What Exactly Is Guaranteed Life Insurance?
Protecting your loved ones from debts and medical bills while you're gone is important. Keep on reading to learn what guaranteed life insurance means.
In 2015, Canadians as a whole owned over $4 trillion worth of life insurance protection and that number continues to climb.
Protecting your loved ones from whatever life throws your way and covering your final expenses are concerns that most of us share. But not everyone so easily qualifies for an insurance policy because of their age or medical history.
If you're in this category, guaranteed life insurance may be the best solution. But what exactly is it?
This guide will give you a better understanding of how guaranteed life insurance works, so you can make smart financial decisions for you and your family.
What is Guaranteed Life Insurance?
As the name implies, the major difference between guaranteed life insurance and a term life insurance policy is that you cannot be denied coverage.
If you're a Canadian citizen or permanent resident between a certain age, typically 40-85 though some policies will alter this range slightly, you will be approved. You will also not be subject to an extensive medical questionnaire or exam.
For people with serious medical conditions, unhealthy lifestyles (overeating, heavy drinking, smoking, etc.), or who've been denied coverage in the past for whatever reason, guaranteed life insurance can be a viable option. It will give you and your beneficiaries a safety net against accidents, terminal illness, or sudden death.
How Does it Differ from Term Life Insurance?
With traditional term life insurance, your health and lifestyle play a major role in determining whether or not you're eligible for coverage. Often a nurse will come to your home or you'll have to submit to a thorough doctor's exam, along with answering numerous questions about your medical history.
You're at the whim of whatever numbers the insurance company's actuaries crunch to determine the cost of your policy, if you're approved at all.
Term life insurance covers a specific length of time. After your term expires, you'll need to make decisions about how to proceed.
With many term policies, you'll have the option to keep your coverage active but your premium will spike. In other cases you'll be able to convert that policy into a permanent one, usually a guaranteed insurance policy.
For relatively young Canadians and those without significant health concerns, term life insurance usually makes the most sense. Trying to decide what is best for your situation? Consider these top tips for buying life insurance.
What are the Features of a Guaranteed Life Insurance Policy?
If you're in the targeted age range and have experienced frustration trying to find suitable life insurance to protect you and your family, a guaranteed policy can give you peace of mind. There are other important advantages that make it worth considering as well.
Not only can you not be denied coverage, your premium will not increase over the course of your policy. Regardless of improvements or setbacks in your health, you can expect your bill to remain the same.
For those with serious health concerns or who've been denied insurance in the past, this can make the difference between having coverage and remaining unprotected. You choose the coverage amount that's right for you. The standard range of coverage is between $5,000 - $50,000.
In addition to your premiums not changing, your benefits will also stay the same. The coverage you signed up for is the coverage you'll get regardless of how your life circumstances evolve.
As long as you're faithful in paying your premiums your policy cannot be canceled or altered, giving you confidence that the assistance you need will be there when you need it. Unlike with a term policy, you'll know you're protected for the rest of your lifetime.
Should something happen to you, a tax-free lump sum payment is issued to your beneficiary. They can use the money for final expenses, to pay debts, or whatever is most helpful. The choice is theirs.
Some policies even suspend premium payments once you reach a certain age, usually 95 years old. You'll be able to enjoy the coverage you have for years without paying any more into the system.
Many policies also include an accidental death benefit, entitling your beneficiary to up to 5x your coverage amount in the event you die unexpectedly before your 85th birthday.
Another useful feature included in many guaranteed life insurance policies is the ability to receive a one-time cash advance on part of your coverage amount if you've been diagnosed with a terminal illness. This Living Benefit, as its called, can help you make the most of your final months with loved ones.
Further, as insurance companies compete for your business, they'll include perks in your policy that help you enjoy your day-to-day life a little better. Features like earning air miles and having flexible payment options entice customers to close the deal.
What are the Drawbacks?
Before you sign on the dotted line, make sure a guaranteed life insurance policy is right for you. There are some potential pitfalls worth investigating.
Typically, your premium for this kind of policy will be higher than with a term life equivalent. If you're on a fixed or limited income, the costs may be prohibitive.
Also, depending on your age when signing up for a guaranteed policy, you may end up paying more than your policy's value by the time you need to use it. Carefully evaluate your monthly premium against your life expectancy before making this decision.
You must also investigate to be certain your policy's death benefits are enough to cover your final expenses. Funeral costs in Canada can run upwards of $20,000. If there are other major bills to repay, you may need more coverage than this option can provide.
Because your application cannot be denied for health reasons, life insurance companies place caveats on how they pay out benefits if you die early on, typically in the first 2 years, in your policy. Unless your death is accidental, your beneficiaries will only receive back the premiums you've paid in that time frame.
So while this type of life insurance makes sense for the sick and the elderly, it's important to have an understanding of your own health and life expectancy before you commit to this solution.
Make Smart Insurance Decisions
Choosing the right life insurance policy is a big decision that affects you and your family. Have all the information you need to make smart choices and get the protection you need at a price you can afford.
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