Purchasing life insurance is an essential part of financial planning for many Canadian families. However, the application process can seem complicated and intimidating. This comprehensive guide will walk you through the key steps and requirements when applying for life insurance in Canada.
We’ll provide insights on:
- Determining your specific coverage needs
- The detailed questions asked on applications
- Required medical exams and tests
- How insurance companies review your application
- Timelines for approval
- Tips for getting the best rate
Follow along as we break down everything you need to know to set yourself up for success when applying for life insurance coverage.
Determining Your Specific Coverage Needs When Applying for Life Insurance in Canada
The first step when applying for life insurance is determining precisely why and how much you need coverage. Here are some of the common factors to consider:
Income Replacement
If you were to pass away prematurely, how much of your income would your surviving dependents need to maintain their living standards? Consider your spouse’s earnings and expenses. Term life insurance policies are commonly used for income replacement.
Outstanding Debts
Make a list of any debts you would want paid off in the event of your death, such as a mortgage, loans, lines of credit, or credit cards. Consider total balances owed plus any accrued interest. Your life insurance payout can help protect your family from being overburdened by debt.
Final Expenses
Your life insurance benefit can help loved ones cover immediate costs like funeral and burial expenses. The average funeral in Canada costs $6,635, and your policy payout relieves your family from having to cover high final costs.
Special Needs Dependents
If you have any dependents with special needs, consider their long-term care costs and how life insurance could help provide for them even after you’re gone. This may warrant a higher level of coverage.
Spousal Insurance Needs
Evaluate your spouse’s insurance coverage and earning potential if you are no longer around. Ensure they can sufficiently provide for your children. If not, increase your coverage to close the gap in lost earning ability.
When calculating specific amounts, a common guideline is to purchase 10-15x your gross annual income in total coverage. However, every situation is unique, so work with a licensed advisor to determine the right amount. They can assess your specific financial obligations and help you select appropriate policies.
Coverage Held by Canadian Households
Here are some statistics on the types and extent of life insurance coverage currently held by Canadian families:
- 32% of households have term life insurance
- 22% carry permanent life insurance policies
- 40% have some form of life insurance coverage
- Average individual life insurance policy amount: $233,000
This data indicates many Canadian households are likely underinsured when considering income replacement needs. A licensed advisor can ensure you get adequate, tailored coverage.
Read more: Term vs. Permanent Life Insurance
Medical Exam and Testing Requirements When Applying for Life Insurance in Canada
The next part of the application process is the life insurance medical exam. The majority of insurers require this exam before approving coverage. Here’s what to expect:
Basic Health Screening
- Measurement of height and weight
- Vital signs like blood pressure and pulse rate
- Discussion of medical history with examiner
Blood and Urine Samples
- Testing blood for potential issues like cholesterol levels or diabetes
- Assessing kidney function through a urine sample
- Screening for nicotine use through urine cotinine test
Additional Screenings
Some applicants may also undergo tests like:
- Electrocardiogram (EKG) to check heart health
- Chest x-ray to identify respiratory issues
- Blood profile to evaluate liver function, infections, and cholesterol
The examiner will discuss your personal and family medical history and may order additional tests depending on your responses. Be prepared to provide comprehensive details on your health.
Average Medical Exam Costs
Here are the typical costs Canadians can expect to pay for the life insurance medical exam by age range:
Age Range | Average Cost |
18-35 years | $125 |
36-50 years | $150 |
51-60 years | $200 |
60+ years | $300 |
In some cases, insurers may offer coverage without requiring the full medical exam through simplified issue life insurance. This streamlined process comes with lower policy amounts and higher premiums.
The Life Insurance Application Questionnaire
The application itself asks for extensive information across three main categories:
Personal Information
- Full legal name
- Contact details, including address and phone number
- Date and place of birth
- Social Insurance Number
- Employment details
Lifestyle Information
- Height and weight
- Tobacco or nicotine use
- Alcohol consumption
- Drug use (prescription, over-the-counter, or recreational)
- High-risk hobbies like skydiving
Medical Information
- Medical conditions – past and present
- Hospitalizations and surgeries
- Family medical history
- Medications and supplements
- Recent tests and results
- Names of treating physicians
Take time to review several years of medical records and speak with your doctors to ensure the accuracy of the application. Any errors or omissions discovered later could invalidate your policy.
Plan to spend at least 1 hour providing comprehensive responses. This detailed information enables underwriters to assess your health and risk profile thoroughly.
How Insurance Companies Review Your Application for Life Insurance in Canada
Once you’ve completed the lengthy application and undergone your medical exam, this information gets passed along to the insurance company’s underwriting team for review. Here’s how they evaluate your eligibility:
Underwriter Review
An experienced underwriter will carefully examine your application questionnaire, lab test results, examiner’s report, and physician records. They will analyze all this data to understand your current health and uncover any medical conditions or risk factors.
