Are you a smoker who wants to kick the habit? Chances are, if you currently smoke, that thought has crossed your mind. Besides the health benefit of quitting, there are also financial incentives. The obvious one is saving the money you used to spend on cigarettes. According to Preet Banerjee’s new book, Stop Over-Thinking Your Money, a teenager who pays $9 for a pack of cigarettes would have amassed over $375,000 by age 65 if he instead would have directed the money to an investment yielding 3%. Now, Foresters has another financial incentive for you to quit smoking. In this week’s product review, we will look at Foresters’ Familylife participating whole life insurance product and its automatically included rider – Quit Smoking Incentive Plan. Chances are you haven’t heard of Familylife before. That’s because it launched in April of 2013, so it’s a brand new product in the insurance industry, and it’s one of a kind in the Canadian marketplace.
Features of Familylife with Quit Smoking Incentive Plan
Foresters’ Familylife is a permanent life insurance product. You may recall that there are two types of policies within permanent life insurance: universal life and whole life. Universal life has a separate insurance and investment account, while whole life’s premiums incorporates both insurance and investments. What you get with whole life is an insurance product with a hands off tax-sheltered investment component. Although dividends from a participating whole life policy can be withdrawn or used to reduce the premium, they’re typically used to increase the coverage because of the favourable tax consequences. As a result, the death benefit gradually increases over the lifetime of the insured, as does the cash value. The cash value can be withdrawn or accessed via a loan as a source of retirement funds.
Of course, participating whole life insurance are offered by other insurance companies as well, and the features mentioned above are generally available on all of them. This isn’t what makes Familylife unique. What differentiates Familylife from the rest of the competitors is the Quit Smoking Incentive Plan rider. As mentioned in the opening, Familylife provides a Quit Smoking Incentive Plan at no additional cost.
The rider allows the insured to pay for the first two years of the policy at non-smoker rates, even if he is a smoker. By the time the renewal for the third year rolls around, the insured can apply to Foresters to have the non-smoker rates continue. Foresters will then check to see if the insured meets the definition of a non-smoker. If he doesn’t, then premiums revert to smoker rates. However, if the insured succeeded in quitting, he will continue to pay the reduced non-smoker rates. The insured must satisfy the definition of non-smoker according to Foresters, meaning the insured must not have used any nicotine products within the past 12 months.
Whereas most other carriers allow the insured to change from paying smoker to non-smoker rates upon sufficient evidence that the insured has ceased smoking for at least a year, Foresters’ Familylife is the only policy issued to smokers at non-smoker rates.
To illustrate the savings, let’s look at an example. A male smoker, aged 45 applies for $50,000 of Familylife. His annual premium is $1,623.84 for the first two years, after which it reverts to $1,969.44 if he continues to smoke, or remains at $1,623.94 if he quits. Even if he doesn’t quit – face it, it’s not easy – he saved $345.6 per year for a total of $691.2 over the two years. If he is motivated and successfully quits, he will save $12,096, assuming life expectancy of age 80. This is pure premium savings, without taking into account the investment of the savings. Assuming 3% interest, he would have saved over $20,895 in his lifetime. That is quite a lot of extra money saved that can be used for a nice vacation for the insured and his spouse, since quitting smoking allowed him to be healthy enough to do so.
Another unique feature that is baked into the policy with no additional cost is the child term insurance rider. Where the age of the insured is between 18-55 when the policy is issued, Familylife automatically adds a $3,000 term insurance rider on every child of the insured. This small amount can be used to offset burial costs. The children must be under age 18 to become insured, and the rider lasts until they reach age 25. The term insurance rider can also be converted into a permanent plan, with $7,000 of additional insurance available to total $10,000 coverage.
If the policy is issued on a child under 18, Familylife allows him/her to purchase additional insurance at specific option dates in the future at no additional cost. This is similar to the guaranteed insurability rider which is usually available on other policies for a small cost.
As a policyowner of a Foresters insurance product, the insured is automatically a member of the organization. Benefits of membership include eligibility to grants and scholarships, family events, well-being benefits, and more. You can read more about the benefits of membership on Foresters’ website.
Premiums and suitability
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The premiums charged by Foresters for Familylife is competitive in the Canadian marketplace. In comparison, another insurance company currently charges $153.95/month for a 45 year old smoker with a similar policy. The difference in the two policies is that Foresters offer two additional riders with no extra cost. So policyowners of Familylife will benefit from paying lower premiums in the first two years on top of those riders.
As mentioned in an earlier post, permanent life insurance has a different purpose than term life insurance. Most face amounts chosen for permanent insurance is lower than for term. This is because for an identical amount of coverage, permanent insurance starts out much more expensive. Therefore, people turn to term insurance to protect their families who depend on them to bring home an income. Permanent insurance is more ideal for end-of-life expenses such as burial costs, final taxes and bequests. Although it’s possible to apply for permanent insurance past the age of 65, premiums become much more expensive later in life. Also, it’s more likely for a policy to be rated or declined, leading to the lack of coverage when it is desired. Therefore, it’s more shrewd to have a small amount of coverage in place at a younger age, with a guaranteed insurability rider in case the death benefit needs to be increased at a later age.
Whether you smoke or not, Foresters’ Familylife with Quit Smoking Incentive Plan is a solid product for your permanent life insurance needs. Its premiums compare well with its competitors’ products, and the free riders are a bonus to an already excellent offering. Feel free to get a quote to see if Familylife is right for you.
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