How to buy life insurance

1. Choose how you want to apply

There are a few ways to go about buying a policy:

• Go straight to the insurer. This is the most independent and straightforward way to buy coverage – but you’ll need to do some research on your own. This method cuts out the middleman and can potentially lead to discounts, especially with bigger insurers. They often sell multiple types of insurance, and offer discounts for combining life insurance with auto or home insurance.
• Shop online. Many companies now offer online quotes, which makes it easy to compare coverage and rates from a few insurers at once. If you go down this route, don’t give out sensitive information – like your Social Security Number – until you actually apply for a policy.
• Speak to an agent. Insurance agents usually represent one or more companies. Think of them as a conduit between you and the insurance company. An agent can guide you in choosing the right policy for your needs and budget. They can also help you to fill out your application and gather documents.
• Work with a broker. While agents sell policies from specific companies, brokers work directly with the buyer – a.k.a you. An insurance broker will assess your unique needs and answer any questions you have. They’ll then use their knowledge and expertise to find you the best possible policy by looking at any number of insurance companies.

2. Decide on a policy type

Most life insurance policies fall into one of two categories: term or permanent.

Some common types of permanent life insurance policies are:

• Whole life insurance. The most basic permanent plan, whole life insurance earns a fixed rate of return set by your insurer.
• Universal life insurance. The cash value of this policy is tied to a stock index and earns interest based on the current market rate.
• Variable life insurance. With variable life, the cash value is invested in a portfolio of stocks, bonds and mutual funds of your choice.
• Variable universal life insurance. This hybrid policy offers flexible premiums and the ability to invest your cash value in investments that match your risk tolerance.
• Term to 100. This insurance product is unique to Canada. It provides coverage for your entire life, although you’ll stop paying premiums after you turn 100 years old. Unlike other permanent policies, this option does not usually include any invested cash value. Therefore, term to 100 is generally cheaper than other permanent policies.

Because this type of coverage is temporary, term is less expensive than a permanent policy. Term life insurance also does not include any cash value. That means you likely cannot borrow from it or get money back if you cancel your policy. Some term insurance policies are ideal for couples who want to ensure their partner will get a payout should they pass:

• Joint first-to-die term insurance. Joint first-to-die insures both partners and may be cheaper than two individual policies. The policy is payed out to the surviving partner should the other die within the term. However, it can be fairly inflexible to divide in the event of a divorce.
• Single term insurance. This is purchased as two individual policies where your partner is listed as the beneficiary. Although this may be more expensive than a joint first-to-die policy, it can be very easy to change the beneficiary following a separation.

3. Determine how much coverage you need

Once you’ve settled on a policy, think about how much money your beneficiaries will need to maintain their lifestyles when you’re gone — and aim to take out a policy to match. To crunch the numbers, take these factors into account:

• Income. The general rule of thumb is to buy a policy that would replace your income and cover your family’s cost of living for 5 to 10 years. An easy way to do this is to multiply your yearly salary by 5 or 10.
• Assets. Over time, you may have acquired assets such as a house, car, savings account or RRSP. Your life insurance policy should protect these assets, so total them up and add that amount to your coverage.
• Debt. Your debt doesn’t die with you. To prevent that burden from landing on your beneficiaries, consider any outstanding debt — such as a mortgage, student loans or credit cards.
• Financial obligations. Add up all of your other expenses now and in the future — like childcare or college tuition. Its a good idea to also include funeral expenses and estate settling fees.

4. Find the right insurance company for you

Canada has a large life insurance market, with approximately 150 different insurers, so you have plenty of options. To filter your list of reputable companies, consider:

Then, compare quotes from your shortlist of companies. Most insurers will offer anonymous quotes, or only ask for basic health and contact details to give you an estimated rate.

