Life Insurance
You’re not alone in thinking about life insurance. For many Canadians, it’s an important part of a comprehensive financial plan. It can help your named beneficiary, such as your family, replace your income and fulfill their plans – such as going to university or retiring – in your absence.
But do you know what type of life insurance is right for you? And are you aware of what life insurance can do for you, beyond helping pay for a funeral and related expenses?
Let’s find out together.
Term Insurance
Term life insurance is a top choice for people who want to cover financial obligations that are common when raising a family.
Term life insurance pays a death benefit to the beneficiaries named on the policy if the person insured dies within a specific period of time or before reaching a certain age. If you’re buying term life insurance, you have two main decisions to make: the length of the term and the coverage amount.
With term life insurance in place, there’s a safety net that can provide funds for paying a mortgage, sending kids through college or other important concerns if you were no longer around.
The length of your coverage can be either for:
• a fixed period of time, such as a term of 10 or 20 years
• until you reach a set age, such as 65 years old
The term policy requires you to pay a monthly premium to the insurance company. Should you pass away while insured under your policy, the company will pay a tax-free lump sum amount to your loved ones (the beneficiaries).
Permanent Insurance
Permanent life insurance is often called whole life insurance because it covers you for your whole life. It gives your beneficiaries a tax-free payment after you die at any time while your insurance policy is in effect. Some plans can build cash value over time. This means you’d get a cash value back (less than the amount you paid in premiums for the insurance costs) if you cancel your policy.
Permanent insurance costs typically don’t increase from the time you first buy the policy. And some permanent insurance plans let you pay for a limited time and then never again.
Whole life insurance
Whole life insurance is a type of permanent life insurance that provides you coverage for your life time.
Your premiums won’t change as you get older. Your policy will often have a guaranteed minimum cash value.
What is cash value? It’s a savings component that can grow over time. You can borrow against it or use it as collateral for a loan. You may also withdraw your cash value, but this may reduce your policy’s death benefit. If you borrow using your cash value and don’t repay the loan, it may reduce the amount of money your beneficiary will receive or that you may get back if you cancel. There can also be tax consequences to accessing your policy’s cash value.
Universal life insurance
Universal life insurance is a type of permanent life insurance that combines life insurance with an investment account. The investment account has a cash value. Withdrawals, as well as loans, may be permitted.
The death benefit and cash value of your investment account may increase or decrease depending on the:
• types of investments you choose to hold in your account
• returns on those investments
You can also select how your premiums are invested. You can increase or decrease your premiums within the limits specified in your insurance policy. However, your premiums could increase if returns on your chosen investments fall.
