Do you have life insurance?
If not, it may be time to get protected. There are many different life insurance policy types available for Canadians, including renters, self-employed individuals, and those with dependents, so it's important to choose one that's right for you.
An advisor can help you choose the right type of life insurance. This can make all the difference to ensure adequate protection for families or seniors, even after your passing. Choosing life insurance may even include considering taxes, security, and investments as part of a comprehensive plan, as well as disability insurance for additional protection.
In this article, we'll discuss an overview of the different types of life insurance plans and its protection benefits. So, if you're thinking about getting insurance and want more information, keep reading this content!
What is Term Life Insurance?
Term life insurance policies cover you for a particular number of years, usually 10, 20, or 30 years. They provide coverage during the years you are likely to need it most. That is, during your 30s, 40s, and 50s when you may have young children to provide for.
Term insurance coverage is usually more affordable because it is only for a fixed duration. It is a smart choice if you are looking for a cheap insurance policy, but it has its limitations.
If you pass away before the term is up, your family receives a set amount of money. The face value, also known as the death benefit, gets paid as a monthly payment, an annuity, or a lump sum.
When you sign up for term life insurance, you must specify the coverage amount and policy length. The life insurer takes these details into account while calculating your premium rates. You can buy term life insurance online through an independent broker like Dundas Life.
In the case of a level term insurance, however, the fees and death benefit amount stays the same throughout the term.
What Happens when this Expires?
As your policy approaches its expiration date, it is a good idea to revisit your life insurance coverage needs. If your family no longer needs the financial protection of insurance, you can simply let the policy expire.
But if you do need coverage, there are three options available:
- Extend your current term policy – More terms life insurance products/services are guaranteed renewable. That means you can renew your policy without getting another medical exam. When you sign a contract for a new life insurance policy, you are agreeing to pay the premium each month in order to keep the policy in force.
- Convert your term policy to a permanent life insurance policy – Does your term policy have conversion riders or other related riders? If so, you can convert it into a permanent insurance policy without having to go through the underwriting process again.
- Buy a different life insurance policy – If you are healthy and fit, you can apply for a new coverage policy. However, expect to pay a higher premium rate as the cost of insurance increases with age. In addition, whether you are approved by an underwriter for support/funds which depends on your risk and health conditions.
What Is Whole Life Insurance?
Whole life insurance, or permanent life insurance, provides coverage for a lifetime, as long as you pay the premiums on time.
Besides promising a set payout, a whole life policy includes an investment feature. A small share of your each premium payment gets deposited into a saving component called “cash value”. This works similar to a savings account.
Your policy’s cash value grows with interest and earns a fixed return over time. This acts as a financial safety net to fall back on during uncertain times. You can pay your premiums with the permanent life insurance policy’s cash value, take out a policy loan (or loans) against it, or withdraw it — partially or fully — to ease a rough financial patch. You can even surrender the policy in later years to live off its value, which is a great opportunity. A missed premium payment can cause the coverage to lapse.
Generally, permanent life insurance costs more than term insurance policies due to its guaranteed payout and saving component built in. So, if you are looking to save money and sticking to the basics, term life insurance rates are much less costly. When considering whole insurance policies, the insurer will assess a policyholder's ability to pay the premiums and take responsibility for budgeting. Our online life insurance calculator can help with this.
Having life insurance can help protect your loved ones, including a child. For example, it can aid in the repayment of your children's debt for education or provide answers and financial security in the event of an accident.
There are many different policy types, including the following:
Limited Pay Whole Life Insurance
With limited pay whole life insurance, you must pay premiums for a specific duration or until you reach a certain age. Once you reach the target age, your premium payments stop. However, the insurance benefits last your lifetime, and cash value keeps growing. The cash values of a life insurance policy can be very helpful because they can be cashed out when desired.
Term-to-100 Life Insurance
This insurance product offers you the best of traditional permanent life insurance and term insurance — life long coverage and affordable premium rates.
Term-to-100 life insurance policies are in effect for life, but its premiums are less expensive than permanent life insurance, which is standard. That’s because, unlike the latter, it doesn’t have any cash surrender value. Both the premiums and the death benefits are level and unchanging, but your premium payments stop when you reach the age of 100 years.
