New Analysis Reveals Canadians are Overpaying for Life Insurance by 36%


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July 15, 2020 /CNW/

According to new analysis by PolicyMe, an online life insurance company, Canadians are overpaying for life insurance by an average of 36 percent. The analysis comes from a group of 4,800 Canadians who had existing life insurance coverage prior to visiting the online life insurance platform. These findings reveal an industry ripe for innovation, as the traditional approach to buying life insurance is failing many Canadians.

Using advanced data analysis, PolicyMe's technology-infused platform operates on the belief that life insurance exists to maintain a family's lifestyle in the event of premature death, not to oversell Canadians on costly and unnecessary policies. The analysis sheds light on the pitfalls of the life insurance industry, and details ways Canadians can make more appropriate decisions when it comes to protecting their loved ones.

"We see far too many Canadians being sold the wrong life insurance coverage" said Andrew Ostro, Co-Founder & CEO of PolicyMe. "It's our hope that this analysis makes people more aware of the common pitfalls that occur when shopping for life insurance. Canadians need to ask the right questions, get the most accurate recommendation when it comes to product and coverage fit, and find the best price."

Four Reasons Canadians Are Overpaying for Life Insurance:

1. The Industry Calculates Coverage Using an Overly Simplistic Formula

Canadians with an existing policy had an average of 32 per cent more coverage than what PolicyMe recommended. For example, the average customer had $625,000 of coverage when they only required $425,000 to protect their family. This is because the typical industry calculation uses a formula that multiplies household income by an arbitrary number (usually 10-15 x household income). Alternatively, PolicyMe uses proprietary algorithms and advanced statistics to simulate a family's projected finances and pinpoint the amount needed to maintain lifestyle in the case of an untimely death.

2. Too Many People Have Mortgage Life Insurance Instead of Term Life Insurance

For the vast majority of Canadians, the recommended life insurance product is term life insurance. However, many people are still electing to purchase mortgage life insurance to protect their loved ones from mortgage payments. So what makes mortgage life insurance still popular? Mortgage life insurance is pushed on homeowners by mortgage brokers, who are incentivized to sell the product. According to the current analysis, customers who replaced their mortgage life insurance with term life insurance reduced their premiums by an average of 46 percent, with monthly payments falling from $67 to $36.

3. Canadians Are Not Shopping Around for the Best Price

Life insurance premiums are based on five factors: age, gender, smoking status, coverage amount, and policy length. For every combination of factors, different insurance companies offer different prices for the same amount of coverage and term length. Given the number of life insurance companies, it is important to compare life insurance in Canada as policies can vary based on providers. We also advise term life insurance as term life insurance costs tend to be less than a whole life policy. From there, you can pick the best term life insurance policy based on your needs. To find quick life insurance quotes, or no medical life insurance Canada reviews, visit PolicyMe.

If you're older, it is extremely important to shop the best rates visit PolicyMe to find the best life insurance for seniors in Canada.

4. Canadians Are Purchasing More Than They Need

Most Canadians who purchase life insurance to have a financial safety net in the event that they pass away. The issue lies in the fact that those who are couples overlook joint life insurance policies and purchase a policy for each person instead. For those looking to leave something behind for their children, a joint term life insurance policy is an excellent option as it pays out the benefit if you or your spouse perishes. This allows for your children and partner to have the financial support they would need, while saving you money on monthly premiums.

If you have someone who is ill in the family, critical illness is a policy that is likely to cover you best. These policies are meant for people who struggle to get a policy due to them being sick. For this reason, it may be worthwhile to get a critical illness cover quote. Use PolicyMe's life insurance rate calculator to avoid overpaying.

Read more: Canadians Life Insurance Statistics (2022)

Laura McKay

COO & Co-Founder
About the Author

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