Life Insurance In Canada: Getting Covered

Life insurance is a policy or contract between you and a life insurance company that can last for the rest of your life or a specific time period. It is a way to protect your loved ones financially in the event of your death. It provides a one-time, tax-free payment, known as a death benefit, to your beneficiaries, which can be used to replace lost income, pay off debts, cover funeral expenses, or for any other purpose. There are two main types of life insurance: term insurance and permanent insurance. Term insurance is more affordable and provides coverage for a specified number of years, while permanent insurance offers lifelong coverage and is more expensive. When considering life insurance in Canada, it is important to understand the different types of policies available, the benefits they offer, and how to get the best value for your needs.

Permanent life insurance

In addition to the death benefit, permanent life insurance policies often have a cash value component. This means that your policy can grow in value over time, and you may be able to access this cash during your lifetime through loans or withdrawals. However, there may be tax implications for withdrawing or borrowing against your policy's cash value, and doing so may reduce the amount of money your beneficiary will receive.

There are two main types of permanent life insurance: participating life insurance and universal life insurance. Participating life insurance offers guaranteed money growth inside your policy, policyowner dividends, and conservative asset management. On the other hand, universal life insurance provides more flexibility in choosing investment accounts and managing your risk. It also combines life insurance with an investment account, allowing you to build wealth for your beneficiaries.

When considering permanent life insurance, it's important to keep in mind that it generally costs more than term insurance. However, permanent life insurance provides the security of knowing that your loved ones will be taken care of financially, regardless of when you pass away.

Term life insurance

When taking out a term life insurance policy, you will need to choose the term length and coverage amount. The cost of your premiums will depend on various factors, including your age, sex, health, and lifestyle habits. Generally, the older you are, the more expensive the policy will be, and pre-existing conditions, family medical history, and habits such as smoking will lead to higher premiums.

When choosing a term length, consider your personal needs and financial situation. For example, if you have a 20-year mortgage, you may want to take out a term policy for the same length of time. Term life insurance is well-suited to those with temporary coverage needs, such as shorter-term financial responsibilities like a student or car loan, or if you are approaching retirement.

When the term ends, your coverage will automatically renew annually, usually at a higher rate, or you can choose to let it expire. Some term life insurance policies also give you the option to convert to permanent life insurance, which provides lifelong coverage. This option is typically available between one and five years before the term ends.

When taking out a term life insurance policy, you will need to provide some personal details so that the policy can be customized for you. You may also need to undergo a medical exam to finalize your policy.

Whole life insurance

Benefits of Whole Life Insurance:

• Lifetime coverage: Whole life insurance offers coverage that lasts your entire life, as long as you pay your premiums.
• Fixed premiums: Your premiums remain the same, even if your health changes. This means your premiums won't increase as you get older.
• Tax-free death benefit: Your beneficiaries will receive a tax-free payment, known as a death benefit, after your death.
• Additional benefits with cash value: Some whole life insurance policies include a savings component called the cash value. This allows you to access extra funds during your lifetime. You can borrow against the policy's cash value or withdraw a portion of it.
• Peace of mind: Whole life insurance provides peace of mind, knowing that your loved ones will be financially secure after your passing.

Things to Consider:

• Cost: Whole life insurance tends to be more expensive than other types of life insurance, such as term life insurance, due to its lifelong coverage and fixed premiums.
• Length of coverage: You generally pay premiums for whole life insurance until you pass away. However, some products offer the option to pay for lifetime coverage over a shorter period, such as 10, 15, or 20 years, but this will result in higher premiums.
• Tax implications: While the death benefit is tax-free, there may be tax implications if you borrow against the policy's cash value or surrender your policy. Consult with a financial advisor to understand the tax consequences.
• Health considerations: Your premiums will depend on factors such as your age, health, and assigned sex at birth. Be prepared to provide medical information and undergo a medical questionnaire or exam.
• Customizable add-ons: Whole life insurance often comes with customizable add-ons, such as accidental death benefit riders, disability waivers, and the ability to purchase additional coverage at specific times without a medical exam.

How to Get Whole Life Insurance in Canada:

To get whole life insurance in Canada, you can follow these steps:

• Assess your needs: Consider your financial situation, including your assets, income, debts, and dependents. This will help you determine the amount of coverage you need.
• Compare providers: Research different insurance providers in Canada, such as RBC Insurance, Sun Life, and Manulife, to compare their whole life insurance products and benefits.
• Consult an advisor: Contact a licensed insurance advisor to discuss your options and get a customized quote. They can help you choose the right coverage amount and add-ons based on your specific needs.
• Apply for coverage: Work with your chosen insurance provider to complete the application process, which may include providing medical information and undergoing a medical exam.
• Review and accept the policy: Once you receive the policy, carefully review the terms and conditions, including benefits, exclusions, and premium payment options. If you're satisfied, accept the policy, and your coverage will begin.

Universal life insurance

Benefits of Universal Life Insurance

With universal life insurance, you can select the amount of premium you pay. You can pay more than needed to keep your policy active so that you have more flexibility in the future when you retire or have less income.

If your policy has cash value, you may be able to access extra funds to supplement your retirement income or during an illness.

The COI is the minimum amount of a premium payment needed to keep the policy active. It includes the cost of providing the death benefit, administrative fees, optional benefits added to your policy, and provincial taxes. COI will vary by policy based on the policyholder's age, insurability, and the insured risk amount.

Over time, the cost of insurance will increase as the policyholder ages. However, if sufficient, the accumulated cash value will cover the increases in the COI.

Applying for Universal Life Insurance

To apply for universal life insurance, you will most likely need to complete a medical exam and answer health questions. You can apply for universal life insurance if you are between the ages of 0 and 85.

Term to 100 life insurance

With Term to 100 life insurance, you can choose your level of coverage, with policies ranging from $50,000 to $20 million. You can also add optional riders to your policy, depending on your needs.

Frequently asked questions