Life insurance can suit seniors when it matches their needs and financial goals. Buying, replacing, or maintaining coverage for the wrong purpose, amount, or period can cause financial harm.
Our team looked into the Financial Consumer Agency of Canada’s life-insurance guide, FSRA’s consumer rights and responsibilities page, FSRA’s policy-type guide and the Autorité des marchés financiers’ replacement guidance.
What Life Insurance Mistakes Should Seniors Avoid?
Keep these common mistakes in mind when purchasing life insurance as a senior in Canada:
- Buying too much or too little insurance
- Not matching the life insurance term with the length of time you’ll need coverage
- Not considering other life insurance provided by an employer or other policies you may already own
Start With The Need, Not The Policy
| Possible need | How long it may exist | Evidence to collect before requesting quotes |
|---|---|---|
| Funeral and estate expenses | The need remains until you have enough liquid savings set aside. | Accurate estimate based on local costs. Include cash on hand. Include projected needs/costs of the estate. |
| Debt or mortgage | Until the balance is repaid | Analyze the amount, interest rate and payment schedule of the debt. Is there an alternate asset that can be used to cover the debt? |
| Income for a spouse or dependant | Especially with support you anticipate extending over multiple years. | How much would the household need? Consider current level of spending, any pensions, survivor benefits and tax considerations. How long would they need it? Consider the timeline of the dependant. |
| Estate equalization or charitable gift | Often a permanent need | Have an estate plan. Identify recipients. Obtain tax advice where warranted. Take inventory of existing assets. |
| Business or tax liability | Depending on obligations and succession plan. | Key topics include shareholder agreements, ownership structure and projected liability, for which we encourage you to obtain professional advice. |
Buying Too Much Coverage Or Not Enough
Determine all of your obligations, including any outstanding debts, final expense/funeral costs, and financial support required by any dependants.
Get several quotes for different coverage levels so you can plan accordingly.
Choosing The Wrong Policy Type
Term insurance may make sense if you need to be covered for a certain amount of time and don’t want to build up cash value.
When you want to be covered for life, permanent insurance may make more sense, but make sure you can afford the higher, ongoing expense and that you understand all of the nuances of the permanent policy.
| Option | What to check | Common mismatch |
|---|---|---|
| Term life | Term length, renewal cost, expiry age, and conversion deadlines. | Coverage is needed longer than the term lasts. |
| Whole life | Which premiums, death benefits, and cash values are guaranteed. | The buyer pays for permanent features they do not need. |
| Universal life | Insurance charges, investment options, guarantees, and minimum funding requirements. | The buyer treats an illustration as a guaranteed outcome. |
| Simplified or guaranteed issue | Health questions, benefit limits, waiting periods, exclusions, and premiums. | The buyer pays more for less coverage without considering underwritten options. |
| Group or association coverage | Who owns the policy, when it ends, portability and conversion options, and whether benefits can change. | The buyer assumes coverage will continue after retirement or membership ends. |
Read More: See the Differences Between Term and Whole Life Insurance
Ignoring Renewal, Conversion And Issue-Age Limits
Not all policies are available at all ages. Term policies may be renewable when you’re older, but they can be much more expensive.
Find out what happens when you get older. Ask for a schedule of renewal prices. Ask what age you can renew to.
Find out when you must convert by and what products you can convert to. Ask if you’ll need to provide new medical evidence when you convert.
Treating No-Medical Coverage As The Automatic Answer
For those who can’t get a policy through standard underwriting, simplified or guaranteed-issue policies are another option. However, these policies may offer lower benefit limits, higher premiums, or a waiting or graded-benefit period for non-accidental death. Never make no-medical coverage your automatic answer.
Review the policy definitions and what happens during the waiting or graded-benefit period.
Cancelling An Old Policy Before The Replacement Is In Force
Keep your existing policy in force until the insurer approves the application and issues a contract, all contract delivery requirements are met and you know coverage has begun. Review the contract during your contractual or statutory right of review.
In Ontario, FSRA says you have at least 10 days from receipt of the contract to decide whether to cancel it free of charge, although some policies allow as many as 20 days. Replacing a policy could cause you to:
- restart the suicide-exclusion and contestability periods
- be rated by age and health at the time of replacement
- give up guarantees and value.
Read More: Review the Consequences of Cancelling Life Insurance
Failing To Disclose Health Information Accurately
You must answer all questions fully and truthfully. A material misrepresentation can put the policy or claim at risk.
If you have any questions, ask for clarification before submitting the application. Make sure you have a record of your responses.
Naming The Wrong Beneficiary
Name beneficiaries to match the reason for having insurance. Revisit beneficiaries after a significant life event, such as a birth, death, marriage, divorce, or change to your estate plan.
Depending on your situation, the right answer will vary based on applicable provincial law, your family situation, and whether the designation is revocable or irrevocable. For example, you may need to set up a trustee if a beneficiary is a minor, and you may want to consider whether to name an estate as a beneficiary, as this can affect administration and creditor exposure.
Speak with a lawyer if you’re naming a minor, a dependant, a trust, your estate, or you have a beneficiary involved in an equalization plan.
Read More: Compare Revocable and Irrevocable Beneficiaries
Check Long-Term Affordability Before You Sign
Make sure you can afford the premiums for as long as you expect to have the policy. Include increases in premiums at renewal. Remember, non-guaranteed dividends, interest, and investment results are not certain.
Reevaluate the amount of insurance needed and beneficiaries as debts, family, business, and health situations change materially.
Read More: Explore Life Insurance Options for Seniors