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

July 15, 2020 /CNW/

According to new analysis by PolicyMe, an online life insurance platform and advisor, Canadians are overpaying for life insurance by an average of 36 per cent. 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 a 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."

Three 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. This is because 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 per cent, 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. According to the analysis, Canadians saved an average of nine per cent using a comparison platform like PolicyMe to find the best price. However, many traditional life insurance brokers do not look for the best offer, as they are tied to certain providers or influenced by bonuses and commission structures.

PolicyMe takes an honest and transparent approach to life insurance. In fact, they have advised 26 per cent of their users to not buy life insurance because they do not require the coverage. The company's proprietary life insurance checkup is designed to provide users with the information they need to make informed decisions about their coverage needs.

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