You’re ready to settle down and start a family with your partner, but have you considered life insurance apply for support your loved ones when you die?
If you can’t decide between two life insurance policies, or if you’re wondering if you even need to, read on to learn everything you need to know about life insurance in Canada.
What is life insurance and why do I need it?
The first thing to understand about life insurance is that it is not for you, but for your family. Generally, life insurance pays a lump sum to the designated beneficiary upon the death of the policyholder.
If you are in the process of deciding whether or not you need life insurance, here are some things to consider. When you die, will your immediate family be able to pay the mortgage, rent or other bills? Are you going to leave behind large debts or loans that will then burden your loved ones? Do you have children who will need help paying for college? Are you a business owner? If you answer yes to any of these questions, having life insurance is definitely a good idea for you! And even if you are single or young, that doesn’t mean your situation won’t change in the future. That’s why it’s always a good idea to apply for life insurance while you can.
And contrary to popular belief, life insurance is not as complicated as it seems! Most policies are fairly affordable and accessible to those who are interested. Just make sure your coverage is sufficient to pay for any debts or loans you may have, future family expenses and end-of-life expenses such as your funeral. Thinking about these things can be demoralizing, but your family and loved ones may feel some relief in their time of grief.
Term Life Insurance
Life insurance in Canada is available in many forms, but the two main types areterm life insurance and permanent life insurance. Term life insurance only covers you for a certain number of years (usually between 10 and 30 years), and the lump sum will only be paid to your beneficiary if you die during that period.
Your term life insurance premiums will be the same each year, and at the end of your policy term, you can choose to extend your coverage (which will cost you more) or let it lapse. The main advantage of term life insurance is that it is much more affordable than permanent life insurance because you are only covered for a specific period of time and not for your entire life.
Types of term life insurance
With this in mind, there are several types of term life insurance that you can consider apply for.
- Convertible Term Life Insurance:This type of life insurance gives the policyholder the option to convert to a permanent life insurance policy at designated term milestones (such as at year 15 of 30). Because you will have the option to convert to lifetime coverage instead of just a period of time, premiums are generally higher for convertible term life insurance policies.
- Renewable Term Life Insurance: As mentioned earlier, some term life insurance policies allow you to renew your coverage after the set term has expired without having to re-qualify. That being said, once you renew, your premium will most likely increase.
- Joint life insurance: If you’re married or have a long-term partner, joint life insurance may be the best option for you. It insures two different people and pays a lump sum to the surviving partner after the death of the other, or to a beneficiary after both have died. The advantage of joint life insurance is that it offers higher coverage (i.e., a larger payout) than single insurance.
Permanent life insurance :
As you might guess, permanent life insurance provides coverage for your entire life, not just for a specific period of time.
Because permanent life insurance is a guaranteed payment at the time of your death, the premiums are significantly higher than term life insurance.
Types of permanent life insurance
As with term life insurance, there are several policy options for permanent life insurance.
- Whole Life Insurance: Whole Life insurance covers you for your entire life while creating cash value over time. This means that your life insurance company will invest these extra funds, and the return on these investments can be used to reduce your premiums, or even to withdraw or borrow against them. Your redemption value is essentially a cash asset that you can dispose of.
- Term to 100 insurance: Term to 100 insurance is the simplest form of permanent life insurance because it provides a guaranteed payout upon your death. However, at age 100, you have the option of either taking the money early or stopping paying premiums and still being covered.
- Universal life insurance: This type of policy is similar to whole life insurance in that you have a cash value, but you can invest that value as you see fit.
Other types of life insurance
Term life insurance and permanent life insurance are the most popular and widely used in Canada, but other life insurance policy options are available.
- Mortgage life insurance is sold by mortgage providers so that if you die with an outstanding balance on your mortgage, it will be paid off in full. Sometimes mortgage life insurance is necessary if you are unable to put a sufficient down payment on the property at the time of purchase.
- If you are older or have pre-existing conditions,guaranteed life insurance is the right option for you. This type of policy does not make any verifications based on age or health status, and therefore essentially guarantees a life insurance policy. The problem is that this insurance is generally capped at $25,000 and payment is not made until two years after death.