You never know what life has in store for you. If you die, who will pay your debts, your mortgage and the cost of your funeral? Who will support your loved ones financially? Life insurance can be a solution.
Life insurance is a type of insurance that covers you financially if the insured person dies. By receiving a sum of money, certain people in the insured’s life (children, parents, spouse, etc.) will be protected against financial difficulties that can result from her death. This is called permanent life insurance.
Life insurance can also provide financial coverage where the insured person lives until a certain age or for a certain number of years. This is called term life insurance.
Since it can sometimes be difficult to understand the world of life insurance, this article explains some of the rules and steps you should be aware of.
- Choosing Who the Insured Person Will Be
- Choosing Who Will Get Insurance Payments
- Changing the person who will receive the life insurance indemnity
- Declaring the insured person’s true state of health
- Declaring the insured person’s true age
- When coverage begins
- Paying for life insurance
- Receiving the life insurance indemnity
- If the insured person commits suicide
- Attempt on the life of the insured
- The end of coverage
Choosing the Insured
One of the first things to do before applying for life insurance is to choose the person whose life will be insured. This person is called the “insured“.
You have two choices: take out life insurance on your own life or on someone else’s life.
If you take out life insurance on someone else’s life, you must usually get that person’s written permission. But permission is not necessary when the person is someone in whose life you have an interest. This could include the following people:
- your spouse or partner
- your child or a child of your spouse or partner
- your grandchild or a grandchild of your spouse or partner
- your father or mother
- one of your grandparents
- a person who contributes to your support or education
- your employees
- another person in whose life or health you have a financial interest (such as a business partner) or emotional interest (such as a close friend)
Choosing Who Will Get the Insurance Payments
You can choose one or more “beneficiaries“ of the life insurance. A beneficiary is someone who will receive insurance payments when the insured dies or reaches a certain age.
You are free to choose the person who will get the insurance payments. Sometimes you can be the beneficiary yourself. You can also choose a charity or even a person who doesn’t exist yet, such as a future child.
Insurers generally require that the beneficiary have a relationship with, or some kind of an interest in the insured.
Important! If no beneficiary is mentioned in the insurance contract, the person who entered into the contract (the “policyholder“) or his heirs (people who inherit from the policyholder) can receive the insurance indemnity.
Changing the Person Who Will Get the Insurance Payments
In theory, you can change the beneficiary or beneficiaries under your life insurance contract. All you have to do is notify your insurer of your decision in writing.
However, there are two situations where you have to get the current beneficiary’s permission before making this kind of change:
- when the contract says that the “designation of the beneficiary is irrevocable” (cannot be changed)
- when the current beneficiary of the insurance is your spouse by marriage or civil union, unless the designation is “revocable” (can be changed)
If the designation is revocable, you can also change a beneficiary by using a will. If the beneficiary is already mentioned in your will, you can change your will. You don’t need the beneficiary’s permission to make a change through a will…
Declaring the Insured Person’s True State of Health
In your initial application for insurance, you have to declare the insured person’s true state of health. That could mean your own state of health or that of the person you have chosen to insure.
You must answer the insurer’s questions truthfully and to the best of your knowledge. This means that you must not lie or hide important details, such as the fact that you smoke or that you have a hereditary disease.
If you don’t declare the insured’s true state of health, the insurer could ask a court to cancel your life insurance.
Important! Once the contract begins to cover you (see below), you’re no longer required to notify the insurer if the insured’s state of health changes.
Declaring the Insured Person’s True Age
In your initial application for insurance, you must declare the insured’s true age. This could be your true age or the true age of the person you have chosen to insure.
If the age you gave is not the insured’s true age, the insurer can ask a court to cancel your life insurance contract.
However, for the contract to be cancelled, all of these conditions must be met:
- The insured’s true age exceeds the maximum age insured by the insurer when it accepted your application. For example, the insured’s true age was 63 and the insurer never insurers people over 60.
- The insured is still alive when the insurer brings its action for cancellation.
- The insurer’s application for cancellation is made no later than
- three years after the making of the contract, and
- 60 days after becoming aware of the insured’s true age.
If the insurer does not apply to have the contract cancelled, it can simply adjust the amount of any insurance payments. It will do so by determining the difference between what you paid for the insurance and what you should have paid given the insured’s true age.
The insurance payments could therefore decrease given the insured’s true age.
When Coverage Begins
Life insurance coverage begins as soon as the insurer accepts your application, but only if the following three conditions are met:
- The insurer accepted your application without changing anything.
- There has been no change in the insured’s state of health or situation between the time you submitted your application and the time the insurer accepts it.
- For example, if you learn after you submit your application but before the insurer accepts it that you have a serious illness, your life insurance cannot begin. You must declare your illness to the insurer in a new application.
- You have paid the first payment under your life insurance contract. (These payments are called the “premiums”).
When you apply for life insurance, the insurer sometimes offers you a cover note (also called “interim” or “temporary” insurance). The purpose of this insurance is to cover you before your main life insurance starts to run.
Paying for Life Insurance
The money you have to pay your insurer to benefit from life insurance is called “premiums”.
Premiums vary depending on the amount of the insurance coverage, among other things. They can also vary according to the type of life insurance you chose, for example, permanent insurance (valid until the insured’s death) or term insurance (valid for 15 years, for example).
You must pay the premiums at the time indicated in the insurance contract. However, a late premium can be paid within 30 days of the due date (other than the initial premium, which must be paid at the agreed time). If you don’t pay within this time, the insurance contract ends automatically.
Life insurance that ends due to non-payment of a premium can be “reactivated”. For further details, contact your insurer.
Receiving Life Insurance Payments
The beneficiary can get the insurance payments if the event indicated in the life insurance contract occurs. The event could be the death of the insured or the fact that she has reached a certain age.
If the insurance contract requires it, the beneficiary or the insured must send the insurer certain documents to prove that the event happened. This might be the insured’s “death certificate”, for example.
After receiving these documents, the insurer must pay the insurance indemnity within 30 days.
If the Insured Person Commits Suicide
If the insured person commits suicide, the insurer can refuse to pay the indemnity if
- the life insurance contract has an exclusion saying that the beneficiary is not entitled to insurance payments if the insured committed suicide, and
- the life insurance policy has covered the insured for less than two years.
Attempt on Life of the Insured
If the beneficiary tries to kill the insured to get insurance payments more quickly, the insurer can refuse to pay. In these cases, the insurer will have to prove to a court what really happened.
If the person who took out the insurance makes an attempt on the insured’s life, the contract is cancelled automatically.
The End of Coverage
A life insurance contract ends and stops covering the insured at the time indicated in the insurance contract or at a later time agreed on with the insurer.
It can also end if you pay your premium more than 30 days late.
Did you know?
An “insurance policy“ is a written document showing that an insurance contract exists and setting out its main parts.
To change or add something to your insurance contract, the insurer must have you sign another document that is added to the contract. This addition is officially called a “rider“. Some employers pay part of their employees’ life insurance in the form of a group life insurance plan.
To find out more about life insurance, contact the Canadian Life and Health Insurance Association Inc.
To file a complaint about an insurer, contact the Autorité des marchés financiers or the OmbudService for Life & Health Insurance.