6 Costly Life Insurance Mistakes Seniors Should Avoid in Canada

For many Canadian seniors, life insurance is a powerful tool to protect loved ones, cover final expenses, and leave a meaningful legacy. However, choosing the wrong policies or coverage options can result in costly mistakes that seniors should avoid in Canada when it comes to life insurance.

This guide for Canadians will thoroughly explore a wide range of common errors and pitfalls and provide expert advice to help prudent seniors find affordable, optimally tailored coverage without making a senior’s choice of life insurance an expensive error.

Mistake #1: Overpaying or Underinsuring When Choosing Coverage

One of the most common mistakes is choosing the wrong amount of life insurance coverage for their needs, either buying too much (overpaying on premiums), or underinsuring themselves for their true financial obligations. Finding the right amount isn’t guesswork; it’s a calculation based on your specific financial situation.

How to Determine Your Optimal Coverage Amount

To avoid this mistake, seniors should very carefully and thoroughly calculate all of the following factors:

Outstanding Debts

Calculate all remaining debts, including mortgage balance, car loans, lines of credit, and credit card debt. The insurance payout should be sufficient to clear these debts, freeing your family from that burden.

Final Expenses & Taxes

Do extensive research on current local costs for end-of-life services, which have risen lately. Funeral costs in Canada can exceed $20,000 when factoring in fees for preparation services like embalming and cremation, caskets and urns, burial plots, flowers and memorials, obituaries, and other common final expenses.

You also need to factor in potential probate fees and final income taxes, which can be substantial.

Income Replacement for Dependents

If you still have dependent children, elderly parents, or a spouse who relies substantially on your income, calculate how much they would need annually to maintain their standard of living.

Multiply that annual amount by the number of years you estimate they’ll need support. Then, choose a policy amount that could adequately replace that lost income.

Legacy Goals

Also factor in any legacy goals you may have, such as paying for grandchildren’s future college educations, leaving an inheritance for family, donations to charity, or other causes you wish to fund.

Carefully calculate all associated costs, like 4+ years of projected university tuition and living expenses per grandchild, to choose sufficient coverage.

Mistake #2: Choosing a Policy That Becomes Unaffordable Over Time

Many seniors are drawn to the low initial premiums of short-term policies without considering the long-term cost. It’s crucial to match the policy type to your financial timeline.

Term life insurance provides coverage for a specific period (e.g., 10, 20 years). It’s affordable but expires. For healthy seniors aged 65 and up, a term length of 20 years often makes good sense, covering needs into advanced age but avoiding premiums for unnecessary additional years. For older seniors above age 75, a 10-year term or potentially even shorter 5-year term may be a good choice.

Alternatively, permanent life insurance options like whole life, universal life, or guaranteed life can accumulate cash value while remaining in effect for life. However, premiums for these permanent policies tend to be much higher for seniors, making term life insurance the more practical and affordable choice in most circumstances. Here is a comparison of key policy types of life insurance for seniors:

Policy Type	Best for	Pros	Cons
Term Life	Temporary needs (debts, income replacement for a set period).	Lowest premiums; simple to understand.	Coverage expires; no cash value; premiums increase dramatically upon renewal.
Whole Life	Permanent needs (final expenses, legacy planning, estate taxes).	Lifelong coverage; guaranteed premiums; builds guaranteed cash value.	Much higher premiums than term; less flexible.
Universal Life	Flexible permanent needs; potential for investment growth.	Flexible premiums & death benefit; tax-advantaged investment growth.	Can be complex; investment returns are not guaranteed; policy can lapse if not funded properly.
Guaranteed Life	Covering final expenses when you can’t qualify for other insurance.	No medical exam; guaranteed approval.	Very high premiums for low coverage; often has a 2-year waiting period for non-accidental death.

Seniors must carefully weigh the pros and cons of different policies to avoid a senior’s choice of life insurance becoming an expensive mistake.

Mistake #3: Mistakes with Beneficiary Designations

Beneficiary designation dictates who gets the money. Unfortunately, once premiums are paid and coverage secured, many seniors never double-check the accuracy of beneficiary information. Simple mistakes here can cause devastating delays and disputes for your family.

