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Ten Things a Life Insurance Broker Needs to See
For those who want to take out life insurance, having relevant information and clear answers about the questions that may be of concern to them can be very useful and help them make a decision. In order to shed light on the most important points related to life insurance, here are the answers to the 10 most frequently asked questions below.
When is life insurance activated?
When it comes to taking out insurance, it all starts with a meeting with a representative who presents his client with the application form to fill out. This document, known as the proposal, is an official request for the purchase of insurance from an insurer. But be careful, filling out the form and paying the premium is not synonymous with immediate coverage. Indeed, the latter only becomes effective after verification that all the conditions required by the insurer are met. These include:
- Acceptance of the application without change on the part of the insurer;
- Payment of the first premium;
- The client’s insurability, which must remain intact since the signing of the application document, particularly with respect to their health.
Of course, each rule has its exception, as some insurance companies guarantee that the policy will come into force as soon as the application is signed. But subject to meeting very specific conditions that are listed in the proposal.
- What does insurability mean?
Insurability is when the insured has all the skills and meets all the criteria required by the insurer. Generally, the determining factors are age, state of health, profession, among others. Such information is listed in a declaration of insurability. It is recommended that you do not automatically renew your temporary protection even if you are in good health. It’s best to shop around in the hopes of getting better deals from other providers.
- What will happen when there is a significant difference between the submitted application and the insurance policy issued?
The reference in this case is the proposition which is assumed to be correct, except where the insurer has accompanied the contract with a separate document in which all the differences are noted. And in this case, the policyholder is free to accept or reject the insurance. For example, consider a client who has completed the application to purchase $100,000 in temporary coverage over a 10-year term. If the insurer has established a contract for a period of 5 years, it must prepare a document specifying that the insurance is for a fixed period of 5 years and not 10 years. In this case, the customer can accept or refuse the protection. But if the insurer does not provide additional documentation, the insured can demand to have the insurance for 10 years.
- What should be done if the insured’s state of health changes after the insurance policy comes into effect?
The insured is not required to report any change in his or her health to the insurer. The medical investigation takes place at the time of the issuance of the insurance policy, if subsequently, the insured has been diagnosed with cancer, for example, and he or she mentions it to the insurer, the latter will increase the premium and in this case the protection will be useless. Because it must be said, the premium should not be revised upwards while the contract is already in force, and for good reason, the state of health of the insured has changed in the meantime.
- When is the insurance value paid out following a death?
After the death of the insured, the incident must be reported to the insurer by the deceased’s relatives. Generally, the insurer requires a certain number of supporting documents. From the moment of receipt of the documents, it takes 30 days for the payment of the insurance amount to be made to the beneficiaries. The documents requested by the insurer can be a death certificate, a birth certificate, or an identity document to verify the age of the insured, proof that the person who made the claim is named as the beneficiary.
- Is insurance paid out in the event of homicide?
If the insured is the victim of a homicide, it is necessary to verify whether the crime was committed by the beneficiary, if this is the case, no amount is paid by the insurer. If there are other beneficiaries who are not involved in this fact, they will obviously receive the amount of protection.
- Is the value of the insurance paid in the event of suicide?
In the event of a suicide committed by the insured when the insurance contract is less than 2 years old, the insurance must be paid in full, unless there is an exclusion mentioned in the policy. In this case, only the premiums paid must be paid. If, on the other hand, the suicide occurred after 2 years, the insurer is obliged to pay the amount of the insurance in full.
- Does the insurer have to pay the amount of the insurance in the event of the death of the insured?
The death of the insured can take place following a plane crash, a shipwreck, a kidnapping, amnesia or others. In this case, a court may declare the insured deceased, in particular in the presence of proof of his death, as in the case of a plane crash. Following the announced judgment, the insurer is required to pay the value of the coverage to the beneficiary named in the insurance policy. If no beneficiary has been named in the insurance contract, the amount must be paid to the estate. However, in the event that there is no proof of the death of the insured, a period of 7 years is observed before the declaration of his death and the beneficiary has the right to cash in the value of the protection. It should be noted that during this period, the bonus must be paid as usual.
Why is the life insurance premium not the same to be paid by everyone?
Several elements are taken into consideration, including the sex of the insured. Indeed, men usually pay a higher premium than women because their life expectancy is lower and this explains the presence of a difference of up to 30% on the insurance premium to be paid.
Another equally important factor is age. The insurance premium is revised upwards as you get older because the risk of death is greater. In addition, the place of residence is to be taken into account because taking out insurance in regions in Canada is more expensive than other regions. This can be explained by life expectancy at birth, which can be lower or lower than in other areas, and these differences are also present in Quebec.
