5 Costly Life Insurance Mistakes Seniors Should Avoid in Canada

Purchasing life insurance can still be greatly advantageous for many seniors who want to protect loved ones financially. However, choosing the wrong policies or coverage options can result in costly life insurance mistakes seniors should avoid in Canada.

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.

Overpaying or Underinsuring When Choosing Coverage

One of the biggest yet most common mistakes seniors make is choosing the wrong amount of life insurance coverage for their needs, either dramatically overpaying for excessive amounts they don’t require or alternately underinsuring themselves for their true financial obligations. Finding the “goldilocks” zone of just the right policy amount can be challenging but is crucial to maximize value and avoid wasting money.

To avoid overpaying or underinsuring, seniors should very carefully and thoroughly calculate all of the following factors when determining the truly optimal life insurance policy amount:

Outstanding Debts

Make a detailed list of any remaining mortgage payments, car loans, personal loans, student loans, credit card balances, or other lingering debts you may have.

Calculate the total balances still owed on all of these debts combined. Purchasing enough life insurance coverage to completely pay off these remaining debts can provide tremendous peace of mind.

It ensures your family is not overly burdened having to worry about making all of those painful loan or debt payments at a difficult time in your absence.

Final Expenses

Do extensive research on current local costs for end-of-life services, which have risen lately. Average funeral costs now exceed $12,000 in Canada 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.

Dependent Family Members

If you still have dependent children living at home, have a spouse who relies substantially on your income, or provide extensive live-in care for elderly parents, very closely evaluate their total financial needs.

Add up the annual income you provide through employment wages or caregiving services. Calculate taxes on your income as well to account for their full support.

Then, choose a policy amount that could adequately replace that lost income for the remaining years they will depend on you. This provides your loved ones with a stable financial safety net.

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.

Picking a Policy That Becomes Too Expensive Over Time

When evaluating life insurance options, term life insurance policies tend to be the cheap life insurance for senior citizens while the permanent life insurance tend to have higher premiums. Here are some key considerations when choosing an appropriate term length:

• 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	Pros	Cons
Term Life	Lower premiums, ability to match term length to specific needs	No cash value accumulation, expires after term ends
Whole Life	Lifetime coverage, builds cash value	Considerably higher premiums, not ideal for temporary income replacement needs

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

Mistakes Seniors Make with Beneficiary Designations

One of the most common yet very serious mistakes seniors make is incorrectly listing beneficiaries on their life insurance policy forms. Unfortunately, once premiums are paid and coverage secured, many seniors promptly file these documents away and never double-check the accuracy of beneficiary information. This opens the door to the following problems:

• Failing to update beneficiaries after major life events like divorces, deaths of spouses, remarriages, or new grandchildren being born and overlooking these changes.
• Only naming primary beneficiaries but omitting contingent beneficiaries. If the primary beneficiary passes away first, this causes confusion on who should receive proceeds.
• Listing minor grandchildren as beneficiaries but not establishing trusts for ease of payout before they reach adulthood.
• Incorrectly recording names, contact information, birth dates, and other details prevents beneficiaries from collecting proceeds.
• Forgetting to check in with beneficiaries to ensure they even want to be listed and are willing to handle funds responsibly.

Here are 4 key guidelines for getting it right:

• Name at least one primary beneficiary who will receive payouts first, along with two contingent beneficiaries in case the primary predeceases you or faces other issues. This avoids disputes and confusion.
• Regularly update your beneficiaries after any major life events like divorce, remarriage, death of a spouse, or birth of new grandchildren. Keep designations current.
• Avoid only naming minor grandchildren or other minors as beneficiaries. To simplify payouts, establish a trust on their behalf managed by a trustee until adulthood.
• Carefully verify the complete legal names, contact information, birth dates, and other details of beneficiaries to prevent delays.

Buying Life Insurance Without Professional Guidance in Canada

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.

But this approach can, unfortunately, backfire and lead to incredibly expensive mistakes. Here are 4 reasons it pays for seniors to work closely with experienced independent insurance agents, brokers, and financial advisors:

• Agents and brokers can clearly explain the often confusing intricacies of the many types of life insurance policies available today.
• Advisors can 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.
• Reputable advisors continually keep seniors updated on new and innovative life insurance products or options as they become available in the marketplace.

Failing to Disclose Health History Accurately

One major area where prudent seniors must exercise great care and honesty is disclosing any and all pre-existing health conditions when applying for seniors life insurance coverage.

Failing to fully disclose your history constitutes fraud and can completely void your policy later if discoveries are made. 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.

Attempting to hide known pre-existing conditions or omitting key details can jeopardize future payouts if discovered. Ensure you present your situation accurately and completely. This mutual transparency protects both parties.

The bottom line

Avoiding extremely expensive yet avoidable mistakes when shopping for and choosing life insurance coverage is especially crucial for seniors living on fixed incomes.

With proper diligence and expertise, seniors can obtain advantageous life insurance to protect what matters most even in advanced age.

FAQs on Costly Life Insurance Mistakes Seniors Should Avoid

Article Sources:

1. Costly Life Insurance Mistakes Seniors Should Avoid – https://www.mychoice.ca/
2. 3 Expensive Life Insurance Mistakes Seniors Must Avoid – https://www.theglobeandmail.com/
3. Life insurance mistakes seniors should avoid – https://www.cbsnews.com