the following factors:
3. Tobacco use
4. Build (height and weight)
5. Blood pressure
6. Cholesterol Level
7. Medical/Family History
8. Alcohol/Drug Use
9. Driving Habits
10. Criminal record
11. Low Risk Lifestyle/Activities
For Clients with better than standard medical history, family history and vital information can benefit from lower rates by qualifying for preferred rates.
There is a wide range of competitive term products that have a host of preferred non-smoker and smoker classifications. They are designed with various rate scales and underwriting criteria and are categorized such as class 1, class 2, class 3 / diamond plus, diamond / elite, preferred, etc. Knowledge of exactly how the client must qualify for the considered rate class is vital and although a client may appear “preferred”, only the underwriting process and medical evidence can confirm this.
Universal Life is a relatively recent creation of the insurance sector, originally in response to a demand for a more transparent form of product. It has evolved over the last 19 years, and is now the preferred tool in most instances for wealthier Canadians. This paper will describe its chief elements, explain the features by which one product is differentiated from another and mention some of the situations where Universal Life is often utilized.
ELEMENTS OF A UNIVERSAL LIFE CONTRACT
A Universal Life Contract consists first of an Investment Account, into which the owner can deposit funds. There is a minimum and maximum amount that can be deposited in the first year, for reasons that will become evident.
1. Deductions From the Contract
The nature of the Investment Account needs to be described. Certain Deductions are made from the Investment Account. First is a provincial “premium tax”, which varies by province. The range is from 2% to 4%. B.C. and most provinces are at 2% but others are as high as 4%. A select couple of contracts charge a higher premium tax of 4-7% and the province of residence is not an issue. This tax is applied once, on any new deposit into the account.
Second is an administration fee, charged monthly. The average range is $7.00 to $12.00 per month. The difference in this fee is relatively minor, and is not usually determinative or indeed significant in choosing between products.
The Third deduction from the investment account is an insurance or mortality charge. This is a monthly deduction, and is the significant deduction. It is effectively a term insurance cost and mirrors the term insurance available in the marketplace. As this is one of the most significant components of a Universal Life contract, it will be discussed more fully below, under the topic of Comparing Universal Life Offerings.
Recall that there is a minimum and maximum deposit allowed in the first year. The reason for the minimum should now be apparent: at least enough money to cover these three deductions (premium tax, administration fee and insurance cost) must be deposited. A couple of companies set the minimum slightly higher than this, and leave the excess in the investment account.
In comparing contracts from different companies, the minimum premium is less important than the insurance cost. Insurance costs makes up most but not all of minimum premium. If company A has a higher minimum deposit requirement than Company B, but a lower insurance cost, then Company A is simply depositing a greater amount in your insurance account. Depending upon the reason for acquiring the product, it may be a better option.