Policy types

If you receive life insurance through your workplace, it is group insurance. Group insurance is usually available up to age 65, and, if you belong to a large group, does not require a medical or other proof of insurability. Group life insurance is issued to employees under a master contract and individuals receive a certificate as evidence of coverage. The premium charged is not personalized according to your age, sex or health, but is based on the averages of the whole group.

Your employer’s group insurance probably has some limitations of which you should be aware:

• Coverage is usually a basic amount and may be a multiple of your annual salary (e.g., two times your annual salary, three times your annual salary, etc.). If you wish to have greater coverage, you may have the option to purchase more through your employer’s plan, or you may want to purchase your own individual life insurance.
• Coverage usually terminates when you leave your job. Some policies allow you to convert the coverage to an individual life insurance policy. Check your group insurance to see if this is an option.

Policies generally fall into two categories: permanent and term. Permanent life insurance is typically used to cover needs that will always be there, such as funeral expenses or supplemental income for your survivors. Term life insurance is suitable for more temporary needs or expenses that have a foreseeable end like your mortgage or putting your children through university.

You can often purchase a combination of policies to suit your individual needs. Your life insurance company or agent can help you find the right balance.

Tip: A licensed life insurance company or agent can help you find the most suitable life insurance policy for you. Find a licensed insurance agent or a licensed insurance company in Ontario.

The basic features of permanent policies are:

• Level premiums: Most policies have premiums that remain level over the lifetime of the policy. This doesn’t mean that the payments remain the same. It means that the premiums you pay in the early years of the policy when you are younger are higher than the risk you represent to the insurer, and when you are older the premiums you pay are lower than the risk you represent.
• Cash values: The amount of money that builds up in a permanent life insurance policy. You can use the cash value to boost your death benefit, pay your premiums, supplement your retirement income, or take out a policy loan.
• Participating policy dividends: Participating policies share in the financial experience of the insurance company and receive annual dividends. Non-participating policies do not.
• Non-forfeiture options: These are options available to you if you miss or decide to discontinue paying premiums on your policy. The options will allow you to keep the policy in force or take a cash settlement.

Every permanent insurance policy is designed to provide you with coverage for your whole life. However, some are sensitive to interest-rate and/or stock market fluctuations and present a greater risk, while others provide guarantees. 

• Whole life: Whole life is a traditional policy that uses very long-term interest rate assumptions to provide coverage for your lifetime. Your premiums, death benefit and cash value are guaranteed in most insurance contracts.
• Interest-rate sensitive: Interest-rate sensitive policies use current interest rates that change if interest rates change. There is the risk therefore that your premiums could increase if interest rates decrease. The most popular interest-rate sensitive policy is Universal Life. It consists of two parts: life insurance, and an investment account. The premium you pay will be shared between cost of insurance charges and the investments you select. You decide how each part is set up and you can increase or decrease your premiums and death benefit within limits. Note that investment growth may not be guaranteed and depends on the type of investment chosen. Be sure to speak with your life insurance agent or company to understand your investment options.
• Variable life: Variable life insurance consists of two parts: life insurance, and an investment component (e.g., stocks, bonds, index and other investment funds). Premiums are usually guaranteed but the cash values vary according to the performance of the investment component. The death benefits may be guaranteed or may vary with the fund’s performance, subject to a minimum guarantee, and you need to be comfortable with the associated risks. You might want to ask for policy illustrations in which low returns are shown. Also check your policy illustrations to see what the identified risks are. 
• Term life insurance: Term insurance covers you for a specific period of time and has an expiry date. It is suitable for more temporary needs or expenses that have a foreseeable end like your mortgage, putting your children through university, or business obligations like training your successor or buying out shares. Term insurance is usually purchased in terms of one, five, 10 or 20 years, or to age 60 or 65. If you die within this time, your beneficiaries receive the death benefit. If the specified time period ends within your lifetime the coverage expires, there is no death benefit payment, and you cannot claim the premiums you already paid. Term policies:
• Don’t include cash values, so you cannot borrow against the policy or receive cash back if you cancel the policy
• May be renewable at a higher premium when they expire
• Usually have lower premiums than permanent policies
• Premiums are set by the insurer for the length of the term and may increase if the term is renewed

Tip: If you start with a term policy, you may want to make sure it’s renewable or convertible into a permanent policy at a later date. That way you have some flexibility to meet your changing life situation.

