What is Life Insurance?
When most people think of life insurance, they think of a plan that they pay into that pays a lump sum of money to one or more beneficiaries after they die. They think of it as a tool to pay for final expenses or a safety net for their family. And it is true that life insurance is all of these things. But depending on the type of life insurance that you get, it can actually be much more as well.
The Types of Life Insurance
Life insurance can be broadly divided into two main types
Permanent life insurance can then be divided into additional types such as whole life and universal life – each with their own features and benefits.
Term Life Insurance
With term life insurance, you are only covered for a certain amount of time (a term). Common terms are ten and twenty years, but that can vary depending on the insurer. Term life insurance is typically recommended for needs that you won’t have forever but want to make sure are covered for that term – for example, term insurance might be to make sure your mortgage is paid off so that your family can continue to live in their home if you pass away (you likely won’t still have this need in 20 years, so term insurance is fine).
Some people also choose term insurance because it is more affordable in the beginning than permanent insurance. They know they will likely need to buy permanent insurance eventually, but having some term insurance gives them peace of mind for now.
Permanent Life Insurance is meant to cover needs that are permanent – such as paying for final expenses, providing an income for your surviving spouse, or leaving a legacy to your favourite charity. While permanent insurance may cost more than term insurance initially, if you are going to keep the insurance for 40 or 50 years or more, then in the long run permanent insurance is actually much more affordable. Some permanent insurance policies even have cash values that you can borrow from after having the policy for a few years.
There are various types of permanent insurance, and your broker can help you determine the best plan for you.
How are Life Insurance Rates Calculated?
Amount of coverage you are applying for.
Type of policy.
Whether it’s a single policy or joint policy with a spouse.
Age of insured.
Health of Insured. (medical tests may be required.)
Smoking status of Insurance.
Benefits of Life Insurance:
Financial benefit to your beneficiaries should you pre-decease them.
Benefit is tax free to your beneficiaries and bypasses probate.
Optional benefits such as child riders (a clause in your policy that covers your children) or Guaranteed Insurability Benefit (a clause that allows you to purchase additional insurance at certain intervals without proof of health).
Choosing the Right Plan
Ensuring you have sufficient life insurance in place to protect your family is important, but knowing the best type to choose and how much coverage you need can be confusing. For this reason, it is important to work with your broker. Your broker will analyze your situation to come up with a plan that is right for you and your family.