Our Step-by-Step Guide to Buying Life Insurance

Buying the right type of life insurance that you need should not be a tedious task. Here is a step-by-step guide to make it easy for you.

April 1, 2021

Buying life insurance may not be your idea of fun. But it is something thing that you must do - especially if you have someone who depends on you. Thankfully, we have made purchasing a life insurance policy through Dundas Life quick and easy. Continue reading to find out how you can get the best type of life insurance for you hassle-free.

How to buy life insurance

Life insurance is a safety net for those who depend on you financially. It keeps them afloat if you were to die suddenly and your income was no longer around to support them.

Buying life insurance can be a painless and quick process, especially if you keep the following tips in mind.

Step 1 – Calculate how much life insurance you need

Close-up of hand with pen and calculator

Like other financial products, life insurance should be tailor-made to your situation. Take into account your annual income, expenses, assets, and debts when calculating your life insurance needs.

For most people, a coverage amount equaling 10 times their salary can be a good starting point. But at the end of the day, this is just a ballpark figure. Since the financial situation of no two persons is the same, you should take a close look at your needs to find out your coverage requirements.

Outstanding debts

Your unpaid debts will not simply disappear after your death. Instead, they may fall on the shoulders of a loved one, like a spouse, or be deducted from your estate, meaning your family will inherit less than you intended.

However, things do not have to be this way. A life insurance policy can offer robust debt protection. But for that, it is necessary that:

  • The death benefit amount be large enough to cover all your debts
  • The policy should at least last as long as the largest debt that you have (usually, that will be your mortgage)

If you are married

If something happens to you, your spouse may have to work less to take care of children. Or they may have to hire someone for services that you currently provide for free. When factoring in your coverage needs, take into account future expenses that are likely to arise if you were to die unexpectedly.

If you have kids

It is a simple fact that raising children in Canada is expensive. Raising a child will cost you $10,000 - $15,000 every year on average until they turn 18. If you have children, add future expenses — such as college tuition fees — into your coverage needs as well.

Tally up your financial obligations

Use the following simple equation to get a fair idea of how much coverage you need:

Coverage amount = (Add all your expenses) – (Your assets)

Step 2 – Know the difference between term life and permanent life insurance

Life insurance is not one-size-fits-all. Given this, it is not surprising many people ask us this question: What type of life insurance do I need?

Well, there are two types of life insurance policy: term life and permanent life. Term life insurance is the simplest type of life insurance. Permanent life insurance, by contrast, is the nearest thing to “set it and forget it” life insurance.

Term life insurance has only one purpose — to pay the death benefit when you die. These policies provide financial protection for a specific number of years. If you pass away during this time, the insurer will issue the payout to your beneficiary. If you outlive the policy term, you will not receive any payment.

Term life insurance is a much cheaper type of life insurance than permanent life. On average, you are likely to pay five to 15 times less for a term life policy compared to a permanent one.

For this reason, a term life policy is a great option for someone on a budget. It also makes sense for applicants who want coverage until they reach a specific milestone, like attaining financial independence, putting children into college, or paying down the mortgage.

Permanent life insurance, on the other hand, lasts an entire lifetime. Many of these policies also include a built-in savings component, which accumulates wealth on a tax-deferred basis.

Permanent life can be the right type of insurance for someone with a lifelong dependent, like a child with special needs. It is also a better option for high-net-worth individuals who want their life insurance policy to bundle up as an investment tool. It can also be the best life insurance policy for those who want to preserve the value of their estate. Finally, if you want to take care of your end-of-life expenses, such as funeral and burial costs, you may want to consider buying a permanent life insurance policy.

Step 3 – Understand what affects your life insurance rate

Insurance companies look at many factors when determining your rates, such as the following:

  • Your age – Age has the biggest impact on the pricing of your life policy. That is because as you become older, so to does your chances of dying. For this reason, you should apply as early in life as possible. That way you will be able to lock in low rates for the next few decades or even for your entire life.
  • Your health – Healthier people receive favorable ratings from life insurers. This, in turn, translates into lower premium rates.
  • Smoking status – Smokers pay two to three times higher premiums than non-smokers of similar age and health status.
  • Family medical history – Certain illnesses, like diabetes, tend to run in the family. A family history of certain health conditions can push up your monthly premium rate.
  • Gender – Women live longer than men, so they receive better rates.
  • Type of policy – Generally speaking, premiums for a permanent life policy will cost five to 15 times as much as a comparable term life policy.

Step 4 – Find out if you qualify

Not everyone who wants life insurance gets it. A severe health condition, a dangerous job, and a high-risk hobby are just some of the things that can affect your insurability.

If you are concerned about your insurability, speak to an independent insurance advisor like Dundas Life before you apply.

Step 5 – Shop around for the best rate

Happy african-american couple shopping for life insurance online on a laptop.

Life insurance companies spend millions of dollars a year on ad campaigns to convince people they offer affordable coverage. However, the truth is that no life insurer offers the best rate to all applicants, so it is important to shop around. Ask for a quote from leading insurers in Canada to find out which company offers you the lowest rate. This is one tip that you cannot afford to ignore.

Step 6 – Do not just focus on premium

If you asked us the question “How do I buy life insurance wisely?” and we could give you only one answer, this would be it.

While price is an important factor, it is not the only thing you should consider. An equally important factor is the insurer’s financial stability. After all, the last thing you want is to pay thousands of dollars in premiums, only to find the company has gone under while your policy is still in force.

When you buy life insurance, you enter into a contract for a long period of time. Because a payout on your life insurance policy may be several decades away, you need an insurer that is financially sound. Financial strength ratings, like those provided by AM Best, indicate whether an insurer has enough assets to pay its claim. Look at these ratings before you sign up to avoid nasty financial surprises.

Other factors you should consider include the company’s reputation and your policy’s internal costs (if you are buying a cash value life policy).

Step 7 - Apply

To get coverage, you will have to complete a lengthy application. The insurer will ask questions about your age, weight, health and lifestyle, family medical history, and tobacco use. Some may require a medical exam, whereas some don't.

Be careful not to obscure or withhold information from your insurer. If you get caught lying on your life insurance application, the insurer may ask you to pay a higher premium or refuse coverage. And if you misrepresented or lied on the application and you die, the insurer may issue a reduced death benefit or reject the claim altogether.

Step 8 – Sign the documents and pay for life insurance

Digital signature of life insurance document

After completing the underwriting process, the insurer will issue you a policy offer. To put the coverage into effect, all you now have to do is sign the documents and pay the first insurance premium.

You can choose to pay premiums every month or once in a year. The latter option generally comes with a small discount. If you want to change the payment frequency after your policy comes into effect, simply contact the insurer.

Conclusion

Life can sometimes be complicated — but buying life insurance does not have to be. Use these tips to find the right type of life insurance or, even better, get in touch with an independent broker like Dundas Life. We will gather you quotes from all the leading insurers in Canada and help you pick the option that best suits your financial needs.

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How can we help you? Our team is happy to help answer any questions you have.

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