Posts tagged as:

life insurance

BMO to buy AIG Canada

by Glenn on January 13, 2009

Good news! BMO (Bank of Montreal) is buying AIG’s Canadian life insurance operations. They picked it up for about $375 million. Full news here: Cnn Money

BMO will merge AIG’s operations with their own. And by ‘merge’ I mean if you work at AIG, you’d best get your resume sent over to Manulife tout-suite. The end result, they’ve bought the block of business but going forward AIG life insurance operations in Canada as an entity are gone.

The reason I say this is good news is that for existing policyholders this likely means business as usual – except now if you’re an existing AIG life insurance client your policies should basically be moved over to BMO for administration with no other changes (including changes to premiums and any other contractual provisions). In short, your life insurance policy should be just like it was before but now backed by BMO instead of AIG. That’s good news.

It’s also good news for those of us in the life insurance industry because it removes a source of uncertainty from the industry and shows once again that the business is stable.

Update: Here’s the link to the announcement from AIG.

Update 2: I also wanted to comment that this points to only good things about the Canadian life insurance industry.  Not only was AIG in Canada in good shape despite their parent company’s problems, but look how fast the company was snapped up by another insurer.  The regulators seem to be doing whatever they need to to ensure the industry is strong for consumers.


Joint first to die life insurance

by Glenn on December 20, 2007

If you’re a husband or wife looking for coverage on both partners sometimes the subject of joint first to die life insurance (JFTD) comes up as a cheaper alternative to purchasing an individual life insurance policy on both. And at first, this would seem like a viable option. However I do not normally recommend joint first as the way to go in these situations.

There’s a number of reasons for recommending two individual policies (or one policy, with individual coverage on both spouses). First, you’ll probably find that the difference in premiums is a lot less than you would expect. The reason for this is that the risks aren’t all that much different. The insurance company on a JFTD policy now has to look at the risk of when the earliest is that either one of two people will die instead of just one person. Clearly this is more likely to happen earlier when covering two people at the same time.

Think of it this way. How likely is it that one person will die tomorrow? Not likely. How likely is it out of a million people, that one of those million people will die tomorrow? Pretty good. So the more people we insure on the first to die basis, the greater the likelihood the insurance company will have to pay – and thus the higher the premiums.

Secondly, in the event of a divorce there is no effective way to seperate the life insurance policy with a JFTD. With two individual policies it’s almost as easy as changing your beneficiary.

Thirdly, because insurance companies use a ‘combined’ age calculation your renewal rates will be sky high. As you age, life insurance premiums don’t go up in a straight line, they increase in an upward sloping curve. So let’s say you’re both 30 years old, and the insurance company calculates your ‘combined’ age for the joint life insurance to be age 40. If the policy renews in 10 years, you’re going to be renewing at the rates of a 50 year old when in fact you’re both 40 – and as I noted, rates as you get older get higher, fast.

The same is true should you decide to convert your joint first to die term policy to a permanent policy in the future. Conversion is a feature of many term policies that allows you to convert to a permanent policy in the future. If you convert a JFTD policy in the future, you’ll being doing so at the older (and thus higher rates) age that the insurance company uses for your combined age.

In short, if you have two people you need to insure, JFTD is not likely to be the way to to if the intent is to save money. JFTD policies do have their uses, but those uses are dictated when the the financial need is primarily upon the first death, and not just when you’re trying to find the least expensive policy.

If you’re looking to cover two people, determine the proper type of insurance and amount, then shop it out amongst companies – that’s the right way to find the cheapest policy.


Life insurance for stay at home moms

by Glenn on November 29, 2007

This is a question that comes up frequently – how much life insurance should a stay at home mom buy?

Well, there’s no firm answer; or more appropriately there’s no answer that can be easily calculated. However we can make some educated estimates as to how much life insurance you should be considering. In a situation like this I prefer to think in ‘ranges’ with an upper and lower amount selected. Then you can choose where in that range you feel most comfortable.

The first thing to consider (and this is true for anyone purchasing life insurance) is what exactly is lost. Once the loss is determined we can start to estimate how much life insurance is needed to cover that loss.

With stay at home moms we don’t neccessarily lose any direct income. What is lost however is the value of the work done by stay at home moms. And that is something we can use to start to estimate how much life insurance you need. To replace the work done by a stay at home mom, you’re typically going to be looking at least at daycare, and quite possibly a homemaker. Now lets say we need to pay $25,000 a year for a homemaker (and that’s likely on the low side). Using a how much life insurance do I need calculator I can see that replacing $25K for 25 years and assuming 3% inflation and 5% interest, that it takes just over $500,000 of life insurance to produce that income. And that’s with nothing extra or left over.

On the lower end of the scale that same calculator shows that if the same assumptions are made but over 15 years then $328,000 of life insurance is needed to produce that income.

So now we’ve got a range, based on some assumptions. In this case you should be looking at between $325000 and $500000 of life insurance for a stay at home mom. And that fits in with what I typically see – most stay at home moms that I work with are looking at between $250,000 and $500,000 of life insurance.