• Term to 100 policies: Term to 100 policies provide life insurance coverage through to the age of 100, but usually do not have cash values. Their premiums are usually lower than whole life policies.
• Term life insurance for couples: Couples need to consider what coverage they may already have through group policies provided by their employers, as well as coverage they may have purchased while single. Make sure you weigh the options carefully, considering all the pros and cons. If you get married and both parties have life insurance policies, contact your insurance agent or company to find out what options you may have. Ask if the existing coverage can be increased and if evidence of insurability is required. Also consider naming your partner as your beneficiary.
• “No medical exam” life insurance: Some insurers offer “No Medical Exam” life insurance that may or may not require you to complete a questionnaire about your health. Coverage may be limited in these policies and may feature higher premiums.

Group insurance covers all members of a specific group and their eligible dependants. It is often offered through an employee benefits package or through membership in a professional association. You may have your own benefits or be covered under a parent’s or spouse/partner’s benefits. It is important to note that group insurance usually covers the same benefits regardless of the individual and typically cannot be personalized.

If your employer doesn’t offer group insurance, you may be able to purchase it through a professional association or an alumni association.

If your employer offers supplementary health and/or dental insurance as part of a benefits package, they will sometimes pay the premiums. If you have group insurance through an association, you will have to pay premiums yourself.

Your employer or benefits administrator will provide you with a booklet that outlines your benefits. Most group insurance plans will cover some combination of the following benefits:

• Prescription drugs/medicines
• Semi-private or private hospital rooms
• Special nursing services
• Ambulance services
• Medical expenses incurred outside of Ontario
• Artificial limbs, prostheses and medical appliances
• Wheelchairs and other equipment
• Specified medical services not covered by OHIP (chiropractors, physiotherapists, podiatrists, osteopaths, optometrists, massage therapists)
• Vision care (eyeglasses and contact lenses)
• Dental care

Group insurance plans are designed to offer coverage to members of a particular group – usually a company or an association. Each plan is different, so check with your benefits administrator to see if and when you may be covered. Be aware of these common features of group plans:

• Many group plans do not cover part-time or contract staff, be sure to ask your employer if you are eligible or how to become so
• You may have to be employed by that company for a certain amount of time before you receive supplementary health and dental insurance benefits (e.g., one month or three months)
• If you leave the job or the association, your coverage ends
• Plans usually cover you, your spouse/partner, and children under age 18 (or older if they are full-time students or disabled), although eligibility criteria can vary
• If you are laid off or downsized, your benefits may continue for a few weeks, and in some cases, you may be able to get replacement coverage if you apply within a certain time period (For more information on replacement coverage and how to get it, contact your benefits administrator or the OmbudService for Life and Health Insurance (OLHI))

Some group insurance plans allow members to pick and choose the benefits that meet their needs and add or change benefits as their family situation changes. For example, you might add orthodontic coverage for your teenage children and then cancel it when they’ve outgrown the need. You may be able to adjust your plan when you hit major milestones, like getting married or having kids. If your employer offers a flexible plan (known as “cafeteria-style”), you should review the options carefully and speak with your benefits administrator if you have any questions.

If you and your spouse/partner both have group insurance through your employers or associations, you may be able to combine your benefits to cover up to 100 percent of your medical expenses. This is known as coordinating your benefits. Insurance industry procedures determine which plan pays a claim first and which one picks up the remaining amount. Your benefits administrator can help you with the claim.

If both partners have group plans and they are not mandatory, you might want to cancel or opt out of the plan that provides less generous benefits. Take advantage of the ability to coordinate benefits if you are able to do so.

If you don’t have insurance through a group plan, or if you want to increase your insurance to cover specialized needs, you can buy an individual plan from an insurance agent or company. Individual plans cover many of the same expenses that group plans cover (listed above), as well as expenses that are specific to your individual needs.

Like most group plans, individual plans also feature deductibles, co-insurance and maximums, so read the policy carefully before buying it and make sure you understand what you are paying for. Ask your insurance agent or company if you have questions.

If you are living in Ontario temporarily or returning to Ontario after a long absence, you may not yet qualify for OHIP. If this is the case, you may want to consider supplementary health and dental insurance. Some companies sell insurance to cover medically necessary doctors’ services, hospital services and supplies to visitors or returning Ontarians. Some offer emergency-only coverage, some include semi-private hospital rooms and some pay for an emergency return home for visitors if you are disabled or die. Be sure to shop around to find the best premium and coverage for your needs.

Tip: Know what expenses are excluded from your plan. Individual supplementary health plans often exclude expenses incurred as a result of pre-existing conditions. These include injuries or illnesses that you had before you applied for the insurance coverage. Also excluded are all expenses covered by a group plan or OHIP. To learn more about exclusions, read your plan carefully and speak with your insurance agent or company.