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The lowdown on life insurance
At some point in your adult life, someone has talked to you about life insurance. Life insurance tends to come up in conversation at times like when you are buying a home or starting a new job. Despite its affordability, almost half of the eligible population in Canada does not have any form of life insurance. There are a few reasons for this including
- A lack of understanding about how it works and why it matters,
- The belief that mortgage insurance is a comparable policy,
- Uncertainty about the trustworthiness of insurance companies and salespeople, and
- An assumption that they have a policy through their workplace.
There is so much misinformation floating around about life insurance that wading through it all to get to the truth is overwhelming. Let us dive in and give you information to help determine if you need life insurance and how to take the next steps.
Simply put, a life insurance policy is a contract between you and your chosen insurer. In exchange for monthly premiums, the insurance company will pay a set amount of money to your beneficiary if you pass away while the policy is in force. There are two main types of insurance: term life insurance and permanent life insurance.
- Term life insurance is purchased for a set benefit amount and is issued in fixed terms, anywhere from 5 to 30 years.
- Permanent life insurance remains in force for as long as you continue to pay the premiums. This type of policy includes a cash value that can be accessed by the policyholder and a death benefit that is payable to a beneficiary when the policyholder dies. This is also referred to as whole life insurance.
One of the first questions people ask when buying life insurance is if they should buy a term or permanent policy. Most of the time the answer is that term insurance is the right choice for them. Term insurance
- Is affordable,
- Can usually be renewed without undergoing an additional health assessment,
- Offers a variety of term lengths, and
- Offers a range of benefit amounts.
Term life insurance is a good choice for anyone who has people that depend on them for income. It can help with things like mortgage costs, lost income, funeral expenses, and outstanding debts. To figure out what benefit amount is sufficient, you can use one of the many online calculators available. A good rule of thumb is to multiply your annual earnings by the number of years left until retirement.
Permanent life insurance is a very unique product that should only be purchased if the policyholder meets specific criteria and truly understands the implications of the policy cash value and death benefit. Permanent life insurance can be a good option for someone who has considerable financial obligations that are not time-sensitive and who is looking for an investment component to their life insurance. The premiums are usually much higher compared to term life insurance policies. Permanent life insurance should be part of a larger financial plan. It is important to work with a certified financial planner so that the benefits and tax implications of the policy are fully understood.
While you may have insurance through your employer, it is worth considering a policy that is independent of your employment. We all know how quickly life can change; by owning your policy, you don’t need to worry about lapses in insurance if your employment status changes. If life insurance has been on your mind, give us a call
to learn more. We can chat about your unique circumstances and help you decide which policy and terms are right for you. We will then get quotes from several Canadian life insurance companies and review the terms and premium payments with you.
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