MORTGAGE  CREDITOR  INSURANCE

This is the type of coverage that your bank would own on your life, by which they are beneficiary and you are the life insured. If you die, they receive the insurance proceeds and in turn cancel your remaining mortgage balance. Often a couple simple health questions are asked, and assuming you answer “no”, then you are approved. You should know, at time of claim (after you die), if when your file will be opened and reviewed for things like “pre-existing condition clauses”.  Because you don’t own the insurance, you don’t have control. If you switch banks for your mortgage when your term expires, you will need to RE-QUALIFY with the next bank. If you can’t re-qualify because of negative change in your health, the need to keep the insurance may “marry” you to your current bank. With a product like this, you simply aren’t in the “driver’s seat”. The bank is.

These products are typically only sold through your bank by bank employees. There is no requirement that the employee be insurance licensed, because the product is specifically tied to a credit product. Often bank sales targets require employees to push to sell disability insurance, tied to the mortgage creditor insurance.

TERM  LIFE  INSURANCE

By far the most common type of life insurance used for debt coverage. Insurance rates from banks are typically based on a TERM 10 rate, meaning, your premiums remain the same for 10 years, and then increase. However, many insurance companies offer TERM rates between 10 – 40 years (depending on the applicant’s age). These will renew when the term is up, and are often convertible to other types of permanent life insurance too. These products are underwritten by the insurance company and based on your current health. At time of claim (when you die), the insurance company can not change your insurance policy contract. The only exception to this is, there is a incontestability & suicide clause which means if you die within the first 2 years of a policy being issued,  the insurance company has the right to investigate for a misrepresentation or fraud. If suicide is committed in the first 2 years, the life insurance benefit will also not pay out. When a policy is approved and issued to you, you own the contract. You can choose to name a beneficiary as well.

UNIVERSAL  LIFE  INSURANCE

The features are similar to TERM insurance, with the exception that the premium you pay is the same for your lifetime (i.e. It doesn’t go up as you age).

Universal Life means the policy is broken up between a life insurance portion and an investment portion. You have some control over how much “extra” you want to be into the investment portion. There is often a wide array of investment options, but most commonly similar to GICs or Mutual Funds. There is a “minimum” and “maximum” premium allowable to be put into these products to ensure they stay onside from an income tax perspective, as there are rules outlined to the insurance companies, by Canada Revenue Agency. This requires on-going management of the investment portion by your insurance agent. As well, you should know the fees associated with these investments as often the management fees can be higher than the more common traditional mutual funds or exchange traded funds.

WHOLE  LIFE  INSURANCE

The features are similar to TERM insurance, with the exception that the premium you pay is the same for your lifetime (i.e. It doesn’t go up as you age).

Whole Life participating policy means, unlike Universal Life, the investment choices are now taken away from the insured, and left to the insurance company. In return, the insurance company typically pays the participants in this type of policy a dividend (which isn’t guaranteed until it is paid and received to the policy holder, but once it is received, it can never be taken away. As such, it often can take away much of the “market risks” associated with investments in a Universal Life policy). Growth occurs as expected dividends actually get paid. There are only a handful of insurance companies in Canada that offer this type of insurance, given the complexity and long track record established already.  This is often an excellent type of insurance to get for children, younger people, and corporations. If you have strong cash flow it is also a wonderful long term investment and can often be viewed as it’s own “asset class” alongside RRSPs, TFSAs, etc. Typically if you own a participating whole life insurance policy,  rarely would you ever want to cancel such coverage. If an Advisor is suggesting you cancel it, get a 2nd opinion.