Funeral insurance, also known as burial insurance, is a type of whole life insurance. In the case of your burial or death, your family—and any heirs or dependents—will receive income replacement from permanent life insurance policies. A funeral insurance policy, on the other hand, is designed to cover only your final expenses and funeral costs.
These plans can be advantageous for those with health issues who do not have other life insurance options and require assistance with funeral expenses.
Participating vs. Non-Participating
A participating type of life insurance policy allows you to share in the profits of the life insurance company, or life insurers, through dividends and participate in the insurance company and its ownership. In contrast, a non-participating policy provides just coverage — nothing else, no dividends, or ownership rights.
The main differences between participating and non-participating insurance is that participating policies provide coverage as well as ownership rights, whilst non-participating policies just provide coverage.
Since you receive a portion of the company’s profits as dividends in participating whole life insurance, you typically pay more for coverage.
Variable Life Insurance
Variable life insurance is a type of whole life insurance with an investment component. The policy includes a cash-value account that is divided into several sub-accounts. A sub-account works in the same way as a mutual fund.
Variable life insurance policies are more volatile than traditional life insurance policies and are only suitable for people who can bear the extra risk. It is good for people who want to be more involved in their investments—including in property, business and other security—with life insurance. Reading reviews about different insurance policies and understanding the short-term and long-term differences, along with the risks, can assist in making an informed decision.
What Is Universal Life Insurance?
Universal life insurance is whole life insurance with a twist. It provides lifetime coverage and builds cash value, but its premiums are flexible, death benefit adjustable, and cash value growth not guaranteed.
A universal life insurance policy has a minimum and maximum premium amount. It’s entirely up to you how much premium you want to pay, as long as it is with the prescribed range. This kind of flexibility can make it easier to maintain insurance, especially for people whose annual income isn’t fixed.
A cash value component is common in universal life insurance policies. The cash value growth in a universal insurance policy isn’t guaranteed. Instead, it depends on how much premiums you pay and how well the market is doing.
Your policy’s cash value earns interest that’s in line with the current market rate, meaning the rate (or rates) vary. While the insurer guarantees a minimum annual interest rate, if the market does better than expected, your cash value will grow faster. Similarly, if you pay more premiums, your cash value will be higher.
You can also adjust the death benefit of your universal life insurance coverage within the plan limits. Generally speaking, you can lower the death benefit any time but must go through the underwriting procedure again, which includes a medical test, to increase it.
Indexed Universal Life Insurance
Indexed universal life insurance is a form of permanent life insurance that provides both a cash value and a death benefit. Your cash value account balance can earn interest based on a stock market index, such as the S&P 500 (or TSX), chosen by your insurer.
Typically, these policies are suitable for those who have a significant initial investment and are looking for tax-free retirement solutions.
Term vs. Whole
If you want to leave a financial legacy or buy an insurance policy that is also a good investment tool, you may want to consider whole life insurance. Term life insurance, on the other hand, appears a better option when you are looking for an affordable way to protect your family financially until maturity.
Here’s a quick comparison of term life and whole insurance to help you decide which one is right for you:
What is Joint Life Insurance?
Joint life insurance is a type of insurance policy that insures two people rather than one with a single premium payment each month.
When the life insurance money is not needed by a beneficiary until both of the covered individuals have passed away, joint life policies can be helpful in future estate planning.
This policy is not suitable if one would suffer financially if the other died. The remaining spouse does not get insurance payouts paid up until after both insured spouses have died.
What is Mortgage Life Insurance?
Mortgage insurance ensures your mortgage lender receives the balance of your mortgage. In other words, the payout goes to the mortgage lender rather than a beneficiary you select.
The payout amount is in line with your outstanding debt. That means it reduces over time as you pay down your mortgage. The insurance premiums, however, remain the same throughout the policy term. With various coverage amounts available for customers, you can choose one that best suits your needs. Dundas Life insurance agents can assist in this process.
Given the inflexibility of mortgage insurance about who receives the death benefit, a term life policy with ample coverage to take care of your mortgage may be a better deal. If the mortgage reduces, your beneficiaries will have some cash even after clearing the mortgage debt. They can also use the payout as they deem fit instead of paying down the mortgage in full.
