An envelope arrives in your mailbox which appears to have come from Canada Pension Plan. It is in a brown envelope; the type typically used by the government for correspondence and reads Shortfall to Canada Pension or Important information on Canada Pension Plan, or something similar on the envelope.
Inside, the letter indicates it has important information about how you can qualify for additional death benefit or final needs plan. It may provide paperwork to register.
Naturally, you think this notice is connected with Canada Pension Plan and you don’t want to miss out on additional benefits. It’s not connected with CPP but you can’t be blamed for thinking that. The letter, by all appearances gives that first impression.
We have received calls from clients who upon receiving this type of letter believe it’s connected with their CPP and are looking for some clarification and advice from us on how to proceed.
In reality, these are marketing letters from companies selling guaranteed issue life insurance. The insurance is positioned as a top up to what CPP would provide. Meaning; CPP provides a small death benefit already and if you want more life insurance you can get additional guaranteed issue life insurance by signing up for a policy with them.
So what’s the concern? Is there anything wrong with guaranteed issue life insurance policies? No. Not at all. While they are not my first choice as a planner, there is certainly a place for them in the market and most insurance companies offer them in their suite of products.
Guaranteed life insurance contracts are specifically designed for the person who needs life insurance and is either a) medically uninsurable and would not qualify for traditional life insurance, or b) someone who is unwilling to go through the medical underwriting process in an attempt to qualify for regular life insurance at lower rates. Guaranteed issue life insurance policies are more expensive and the trade-off is you don’t need to undergo full medical underwriting to qualify.
If you receive one of these letters in your mailbox, read carefully who it is from. Look specifically for the letterhead or contact information. If you believe you need additional life insurance contact your financial advisor who can help point you in the right direction, obtain quotes and submit your application where most appropriate. If you don’t have an advisor and decide to sign up it’s important to understand what you are signing up for.
The financial services world can be overwhelming so this type of ambiguity can be confusing. Financial services companies need to position their products and services with as much clarity as possible. In this case, our purpose is to educate so you know what they are.
In short, while it might appear to be additional benefits from the Canada Pension Plan, take time for a double check because it might not be what it initially seems.
Stephanie Farrow, B.A., CFP. Stephanie has over 25 years experience in the financial services industry, a diploma in Financial Planning from the Canadian Institute of Financial Planning and a Certified Financial Planner designation. Stephanie has been writing financial planning columns for local business magazine Elgin This Month since 2010. Stephanie and her husband Ken Farrow own Farrow Financial Services Inc. About our Farrow Financial Team.