5. Select a policy that fits your needs and budget

Once you’ve found a company, you can settle on a policy that takes your needs into account. Additionally, most insurers allow you to customize your coverage with riders. These are some of the most popular ones:

• Accelerated death benefit rider. If you’re diagnosed with a terminal illness, this rider pays out a portion of the death benefit before you die.
• Critical illness rider. If you’re diagnosed with a critical illness, this rider pays out a lump sum which can help cover costs associated with your illness – like renovating your home to make it more accessible. Heart disease, cancer, stroke and Alzheimer’s disease are among the common covered illnesses.
• Disability income rider. If you become totally disabled and can no longer work, this rider will pay a monthly cash benefit for a specific period of time.
• Term conversion rider. Gives you the option to convert your term life insurance policy to a permanent policy.
• Disability waiver of premium rider. Waives your premiums so you don’t have to pay into your policy if you become fully disabled and can’t work.
• Child term rider. Pays out a death benefit if your child dies, and usually expires when your child turns anywhere from 21 to 25 years old.
• Return of premium (ROP) rider. Reimburses you for any premiums paid if you outlive the term of your policy.

6. Apply for coverage

Typically, you’ll need to provide your personal and contact details, and fill out a health questionnaire. To speed up the application, keep this information handy and answer your insurer’s questions as quickly as possible. You can expect to be asked for the following information:

You might also need to provide these documents:

• Proof of identity (e.g. driver’s license, passport or state-issued ID)
• Proof of income (e.g. a pay stub or recent tax return)
• Proof of residency (e.g. a copy of your lease or utility bill)

7. Take the medical exam

Most policies require a medical exam, which helps the insurer get a complete picture of your health. It’s similar to a basic physical, and your insurer pays for it. They’ll either send a medical professional to your home or office at a time that’s convenient for you, or arrange for you to meet at their office.

During the exam, the technician will likely record your height, weight, blood pressure and cholesterol, and take a blood and urine sample. They may also ask you about your personal and family medical history.

If you’d prefer to skip the medical exam, some insurers offer no-exam policies, though they’re usually significantly more expensive.

8. Wait for your application to be reviewed

After you’ve completed the application and medical exam, an underwriter will assess your eligibility. They’ll cross-check the information you provided to determine your risk and how much you’ll pay for your coverage. This process can generally take anywhere from a few business days to eight weeks. And it could take even longer if the underwriter discovers any red flags or missing information.

9. Sign off on your policy and send it back to the insurer

Once the underwriter approves your application, they’ll send you the policy documents for review. Double-check all the details, including the premium, coverage and riders. If you’re happy with the policy, sign the documents and authorize a method of payment for your premiums. You can also decide whether you’d like to pay your premium monthly or annually.

What affects my life insurance premiums?

Each insurance provider has its own underwriting process. As such, some put more weight on certain evaluation factors over others. Take a look at a few points that will be assessed:

• Age. How old you are plays possibly the biggest role in determining your premiums. The younger you are, the lower your premiums will typically be.
• Gender. Women typically end up with lower premiums than men, mostly due to women having a higher average life expectancy.
• Certain health indicators. When a medical exam or medical questions are involved, your weight, height, blood pressure and any history of major diseases or medical conditions help determine your premiums.
• Family health history. Major health conditions and diseases in your immediate family are likely taken into account. Cancer, cardiac arrest, kidney disease and stroke are among what may affect your premiums.
• Smoking. General frequency, and the last time you smoked before your medical exam, will likely be considered when determining how much you’ll pay in premiums.
• Substance use. Alcohol or drug use that has resulted in doctor-mandated rehabilitation and illegal substance abuse are likely to increase your premiums.
• High-risk occupations and hobbies. Certain occupations and hobbies are considered riskier than others. Being a lumberjack is objectively more dangerous than working in accounting. Likewise, a skydiving hobby will earn your application more scrutiny than needlepoint.
• Driving and criminal records. Several tickets within a short period of time, DUIs and arrests can contribute to what your policy costs.

Bottom line

There are various ways to buy life insurance, policies to choose from and riders to consider. But before you commit to coverage, do the math to work out how much life insurance you need.

Then, compare life insurance companies to find the best possible policy and premium.