# Life Insurance



## pnky (Jul 16, 2012)

I am looking for Life Insurance for me and my spouse - my financial planner is recommending 2 options - one is a pure term plan for 20 years for $250k from Forrester Insurance and the other is a "Permanent" plan where there is a $250k coverage for the 20 year term and a $100k coverage for rest of life. In this plan, no premium to be paid after the 20th Year from Desjardins.

Which one should I go with - they are not apple-to-apple of course, neither are the premiums. Are their any better (in terms of rates or reputation) companies out there that I should ask for options from too ?


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## MoneyGal (Apr 24, 2009)

The question should not be, "which is the better product?" but "what are my needs?" If you don't know what your risk management needs are, how will you pick the product that best meets them?


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## Sampson (Apr 3, 2009)

How timely a question. Here is a Life Insurers take on the question.

pnky, are you actually CC in disguise plugging your own blog


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## MoneyGal (Apr 24, 2009)

Ugh. That article also sidesteps the point. How much insurance does the consumer need? Some? A lot? None? 

Why is it a benefit if you can "keep the WL policy in force" after 20 years if you have no continuing need for insurance? It's like selling me a car with a block heater when I live in Florida. IF you ever move to a place with really cold winters, or IF we have a climate revolution and Florida weather becomes like Minnesota weather, you'll really appreciate this one feature! And it's not too expensive, just [insert some number] in an easy, one-time upfront payment."

What I don't like about those kinds of articles is that the author points to the need to unpack the assumptions but then he includes a lot of assumptions of his own that he doesn't explicitly disclaim. The main one is the presumption of a continuing need for risk management after the 20 years are up. (However, in general, I like the way he's laid out the two cases.) And when your product sale is dependent on a lot of factors possibly converging OVER TIME and especially when that time is far in the future -- but the payment and the decision is NOW -- then I think you need to really disclose all of your assumptions at the outset. Which is why, of course, I do not sell life insurance - you wouldn't be able to get through the first conversation with me, because it would probably be hours long.


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## pnky (Jul 16, 2012)

Sampson said:


> How timely a question. Here is a Life Insurers take on the question.
> 
> pnky, are you actually CC in disguise plugging your own blog


No, i'm just me


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## pnky (Jul 16, 2012)

MoneyGal said:


> The question should not be, "which is the better product?" but "what are my needs?" If you don't know what your risk management needs are, how will you pick the product that best meets them?


Makes sense. My spouse and I are 35 years old, we have one child - one more on the way. We are recent immigrants to Canada. We will be buying a house next year. We earn ~100k annually and have little in savings since we are just starting here.

I am looking for term insurance to protect the family from general liabilities, I am thinking of buying another top up term cover after I get the mortgage.


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## MoneyGal (Apr 24, 2009)

OK, I need to go off and do something else so this is really quick -- the article linked to in this thread evaluates two different forms of insurance *t**hrough an investing lens*. The presumption in the article is NOT that the insurance is being used to manage risk (the assumption is that the insured is alive at the expiry of a 20-year term). (I should add that I am sure the article's author would state that using the products to manage risk is just a given, and I understand that. But I still think it is stepped over in the article.)

The first thing you are going to want to figure out is how much actual insurance you need (i.e, the size of the risk you would consider managing via an insurance purchase). Then, once you've figured that out, you can start to look at specific products. But! You should be aware that any conversation which is comparing the financial well-being of the purchaser _as if they are still alive after the expiry of a term insurance product_ is NOT really discussing how that product manages risk for the purchaser. They are having a much more complex conversation about how financial well-being is assured for the purchaser, _piggybacking on the risk management need_.


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## OptsyEagle (Nov 29, 2009)

It seems to me that your concern should be what happens to your young family financially, if you were to die before your kids leave your care (old enough to look after themselves). Straight term insurance takes care of that issue, the cheapest way possible. The plan with a lot of term plus some permanent insurance is really a plan with the current protection you need now, plus an estate benefit that will probably kick in when no one really needs it anymore.

The combo plan usually feels like a better deal because it makes one feel like they are truly getting a return for their money (since you will die someday), as opposed to the term insurance, where if you do not die (during the term which you already know is unlikely) the insurance company gets to keep all your premiums and you get nothing.

Well, unfortuneately that is the wrong way to look at it. First of all, the lion's share of all the term insurance premiums are actually going towards the very few people who WILL die during the term of their policies. This is the risk that the entire group is insuring. That risk is also in the combo plan. My point is, the risk and future cost of the insured people that die prematurely is going to be paid by the people who are currently protected and paying premiums (not the insurance company). That cost is going to be paid by the insureds in both types of plans, so there is no way of avoiding this cost, no matter how it is masked by the products offered. You will either be lucky and live ... or lucky and collect ... but either way and in either policy, you will pay your fair share of the cost.

All the combo plan is doing is selling you a plan that protects you for your current risk and then selling you an additional plan where they take your money, invest it (take their fees along the way of course) and then give it back to your estate at a later date. This give back, looks like a return of all your premiums, but it is not. The cost of the risk I described above has already been removed.

