Half of Canadian Policyholders Are Being Sold A Costly Life Insurance Product That Most People Don’t Need

New survey reveals that 49 per cent of Canadians have been sold expensive, complicated, and often unnecessary ’permanent’ life insurance policies – yet the vast majority only require ’term’ coverage

TORONTO, October 14, 2020 – According to new survey findings from PolicyMe, an online life insurance platform and advisor, 49 per cent of Canadians that bought life insurance through an advisor (i.e. not through their work) bought a permanent policy. This is despite the fact that permanent life insurance is a product that should typically only be considered by high-net-worth individuals and possibly by older Canadians (55+). The vast majority of Canadians simply require the more reasonably priced term life insurance, but many insurance holders have been sold the significantly more costly permanent life insurance coverage (most commonly sold as ’universal life’ or ’whole life’). 

“There’s an elephant in the room when it comes to life insurance,” says Andrew Ostro, Co-Founder & CEO of PolicyMe. “Many Canadians seem to believe they need permanent coverage, but the reality is that permanent life insurance is a very specialized product that only meets the needs of a very small percentage of the population – most people are sufficiently covered with the more flexible and affordable term life insurance. It’s time that we see this for what it is: bad advice that’s costing Canadians millions.”

According to the survey, significant numbers of Canadians with life insurance purchased through an advisor – across all age groups – report having permanent life insurance: 40 per cent of those aged 18-34, 41 per cent of those aged 35-54, and 62 per cent of those aged 55+. 

Not only are these Canadians holding policies they most likely don’t need, they’re also overwhelmingly sure that they’ve made a good decision, as 86 per cent of those with permanent life insurance are confident they have the right fit. However, what many policyholders don’t realize is that brokers typically receive 5-10x more commission by selling permanent coverage instead of term coverage – a major incentive to point customers in the direction of a product they don’t need. 

There are a few major reasons that permanent life insurance should be avoided as a product.

• It’s expensive – Permanent insurance can cost up to 10x the price of a term insurance policy. The insured will overpay during the early years of their policy for the fact that they're much more likely to die during the later years of their policy, a period where life insurance coverage is rarely needed.
• Difficult to understand – Permanent insurance is significantly more complex than term insurance – there are often cancellation charges, hidden fees or other risks that are buried in fine print (e.g. annuitized benefit options on variable policies).
• Limited returns – Permanent life insurance is a form of forced savings, and while the insured will earn interest on the cash value of their permanent policy, this amount will usually be lower than what they’d get if they invested in an RRSP or TFSA.
• Illiquidity – Policyholders have limited flexibility to pull back annual contributions if they ever need the money for something else.
• Potential of lapsing – Nearly 88 per cent of universal life policies (type of permanent insurance) never pay a claim, due to people allowing their permanent policies to lapse. The most common reason is that they can’t afford the premiums due to a financial setback.

Read more: Canadians Life Insurance Statistics (2022)

There is a more honest and transparent approach to buying life insurance that is gaining traction: online advisors. While only two per cent of respondents purchased their previous policy online, a whopping 51 per cent now say they would buy life insurance through an online platform if they were buying it today.

While the majority of those willing to buy online next time are the younger generation (65 per cent of 18-34 years of age), a full 39 per cent of Canadians aged 55+ expressed a willingness to purchase in an online environment in the future, free of the sales tactics typical of traditional brokers. With most life insurance rates in Canada being relatively affordable, it is time for Canadians to stop overpaying.

If you're feeling like you've been sold an expensive life insurance product and you're looking for a more affordable alternative, consider exploring options such as life insurance Ontario no medical.

Instead of paying for two term life insurance policies between you and your spouse, you can save on costly rates by getting last to die life insurance.

To avoid overpaying for life insurance find affordable life insurance quotes online in Canada or visit PolicyMe to find cheap term life insurance in Canada.

If you've been diagnosed with a sickness that is making it difficult to find the rates you require, we suggest looking at critical illness insurance. These policies cover a wide range of medical problems that people face, making it one of the most important benefits of critical illness insurance.

Elderly may benefit from life insurance for seniors over 80. Check out PolicyMe to get ideal rates for seniors. Calculate life insurance needs using PolicyMe.

About PolicyMe

PolicyMe is a rapidly growing insurtech startup making life insurance simpler and more affordable for everyone who needs it. PolicyMe's online platform provides a digital experience for customers to navigate the entire insurance buying process, helping Canadians get personalized advice, compare quotes and apply for life insurance in just a few clicks. The company was founded by Andrew Ostro, Laura McKay and Jeff McKay in 2018, and is based in Toronto, Canada.

About the Survey

These are the findings of a study/survey conducted by North PR from August 12 to August 16, 2020 with a representative sample of 1,001 online Canadians with life insurance who are members of the Angus Reid Forum. The survey was conducted in English and French.

About Angus Reid Forum Surveys

The precision of Angus Reid Forum online polls is measured using a credibility interval. In this case, the poll is accurate to within +/- 3.1 percentage points, 19 times out of 20, had all Canadians been polled. All sample surveys and polls may be subject to other sources of error, including, but not limited to coverage error, and measurement error. 

About the Angus Reid Forum

The Angus Reid Forum is Canada’s most well-known and trusted online public opinion community consisting of engaged residents across the country who answer surveys on topical issues that matter to all Canadians.