• Failing to name contingent beneficiaries: Always name a primary beneficiary and at least one contingent (secondary) beneficiary. If the primary beneficiary predeceases you, the proceeds will go directly to the contingent, avoiding legal complications.
• Naming a minor directly: Insurance companies cannot pay out a death benefit directly to a minor. This forces the court to appoint a guardian to manage the funds, a costly and lengthy process. The solution is naming an adult you trust as a Trustee on the beneficiary form, or establish a formal trust with a lawyer.
• Recording incorrect information: Names, contact information, birth dates, and other details.
• Forgetting to update: Review your beneficiaries every 2-3 years and after any major life event: marriage, divorce, birth of a child, or death of a loved one.

Mistake #4: Forgoing Professional Guidance

Far too many well-meaning seniors seek to save money by purchasing direct life insurance online or with companies advertising on television without working with real licensed professionals. However, this approach can backfire and lead to incredibly expensive mistakes.

Agents and brokers can clearly explain the often confusing intricacies of the many types of life insurance policies available, and provide seniors with accurate comparative quotes across 8-10 of the top highly rated life insurance companies and policy choices.

Licensed professionals efficiently handle all policy applications, paperwork, underwriting and approvals.

Questions to ask your insurance advisor:

• Are you an independent broker, or do you represent a single company?
• Which insurance companies will you be getting quotes from for me?
• What are your professional designations (e.g., CFP, CLU)?
• How are you compensated?
• Based on my health, which type of policy do you think is most appropriate and why?

Mistake #5: Inaccurate or Incomplete Health Disclosures

It can be tempting to omit a past health issue to secure a lower premium. Do not do this. Failing to fully disclose your history constitutes fraud and can completely void your policy later. If the insurers find any material misrepresentation on your original application, they have the right to deny the claim entirely, leaving your family with nothing.

Some conditions to work transparently with your agent to report include:

• Chronic illnesses like heart disease, hypertension, diabetes, chronic obstructive pulmonary disease (COPD), kidney disorders, liver disease, and related medications. Provide detailed timelines of symptoms, diagnoses, prescription drugs, dosages, and all treatments.
• Any cancer history, including types, stages, dates of initial diagnosis and recurrence, plus specifics on treatments undergone such as radiation, chemotherapy, immunotherapy, or surgery.
• Musculoskeletal conditions like arthritis, osteoporosis, prior fractures or joint replacements requiring rehabilitation. Be thorough with ages and treatment plans.
• Neurological disorders like dementia, Alzheimer’s, Parkinson’s, stroke history, epilepsy, and mood disorders.
• Records of recent major illnesses, hospitalizations, surgeries, or upcoming planned procedures.

Working honestly and cooperatively with your insurance agent and medical examiners to represent your health status and history will help the insurers accurately price and underwrite your policy. This mutual transparency protects both parties.

Mistake #6: Neglecting to Review Existing Policies

Many seniors purchased a life insurance policy decades ago and haven’t looked at it since. An old policy may no longer be the right tool for the job.

• Your Needs Have Changed: A policy bought to protect a young family and a large mortgage is likely not suited for an empty-nester whose primary goal is covering final expenses.
• Policy Performance (for Universal Life): If you have a Universal Life policy, rising insurance costs within the policy may be eroding your cash value faster than projected. If the cash value drops to zero, the policy could lapse.
• New, Better Products Exist: The insurance market has evolved. Newer products may offer better pricing or features (like living benefits) that your old policy lacks.

The bottom line

For Canadian seniors, life insurance is a matter of profound importance. By avoiding these six costly mistakes, you can move beyond confusion and uncertainty. Taking a methodical approach, calculating your needs, choosing the right policy term, managing your beneficiaries, working with an independent professional, being honest about your health, and regularly reviewing your coverage, ensures your policy will function exactly as intended: as a final act of care for the people you love.

FAQs on Costly Life Insurance Mistakes Seniors Should Avoid

Article Sources:

1. 7 life insurance mistakes to avoid – sunlife.ca
2. Life insurance mistakes seniors should avoid – cbsnews.com