All the same, mortgage life insurance has certain advantages. The most notable is that it doesn’t require you to undergo a medical checkup. If you have a severe health condition that makes insurance impossible, you have no choice but to take mortgage insurance to protect your home financially.
In certain situations, mortgage life insurance is mandatory. For example, if your down payment is less than 20%, the law requires you to purchase mortgage insurance.
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What is Group Life Insurance?
Group life insurance is one of the main types of life insurance that insurance company employers offer to their workers as part of their employee benefit plan through work. Like any other insurance product, group life insurance has certain advantages and disadvantages.
Three key benefits of group life insurance are convenience, acceptance, and price.
Sometimes enrollment to group life insurance is automatic; other times, it just requires filling up forms. Also, group life insurance doesn’t require a medical exam, which is particularly beneficial for workers who are older or have a severe health condition.
Additionally, it is much cheaper than other whole life insurance products. Often the employer provides a certain amount of coverage — usually one to two times your salary — for free. If you take extra coverage, you’ll have to pay from your pocket.
As beneficial as group life insurance is, relying solely on it may not be a good idea — because you can’t take it with you.
If you switch jobs, you will lose coverage. Some insurers give policyholders the option to convert their group life insurance into individual life insurance if they leave, but the cost of insurance could shoot up dramatically. Also, a group life insurance product is a one-size-fits-all solution. You can’t customize it as per your needs.
Life Insurance Types
|Type of life insurance||Coverage length||Cash Value||Death Benefit||Cost||Investment Component|
|Term Life||10-35 years||No||Fixed||Affordable||No|
|Whole Life||Permanent||Yes||Fixed||Expensive||Yes, tax-advantaged|
|Funeral Insurance||Permanent||Yes, typically||Fixed||Affordable||Sometimes|
|Participating Whole Life||Permanent||Yes||Fixed||Expensive||Yes, tax-advantaged|
|Universal Life||Permanent||Yes||Might be flexible||Moderate||Yes, savings|
|Joint Life||Permanent||Sometimes||Fixed, but only once||Moderate||No|
|Mortgage Life||for your entire mortgage term||No||declining as you pay down mortgage||Expensive||No|
|Group Life||While you are employed||No||Fixed||Affordable||No|
What is the Best Type of Life Insurance for Me?
So, what type of life insurance is best for you?
It depends on your unique needs and situation. It may even make sense applying for multiple life insurance policies in some cases.
If you’re not sure which type of life insurance is right for you, or if you have any other questions about life insurance, contact an insurance advisor (or advisors). They can help you figure out which type of life insurance is the best fit for your needs and budget. There are many different categories of life insurance, but the two most common are term life insurance and whole life insurance. There are several other articles that may be of use to you if you're looking for further material.
Get free life insurance quotes (or quote) with one of Dundas Life's advisors or customer services representatives. We initially started as life insurance experts in Ontario and now expanded Canada-wide. If you want more advice or tools, please feel free to talk to an agent. Anyone is welcome!
- Term life insurance is the most basic and affordable type of life insurance.
- Whole life insurance provides lifelong coverage and builds cash value over time.
- Universal life insurance offers flexible coverage and options for how your premiums are used.
- Mortgage life insurance pays off your mortgage if you die.
- Group life insurance is often provided by employers as a benefit.
Frequently Asked Questions
A health insurance policy is an agreement between a person and an insurance company whereby the insurance company agrees to cover a portion of the person's medical expenses in exchange for a premium. This is what it means to be insured. Health insurance often covers expenses such as doctor visits, hospital stays, prescription drugs, and even dental work. There are many ways that health insurance can help cover the costs of medical care. It is critical to maintain excellent health; nevertheless, certain things are inevitable, and health insurance can be really advantageous.
If you have a current life insurance policy, you will be protected for claims related to COVID-19. Put simply, your beneficiary can file a life insurance claim if you die from COVID-19 or a Coronavirus-related illness. As with claims involving deaths from other natural causes, this one would be processed normally.
Pet insurance is a coverage purchased by a pet owner that helps to reduce the overall costs of pricey medical bills. This coverage is comparable to health insurance policies. Pet insurance will cover the often expensive veterinarian operations, either totally or partially.
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