Do I Need Life Insurance?

Life insurance aims to provide a solution for those who are seeking to provide income replacement, a legacy fund, or burial expenses to those who might be left behind. So if someone you love is dependent on you financially, you need life insurance. In its simplest form, life insurance is a security blanket for your loved ones.

Do I Need Life Insurance?

Life insurance aims to provide a solution for those who are seeking to provide income replacement, a legacy fund, or burial expenses to those who might be left behind. So if someone you love is dependent on you financially, you need life insurance. In its simplest form, life insurance is a security blanket for your loved ones.

Traditional Life Insurance

Traditional life insurance is an agreement between you, the policyholder, and an insurance company to provide a tax-free sum of money to your loved ones, known as beneficiaries, if you were to pass away. In this type of agreement you pay a monthly premium to the life insurance provider. It is there to protect anyone who depends on you financially in the worst-case scenario.

Term Life Insurance

Term life insurance is a type of life insurance that covers you for a specific length of time, called a term, and it pays a death benefit only if you die in that term..There are different life insurance term lengths available. 10 or 20 years are the most popular choices, but 25 or 30 years or coverage up to age 65 are also possible. Term insurance is a cost-effective way and flexible to protect your family. Term policies typically offer the lowest monthly premium and are usually the best option if you have a limited budget or a temporary need.

There are four kinds of term policies:
1. Level Term – benefit amount will remain the same for the entire term.
2. Convertible Term – will allow you to convert into a permanent policy, typically without a medical exam. Generally, your will premium increase.
3. Universal life insurance is similar to whole life insurance, except there is a self-directed long-term investment component. Your insurer gives you options for investing the cash value of your policy so it can be considered a way to save for retirement. If you are a savvy investor or mindful of estate planning, you may find that universal life insurance is a more appealing option. That said, universal life insurance plans require more hands-on activity than other life insurance coverage options.
4. Mortgage insurance is a type of life insurance which pays your mortgage balance in the event of your death. The beneficiary is the lending institution and not your immediate family. Additionally, the face value will diminish over time in direct proportion to your mortgage balance.

Whole Life Insurance

Whole life insurance (also known as permanent life insurance) covers you for life and there is an investment or cash value component associated with your policy and its lump sum, tax free payment. As you pay into your permanent insurance policy over time, it builds investment value and provides fo a return on your premium. You can cash out the value of your permanent insurance policy to supplement your retirement income or help pay expenses. In some cases, you can borrow against the value of a whole life insurance policy. Or, you can simply leave the life insurance benefit to your loved ones as the beneficiaries, the same as any other type of life insurance. Permanent life insurance plans usually have a higher premium, since you are covered for your entire life.

Term-to-100 Insurance Plans

Term-to-100 insurance plans are a whole life insurance policy that doesn’t have a cash-out option, so it only pays upon your death (making it a little cheaper). It offers a bridge between term and whole life insurance. Plus, if you make it to 100 years, you are no longer required to pay premiums and still retain the coverage.

What Factors will impact your actual monthly premium?

Coverage amount, or the amount of insurance you would like to be covered for:

If you want to be covered for $1,000,000, it will naturally be more expensive than coverage for $500,000.

Your policy type (term vs. permanent):
As mentioned above, permanent life insurance policies are almost always more expensive.

Your age:
The younger you are, the lower your monthly rate. If you get life insurance early, you can lock in a low premium!

Your smoking status:
As you likely know, there are health concerns associated with smoking. If you’re a smoker, you’re at a higher risk of these health concerns and, therefore, life insurance companies will charge you more to be covered by them.

Your health status:
Having certain health issues can make covering you seem ‘high risk’ to insurance companies.

Driving record & hobbies:
Do you have a handful of speeding tickets? Spend your weekends snowboarding out of helicopters? Risky behaviours will increase your monthly premiums.

When is the Best Time to Get Life Insurance?

There’s no right age or year to get life insurance – it’s not something that you’ll need  to open on your 30th birthday. The best time to get life insurance depends on where you are in life. You’ll want to buy life insurance when you get to the point that you have someone depending on you. For most people, this is when they get married or when they start having kids.

At this point, you might be thinking, “I just got a mortgage and having kids isn’t cheap! How am I supposed to afford life insurance?”

Fortunately, the younger you are, the more affordable your life insurance will probably be. In most cases, it’s smart to lock in a low monthly rate when you’re young because it’ll stay at that price for the entire term of your policy.

How Do I Buy Life Insurance in Canada?

So how do you decide where to start your shopping process?

Think of it this way: if you were trying to pick what car to buy, do you only talk to someone who works at a specific dealership? Probably not. You’d want to get information and prices across different companies, not just one and if you talk to someone who works for that one car dealer, chances are they’re going to try to swing you one way.

You need to apply that same mentality when deciding where to shop for life insurance! You want to go with someone who can help you compare quotes across a variety of insurance companies. Life insurance rates, surprisingly enough, can vary quite a bit across companies (even for the exact same policy), so only getting quotes from a single company can end up being quite costly.

Evaluating a Life Insurance Company

Life insurance is a permanent purchase – you are getting into a contract with a company for 10, 20 years or more, so it is important to find the company that can provide you the best life insurance in Canada for your exact needs! Some of the factors you’ll want to consider include:

Price: How much will your policy cost?

Time: How long does it take to get approved?

Process: Can you do everything online or do you have to make numerous trips to see someone in person?

These are the main factors to look at, but the good news is that every big life insurance company in Canada has a long track record of financial strength.

Being able to answer “what is life insurance” is one thing, but knowing the answers to all the top questions surrounding it will arm you with the information you need to make the most best buying decision. After all, when this decision impacts so many people, you want to go into decisions as informed as possible.

Buying life insurance young saves you money!

It’s smart to purchase life insurance in your 20s or early 30s, even if you don’t think you need it.

With very few exceptions, the younger you are when you buy a life insurance policy, the less you’ll pay. It will never be any cheaper than it is today.

Although hundreds of factors determine life insurance premiums, age is one of the most critical components, and it makes a strong case for buying life insurance as early in life as possible.