Last week in our product review series we talked about Desjardins’ Life and LTC Advance, a permanent life insurance policy with a monthly long-term care benefit. While most of the product reviews we’ve done so far involved multiple benefits under one policy, there are some that only serves one purpose. One such product is Assumption Life’s FlexOptions. What is FlexOptions and who is it designed for? Let’s get into the features and pricing so you can decide if it’s the right product for you.
Features of FlexOptions
FlexOptions is a decreasing term life insurance policy which fits a broad range of insurance needs. However, it is exceptionally well suited to help cover both personal and business mortgage loans. This is because the death benefit of FlexOptions follows the balance of a mortgage. As the balance of a mortgage decreases, so too does the coverage of FlexOptions. If the insured passes away during the term of FlexOptions, the death benefit can be used to pay off the remainder of the mortgage, relieving his/her beneficiaries from the burden of mortgage payments. Keep in mind that you face prepayment penalties if you are paying off a closed mortgage with a lump sum amount.
There are three term options available: 15, 20 and 25 years. The term chosen matches typical mortgage amortization lengths. The minimum amount of coverage is $50,000 while the maximum is $4,000,000. The result is that the most common mortgage amortization periods and amounts are covered.
The insurance coverage decrease is loosely based on a mortgage loan with a 6% interest rate. Although it is based on this, coverage never actually reduces below half the initial amount until expiry. With a 15 year term chosen, $500,000 of coverage will reduce to $250,000 at year 11 and remain level until expiry after year 15. Similarly, with 20 and 25 year terms, the same amount of coverage will reduce to half at years 14 and 18, respectively, and remain level until expiry after years 20 and 25. If the insured passes away a few years before the mortgage is paid off, his/her beneficiaries should have some funds remaining after using the death benefit to pay off the mortgage. This is assuming the mortgage was being paid off according to the scheduled payments, and interest rates stay the same. Here is a table showing the schedule of death benefit decrease:
|Year||15 years||20 years||25 years|
FlexOptions features guaranteed level premiums for the term of the policy and can be converted to a permanent insurance product. Whatever the coverage remaining can be converted at any time into a permanent policy offered by Assumption Life at the time of conversion.
FlexOptions can either be based on a single life or it can be joint first-to-die, so that both members of the spouse have coverage without taking out two separate policies. As is customary with all joint first-to-die policies, once the first spouse dies, the death benefit is paid out and the policy ends. The living spouse can use the benefit as he sees fit. In this case, the spouse will use it to pay off the remaining balance of the mortgage, since the policy is specifically designed for this purpose. Assumption Life does offer coverage for the surviving spouse equal to the sum insured for 45 days after the first spouse’s death, which can be converted to a permanent policy within this period.
A special feature of FlexOptions is that any initial coverage of $250,000 or less is simplified issue, meaning as long as all medical and lifestyle questions have favourable answers on the application, the policy is issued immediately without further underwriting.
Riders that can be added to FlexOptions are disability income and waiver of premium upon disability. The former pays a monthly benefit if the insured is unable to work in his regular occupation due to an illness or injury for a maximum of 2 years, while the latter waives premium while the insured is unable to work in his regular occupation. Soft tissue injury, degenerative disc diseases, psychological and nervous disorders have severely limited payment periods. It’s therefore advisable to obtain an individual disability insurance policy that covers these illnesses more thoroughly.
Premiums and suitability
|Age||Premium, Male||Premium, Female|
As usual, for life insurance, premiums are higher for men than women of the same age. This is because women tend to have a longer lifespan. Does the premium offer better value than a comparable term policy? Remember, since coverage is decreasing and there is no renewal option, FlexOptions should be priced more favourably for the consumer than its counterpart: term 25, which has a level death benefit and the choice of renewal at the end of the term. It turns out the premiums at age 25 are identical for FlexOptions and term 25, so there is no advantage at this age in choosing FlexOptions. As the insured ages, FlexOptions becomes increasingly more valuable. It offers savings of a few dollars a month at age 35, around $20-$25 per month at age 45 and $50-$75 per month at age 55. No carrier offers term 25 at age 65, so FlexOptions is the only option.
You’ll find that premiums are more fairly priced than mortgage life insurance that you can get with your lender. This is mainly because an individual policy is fully underwritten by the insurance company. This means that they know everything there is to know about your risk factors, including your health, lifestyle, employment and family history. Armed with this information, they will be able to assess your risk and offer you a policy with fair premiums. With your lender, they only ask a few basic questions. Since they don’t know anything else about you besides your answers to these questions, they are unable to tell accurately if you are a low or high risk for life insurance. Therefore, to protect their profits, they will offer you coverage at a higher price.
Premiums with mortgage life insurance also increase when you renew your mortgage, to reflect the increase in your age. FlexOptions have premiums that are guaranteed and level for the life of the term, so you never have to worry about unexpected premium increases.
Keep in mind that you have to qualify for creditor insurance every time your mortgage is up for renewal. If you’ve encountered health issues since first taking out your policy, there’s no guarantee you will be able to maintain coverage with your lender. By the time that happens, it may even be too late to get an individual policy at standard rates. Your best bet is to turn down mortgage life insurance with your lender and apply for an individual policy such as FlexOptions the moment your mortgage is approved.
Even though FlexOptions is an excellent alternative to mortgage life insurance, it should not replace your need for additional coverage. You should do a thorough needs analysis do determine your total life insurance needs. This typically includes replacement of income, final expenses, educational funds for your children, and more. Here is a guide on how to determine how much life insurance you need.
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