Additional Information Gathering
Underwriters will likely request supplemental records from any doctors you saw over the past 5 years. This gives them greater insight into diagnoses, prescribed medications, and treatment plans.
Risk Assessment
Examining your medical history enables underwriters to categorize you as standard or higher risk. Applicants with extensive pre-existing conditions often get rated as high risk. Underwriters use this risk classification to determine coverage eligibility and appropriate premiums.
Coverage Decision
Based on the underwriting process, the insurance company will make one of three decisions:
- Approved: You are eligible for coverage at the standard rate.
- Declined: Due to serious health issues, you are ineligible for coverage.
- Rated: You may be offered coverage at a higher premium due to moderate health risks.
In 2020, approximately 15% of Canadian life insurance applicants were declined by at least one insurer. Working with an experienced insurance advisor can help if you receive a decline. They may be able to find alternative options.
Timeline for Life Insurance Application Approval
From start to finish, you should expect the entire life insurance application process to take 4-8 weeks for approval under normal circumstances. Here is a breakdown of the typical timeline:
- Application Questionnaire: 30-60 minutes
- Medical Exam Scheduling: 1-2 weeks
- Exam Completion: 1 hour
- Underwriting Review: 2-4 weeks
- Supplemental Records Review: 1-2 weeks
- Final Decision: Within one week of underwriter approval
This timeline can vary substantially depending on your medical history. Applicants with minimal health conditions and risk factors can get approved in as little as 2-3 weeks. Those with more complicated medical histories may go through an extended underwriting process of 2-3 months.
Factors that could lengthen the approval decision include:
- Serious pre-existing health conditions
- Taking multiple prescription medications
- Recent major surgeries or hospitalizations
- Poor results on medical exam tests
- Medical records that are difficult to obtain or require extensive review
Working with an independent insurance broker can help speed things along through strong relationships with various underwriters. However, patience is key, as insurers must conduct proper due diligence.
Strategies to Get the Lowest Life Insurance Rates
While underwriting determines your overall eligibility, there are certain strategies you can employ to help secure the lowest life insurance premiums possible:
Compare Quotes from Multiple Insurers
Rates for the same coverage can vary significantly across life insurance companies in Canada. Shop around and compare quotes rather than going with the first option. Working with a broker gives you access to quotes from over 15+ carriers.
Opt for Term Life Insurance
As outlined earlier, term life insurance provides pure death benefit protection at substantially lower premiums than permanent life insurance. Choose a term if your sole need is income replacement.
Take Advantage of Group Rates
Check if you qualify for discounted group life insurance through your employer or associations. Group plans offer streamlined underwriting.
Improve Your Health
Insurers reward healthy lifestyles. Quit smoking, lower cholesterol, maintain healthy blood pressure, lose excess weight, and get in shape to potentially qualify for preferred rates.
Review Your Credit Report
Insurers check your credit as part of underwriting. Fixing errors that negatively impact your score can help lower insurance rates.
Pay Annually or Opt for Auto-Pay
Some insurers give a discount for paying premiums in full annually rather than monthly or quarterly. Enrolling in automated payments can also reduce rates.
Should You Work with an Insurance Advisor?
Given the complexities of sourcing and applying for life insurance, partnering with a licensed advisor can streamline the process and help you secure optimal coverage. Key benefits include:
– Comparing quotes from a large number of insurance providers. Advisors have access to policy rates from dozens of carriers. This allows them to find you the best value based on your needs.
– Guiding you through the application process. They will collect all the required information, schedule your medical exam, and submit your completed application.
– Accelerating underwriting approval times. Seasoned advisors develop relationships with various underwriters that can help accelerate decision turnaround times.
– Negotiating your rate and coverage. Their expertise lets them negotiate the optimal rate and terms on your behalf.
– Offering impartial advice. Because they are independent brokers, their recommendations are based purely on your best interests rather than what makes the most money for a particular insurer.
When purchasing something as important as life insurance, having an experienced professional in your corner can make the application process much smoother.
Conclusion
Applying for life insurance involves carefully determining your needs, completing detailed applications and medical exams, undergoing underwriting, and negotiating rates. While the process is complex, being prepared at each step can set you up for success in getting approved for optimal coverage at a competitive price.
Key takeaways include:
- Consider income replacement, debts, final expenses and other needs when calculating your ideal coverage amount.
- Term life insurance typically provides the most cost-efficient means of income replacement and protection.
- The medical exam provides insurers with a comprehensive assessment of your current health.
- Underwriters classify your risk level by thoroughly reviewing your application, exam results, and medical records.
- Timelines range from 4-8 weeks for approval under normal circumstances.
- Partnering with a knowledgeable insurance advisor can simplify the application process and help you secure the best policy at the lowest rates.
Article Sources:
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