Of course, the insured’s state of health should not be omitted, and insurance companies conduct an investigation when quoting life insurance. It should be remembered here that the healthier the person, the more likely he or she is to take out protection at very competitive rates. On the other hand, if the profession may present a higher risk than other professions, this has an impact on insurance. The riskier the job, the higher the premium.
Certain habits also influence the amount of the premium, in particular tobacco consumption, which affects life expectancy. As a result, it is normal for the premium to be higher for smokers, and in some cases it can be double that paid by non-smokers. For people who have stopped smoking for more than 12 months, it is in their interest to notify their insurer to take advantage of a reduction on their premium. If the insured did not smoke at the time of taking out the insurance, then he starts smoking afterwards, his premium remains unchanged. But if he plans to change insurers, he should know that he will have to pay the rate dedicated to smokers.
As for alcohol consumption, as long as it is moderate, it does not impact the premium, but in the event of abuse, it should be noted that the premium is revised upwards, it is even possible that he or she may be refused coverage.
Fans of dangerous sports should know that scuba diving, climbing, skydiving or car racing have a significant influence on the amount to be paid as a bonus, because the risk of death is too great.
In addition to factors relating to the insured, the amount of the premium can be impacted by the insurance itself. Indeed, the amount insured is a key factor. It goes without saying that the larger the sum, the higher the premium will be, but it is possible to take advantage of some economies of scale. For a value of $100,000, the insured will not have to pay double the premium as if he had taken out insurance for a value of $50,000.
The duration of the protection must not be forgotten, which plays an important role in the final cost. It goes without saying that term insurance is cheaper than life insurance for an indefinite period. In the first scenario, premiums are revised upwards gradually at each renewal taking into account advancing age. Whereas for the latter, the premiums are constant throughout the contract. However, the insurer always reserves part of the premium in this case in the event of death. Thus, for payments over a period of 25 years, the insurer would have set aside money during this period.
Economic conditions influence the insurance market like any other sector. And as a result, we must stop at the concept of current and anticipated interest rates.
In this regard, when insurers are unable to invest the premiums paid by the insured, they apply higher premiums. Because they earn money through investment income from premiums paid by customers. It’s the same concept as for retirement savings, when the rate of return is low, the client must pay more money to reach his financial goal.
-What should I choose coverage with constant premiums or progressive premiums?
If for an insurance with a given value and the same cost, you have the possibility to choose between constant premiums and evolving premiums, you may be tempted to opt for the former. However, it is important to know that constant premiums are more expensive in the first few years than those that change over time. It is better to study this data carefully, taking into account your budget and the duration of the insurance.
Real case of the declaration of insurability of life insurance
Anne-Sophie decided in 2008 to take out life insurance for herself and her four toddlers. The insurance agent asks him to fill out four declarations, while the 4th is exempt. However, the following year, the latter died and when the mother made a claim to her insurer, the latter refused to pay the insurance, stating that it would have refused to insure the child if it had been informed about the child’s health at the time of subscription.
Although the mother filed a complaint, the insurer remained firm and refused any agreement. Anne-Sophie, for her part, decided to contact the Financial Markets Authority to analyse the case.
In this example, the representative did not complete the declaration of insurability for the deceased child, and the insurer did not apply for it, and as a result, Anne-Sophie is “safe”. Because no one asked for the document, when taking out the document, but only at the time of the claim that it was required. No responsibility lies with him for this omission. Finally, the insurer had to give in and pay the death benefit to the mother, the case was resolved amicably. However, it should be noted that the Autorité des marchés financiers (AMF ) cannot require the insurance company to settle the case by mutual agreement.
Life insurance beneficiary terminology
- Revocable beneficiary: When taking out life insurance, the insured can freely designate his beneficiary but thanks to the revocable beneficiary mention, he has the right to designate another beneficiary at any time without notifying the first one or obtaining his agreement.
- Irrevocable beneficiary: This term indicates that if the insured wishes to change the beneficiary, he or she can only do so with the written consent of the initially designated beneficiary. Without the insured’s consent, the latter remains the beneficiary of the insurance until the death of the insured. However, there is an exception to this rule, namely the case of a divorce. In such a situation, the beneficiary spouse automatically loses this status even if he or she is designated as an irrevocable beneficiary.
- Absence of any mention: In this case, the insurance contract implicitly states that the beneficiary is revocable. Except in the case where the beneficiary is the spouse of the policyholder, because he or she has the status of irrevocable beneficiary.
