Life insurance is essential for those who have a spouse and dependents. Depending on the type of life insurance chosen, it is structured in such a way that it covers the insured liabilities and replaces the contribution of the missing income to the household budget.
Contrary to what many people believe, the greatest need for life insurance is early in adult life. The main reason for this is that younger couples have not accumulated wealth, they have mortgages and other debts and still must provide childcare and education for their children for many years to come.
There are two main types of life insurance in Canada: Temporary life insurance e.g. Term life insurance and permanent life insurance e.g. Whole Life insurance. It is best to consult with a financial planner or life insurance advisor to work out the minimum coverage amount, which preferably should be between 4 to 10 times the annual salary in order to cover all the needs of income replacement for the family of the deceased.
Temporary Life Insurance explained
When purchased, a temporary life insurance policy, the term will specify the number of years that it offers the cover for. People opt for a coverage of 10, 15, 20, 30, 35, 40 years, while many choose an age when the coverage will end, e.g. 65 years old. There is also an option of picking the number of years that you want to have life insurance coverage.
If the policyholder dies within that term and has kept up with the premium payments, then the insurance company pays out the insured amount in a lump sum to the designated beneficiary/ beneficiaries named by the insured in the life insurance policy.
If the policy reaches the end of its term, the coverage ends and no payments are made. However, many people choose to renew the policy for another term, but the premiums will increase significantly at renewal. Some people choose to convert their temporary life insurance to permanent life insurance before their policy expires.
Generally, term life insurance is cheaper than permanent life insurance and only becomes more expensive when renewed. There are a few features that must be known before purchasing term life insurance.
Joint term insurance
A couple can choose to be insured under one policy for the same amount of coverage. It works out cheaper than insuring each person individually. If either one of the two passes away within the term, a single death benefit is paid out. This type of joint policy is called joint first to die. If both insurers die, the beneficiaries only receive one death benefit. This type of joint life insurance is referred to as joint last to die, and the lump sum payment will be paid when both insurers have passed away.
Creditor insurance
This insurance is popular with people who have a mortgage or loan. It pays off the balance of the debt in the event of death, but the amount is paid to the financial institution where the debt is held. Therefore, the better option might be picking a term life insurance that covers the mortgage or loan period. Term life insurance can also be set up in a way that decreases over time, so as the mortgage or loan gets paid off the life insurance coverage goes down and less insurance premium will be paid.
Permanent Life Insurance explained
The premiums for permanent insurance are higher than those for term insurance, but they are often fixed and offer life insurance coverage for life. If there are no interruptions in the premium payments, a tax-free lump sum is paid out to the beneficiaries.
The three kinds of whole life insurance available in Canada are:
Term 100
This is the most basic permanent life insurance. The coverage is fixed, and the premiums must be paid until the insured reaches 100 or passes away, whichever comes first. With this type of permanent life insurance, which is the most affordable out of the three, insurers can be sure that they have permanent life insurance at a reasonable price without worrying about renewals.
Whole Life Insurance
Together with the insurance coverage the insurance also builds up a cash value over the lifetime of the policy. This can be used as collateral on a loan or can be received as a payout if the policy is ever cancelled. Whole life insurance is often more expensive compared to term insurance or term 100, but for good reasons. Whole life insurance creates cash value inside the policy which can be used for multiple things and it is permanent life insurance that allows the policyholder to pay off the policy faster and keep the permanent coverage. For example, Whole life Insurance 20 pay, where the policyholder pays premiums for 20 years then the policy is paid off and the coverage is permanent.
Universal Life Insurance
This is an investment and life insurance policy combined. The amount of the tax-free lump-sum death benefit and cash value will depend on how the investments perform. Universal life insurance is the most flexible life insurance, that allows policyholders to pay higher, lower or pause the premiums. Universal life can be a good investment vehicle since the funds can be invested in a wide range of investment baskets and portfolios and it has a creditor protecting feature that shields the cash value from any creditor even the government.
What is Non-Medical/ Simplified Life Insurance?
Instead of having to undergo a medical examination, with a simplified life insurance policy the person to be insured answers a few health-related questions. The insurance company uses current statistics based on the age and sex of the person to assess their risk. Non-medical life insurance is a great life insurance product that allows everyone to have a chance of obtaining life insurance regardless of some health challenges they may be facing. There are many people who can not obtain life insurance coverage through permanent or temporary life insurance products; however, non-medical insurance made it possible for them.
This type of policy has pros and cons.
The Pros
· Faster approval and convenience.
· No medical exam is needed.
· Easier for people with health issues to qualify and coverage can begin from 18.
· The amounts of coverage can start from as little as $5,000 making it affordable to more people.
The Cons
· More expensive for the covered amount, but the huge offering may bring prices down.
· They don’t offer as many benefits, e.g. add-on coverage for spouses and children.
· The insurer may still check up on the health of the applicant on the insurance database.
Determining the cost and best type of life insurance for you
Finding the right Life insurance policy with the proper coverage amount at the right price is complicated and overwhelming. Our expert advisers are fully qualified to help you work out the coverage that will meet the needs of your family. By taking your age, and health, liabilities, and goals into consideration. At Apluswealth, you can get a quote, compare quotes and find the life insurance quote you feel comfortable with. Our life insurance advisors will provide you with quotations and the most suitable policy types.
Contact our expert advisers today and find out which is the best life insurance for you.
Email: Contact@apluswealth.com
Tel: +1-888-461-6120