Life insurance is the contract between you and the insurance company. The contract is usually between the policyholder and the insurance company. As a policyholder, you determine who will receive the payout, and how much they’ll receive.
Why You need life insurance?
It’s a great way to protect your income or asset for those who depend on you financially. Your family members will get a certain amount of money tax-free once you die. The beneficiaries can be your children, spouse, or other close family members.
Once they receive this money they can cover expenses such as bills, debts, or credit loans, mortgage that you may have left to them. Different types of life insurance have different monthly premiums.
There are two broad types of life insurance in Canada:
- Term life insurance
- Permanent life insurance
Term Life Insurance
This insurance provides coverage for the policyholder for a certain period. The risk factor in life insurance products increases with the age of the policyholder. This makes the premiums to go up as the age increases.
Some insuring policies will increase the premiums every year, especially the One Year Term Insurance. This yearly increment has been very unpopular with customers resulting in the creation of the 10, 20, and 30-year term life insurance.
10-Year Term Life Insurance
In the 10-year life insurance product, premiums for the entire 10 years terms are the same. The premium is then paid every year until the end of the term. This takes away the headache of the increasing premiums for many customers.
20-Year Term Life Insurance
This type is the same as the 10-year, only that the premium increments are guaranteed remain the same for 20 years. Most people buy this to get financial protection for their mortgage in case they die.
30-Year Term Life Insurance
Here the premiums are the same for a period of 30 years. It is rare to buy such long term life insurance.
Permanent Life Classification
This is very popular life insurance that provides coverage for a lifetime. The premiums are usually the same for the whole life. What is more attractive is the cash value that grows inside this policy and it’s tax-free.
- Whole Life Insurance
Here the premiums are the same for a lifetime. In the early stages of life insurance, the cash value grows slowly, but it will be built quickly after the 5th or 6th year.
Insurance companies pay dividends inside this policy and that is tax-free.
Should the policyholder cancel before maturity, part of excess premiums, referred to as cash value, is paid back. This may have tax consequences in Canada.
- Term To 100 Life Insurance
Term to 100 life insurance is permanent life insurance without the cash value arrangement. Removal of the cash value considerably lowers the monthly premiums making it more attractive to potential customers.
- Universal Life Insurance
This type of life insurance contains an investment vehicle. The investment part allows the policyholder to select different investment types such as bonds, mutual funds. Great for people who love investing in the stock market and don’t mind about the volatility of the market. Higher returns can be achieved than with whole life insurance This is a tax shelter that you don’t want to miss out.
Which Type of Life Insurance is Best For You?
Life insurance products in Canada are broadly classified into two; term and permanent life insurance. The term life insurance includes the 10-year term life insurance, the 20-year term life insurance, and the 30-year term life insurance. The permanent life insurance consists of Universal life insurance, the whole life insurance, and the term to 100 insurance.
Term life insurance tends to be quite affordable for most customers. The permanent life insurance is ideal for people with estates and other high-value properties.