Now that you can look at the two plans the way they actually are, I would say that it sounds to me that the straight term is probably the better way to go. If you can match the term to the time you need the policy, that will be the cheapest. Since term insurance is widely offered in Term 5, Term 10 and Term 20 policies (term 100 is a signicantly different animal then regular term insurance and should not be used for your type of temporary risks). There are a few companies that offer things like Term 30, etc., but since they have little competition in this line, it is usually expensive. So my advice to you, from the little I know about you, is to buy Term 20 insurance.


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## Sampson (Apr 3, 2009)

MoneyGal said:


> Ugh. That article also sidesteps the point.


I linked only because I knew there would be good discussion points raised in the comments section. Haven't looked since morning, but wanted to introduce the concept of 'invest the rest'.

Frankly I was a little surprised to see something like that on CC's blog.


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## pnky (Jul 16, 2012)

Thank you all, your inputs were very helpful. Its T20 for me.


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## LifeInsuranceCanada.com (Aug 20, 2012)

MoneyGal said:


> OK, I need to go off and do something else so this is really quick -- the article linked to in this thread evaluates two different forms of insurance *t**hrough an investing lens*. The presumption in the article is NOT that the insurance is being used to manage risk (the assumption is that the insured is alive at the expiry of a 20-year term). (I should add that I am sure the article's author would state that using the products to manage risk is just a given, and I understand that. But I still think it is stepped over in the article.)


The original article I wrote on CanadianCapitalist.com has degenerated into pointless personal attacks. I'll respond here for a couple reasons - CC also participates here, and MoneyGal seems to be the only person who's commented to date who even begun to understood what I wrote - or perhaps more importantly is not intimating anything other than what I wrote. Her comment about this being seen through the lens of investments is particularly astute in the sense that it clarifies all the stuff I was not writing about (that the comments seem to indicate I did write about). She has also further clarified for the OP a variety of things they should be looking at - and noted that I did not address (nor did I attempt to address) any of these things. The article has nothing to do with 'what or how much insurance you should buy'. 

The article compares buy term invest the difference using two different interest rates, one at 8% and one at 3%. Based on those two different interest rates, two entirely different conclusions are reached. And the hopeful corrollary is that "buy term invest the difference" depends on your assumptions. Buy term invest the difference advocates will argue (and have) that buy term invest the difference 'proves' term is better. I just showed that it only proves that if you make the right assumptions. If you do not make the 'correct' assumptions, then you don't arrive at the 'correct' conclusion. And I further did not argue one assumption over another, I merely compared two different scenarios and showed the resulting 'facts'.

The article was an expose of the automatic buy term invest the difference philosophy. Term is appropriate in many cases, but NOT because of buy term invest the difference. It's appropriate in most cases because you want coverage for a predefined period of time - which is generally the case for insurance on families, they want insurance until they retire and then nothing. Using buy term invest the difference is designed to evoke an emotional response by comparing it to the 'evil' whole life insurance and many people parrot it blindly without ever actually checking current facts/premiums, or comparing scenarios.

The article was not designed to address what type of insurance you should have.
The article did not recommend a particular type of insurance. 
The article doesn't say whole life is better than term.

The article does not suggest 8% is better than 3% or 3% is better than 8%. It compared and contrasted the two scenarios. In once case, term looked better, in one case, whole life looked better. And I showed *both* scenarios. Somehow many advocates seem to conclude that everyone must use their 6% or 8%, and that by my comparing that to 3% somehow I was advocating for whole life insurance. None of the respondents seemed to care either that buy term invest the difference also compares guaranteed numbers against equities - does that seem any kind of right to compare those two things without even noting one is guaranteed and the other isn't? Readers who follow the article a bit closer without assuming I'm flogging a product should realise that I'm suggesting you should consider alternate scenarios rather than just accepting whatever interest rate is handed to you by a salesperson. Those who require that term insurance is appropriate 100% of the time are as wrong as those who suggest whole life is a good investment. 

What I didn't mention in the article is that the insurance industry is experiencing upheaval. Traditional permanent policies like Term to 100 have skyrocketing premiums or are being withdrawn entirely by the insurance companies. Whole life seems stable, but it looks like term life insurance premiums are also on the rise. The article showed that at 3%, the costs over 20 years between term and whole life were comparable, but that whole life may have other benefits of interest. But if term premiums rise, that means the crossover point will be higher. if the costs are comparable at 4%, and the 4% is guaranteed with additional benefits, does that mean whole life is better? What about 5%? If we assume equities earn 6% and are not guaranteed, is a 5% guarantee now worth considering? 

in fact, if I did want to compare non-guaranteed with non-guaranteed, I could have compared a participating whole life policy with dividends to equity investments. Both are investment dependent and not guaranteed. I haven't run this, but a friend said he ran one recently where the non-guaranteed whole life was projected to produce a comparable 7% rate of return over the long term. That's comparable to equities - and the whole life policy has other benefits like reduced paid up. Again - not advocating. Just sayin', ask questions and question assumptions.


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## MoneyGal (Apr 24, 2009)

Wow, I totally missed this! Such a great response. I hope you come back to the forum, LIC. :biggrin:


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