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Life insurance Q & A

March 18, 2009

Should I buy life insurance on my mortgage or a life insurance policy?

The first step is to contact a licensed insurance broker and compare rates from different insurance companies. He or she can help you choose the right option, but know there’s a difference between the two.

When buying insurance on your mortgage, for example, the amount of insurance you can purchase will be dependant on the amount of your mortgage’s principal (let’s say $300,000). You will pay a premium based on that amount. As time passes, the amount you owe on your mortgage will naturally decrease, as will your amount of insurance (you’ll have less coverage when you owe only $100,000 on your mortgage).

In some cases, however, you’ll still pay a premium based on the original amount and you’ll receive less coverage. Your lender may require you to get either mortgage insurance or life insurance for the principal amount.

When buying a life insurance policy, it will typically be based on a set amount that doesn’t change (so it will remain at $300,000, for example, and won’t decrease over time). You’ll also pay a premium on the full amount.

I had a heart attack and am now rethinking the people I’ve named as beneficiaries on my policy. Can I change the beneficiaries?

The choice of whom you want to name as your beneficiaries is entirely up to you, and you can change them at any time for whatever reason you choose. Some of the common life changes that often cause people to review their beneficiaries include marriage, divorce, children, and the death of family or friends.

You can name people, organizations or your estate. Just note that the original beneficiaries under your policy, as well as any changes you make, will have to be designated in writing to your insurance company and added to your policy via your official endorsement.

My father just passed away and I’m his only beneficiary - now what?

The key is to be proactive before a parent passes on - figure out and document everything beforehand. If you’re a beneficiary on a parent’s insurance policy, ask for details. Find out how the policy works, who exactly is paying the premiums, where you can access a hardcopy of the policy, how to access it when the need arises and what you’ll need to take care of on your part.

It’s not an easy conversation to have, but discussing the future with your father will help make the process a lot less frustrating and difficult down the road. This way, when you are in the situation, you’ll know what to do and what to expect when it comes to your parent’s policy.