The terms “term life insurance,” “permanent life insurance,” “premiums,” and “death benefit” are not well understood. We understand how perplexing life insurance may be, so we’re here to help you understand how life insurance works in Canada, how much it costs, and whether or not you require coverage.
Approximately one-third of Canadians do not have life insurance, and one-fourth of millennials say they are unlikely to get any type of insurance in the foreseeable future.
The fundamentals of life insurance are simply not on our minds. Don’t feel bad if you thought ‘Term to 100’ was the title of a Drake song; you’re not alone.
Life insurance 101 isn’t widely known in Canada, which is why it’s a topic worth learning about, especially if you’ve been spending more time with real estate brokers, in-laws, or babies.
But where do you start? Is a memorial service a charity event? Is there a ribbon for “participating insurance“? Is “Return of the Premium” the title of a new Star Wars film?
Let’s just start with the basics…
What is life insurance?
A contract between you and a life insurance provider is known as a life insurance policy. They agree to pay a death benefit (a lump sum of tax-free money) to someone you pick if you die. In exchange, you agree to pay them an insurance premium on a regular basis: (a small amount of money over time).
You and your partner decide on the quantities of money coming in and out, as well as the time frames involved, but that’s it in a nutshell.
What can a life insurance claim payment be used for?
Your beneficiary (the person you choose to receive the payout) is allowed to utilize the death benefit from your life insurance in any way they see fit. The death benefit is exempt from taxation. They can put the money towards:
- Covering day-to-day expenses so that their family can maintain a similar standard of living (groceries, bills, rent, etc.)
- Pay off your credit card debt (mortgages, lines of credit, credit card bills, business loans, etc.)
Invest in the education of their children. - Make a significant donation to their favorite charity.
- Make arrangements for their funeral.
- Keep their company safe.
If you don’t choose a beneficiary, the death benefit will be paid to your estate, which may be subject to taxation.
What are the different types of life insurance in Canada?
Life insurance is divided into two types: term and permanent (or whole life insurance). Both whole life and permanent life insurance offer advantages and disadvantages, but the vast majority of Canadians (76 percent) choose for term insurance, either individually or via their company as part of a group plan.
Term life insurance
Term life insurance guarantees that if you die, we’ll pay out, but only if you die within a certain time frame, or ‘term.’ These terms are usually 10, 20, or 30 years long, but you can opt for shorter or longer terms, as well as coverage that lasts until a certain age.
Whole life insurance
Whole life insurance is a type of insurance that covers you for the rest of your life and has a monetary value. Whole life policies may also provide dividends dependent on the profits of the insurance company. It’s referred to as “participating insurance.”
Limited-pay whole life insurance
Limited-pay insurance is comparable to whole-life insurance, except the payment schedule is shorter. For example, if the term is 20 years, your insurance is assured for life and you are no longer responsible for premiums.
The most expensive policy choice is usually this type of coverage. This is because premiums are paid in advance to compensate for the years when you will not be paying.
Universal life insurance
Universal life insurance is similar to whole life insurance, except that you have additional options for investing your cash value. If you’re a smart investor, you can get a better return than you would from a standard whole life policy.
However, it necessitates that you keep a close eye on the cash value investments you’ve made. Alternative investment options may assist you in achieving your financial objectives more quickly.
Term to 100 life insurance
Term to 100 is a whole life insurance policy that insures you until you die, despite the term in the name. The distinction is that this policy has no cash value or investment component, resulting in lower premiums. In addition, if you live to be 100 years old, you will no longer be obliged to pay premiums and will retain your coverage. Canada is the only country that offers term to 100 life insurance plans.
Annual renewable term life insurance (ART)
Annual renewable term life insurance (ART) is a less common life insurance alternative for consumers looking for short-term life insurance coverage. ART is accessible on an annual basis with the option of renewal and can help those who are unemployed, want to improve their health before committing to a longer-term coverage, or are in debt.
Is life insurance premium worth it?
Life insurance premiums are well worth the money if you have dependents. When you get life insurance, you may rest easy knowing that your family will be financially secure after you pass away.
Even if you don’t have any dependents, there may be times when the benefits of life insurance outweigh the cost of the premiums. These can include the following:
- Taking advantage of your youth and good health to get a lower premium and future insurance coverage.
- Making a charity donation to a cause or organization that you care about
Making a financial gift or leaving a legacy to children or grandkids, whether or not they are dependents
Does life insurance have cash value?
As the insurance companies invest your premiums, permanent life insurance policies build up a cash value. This investment function is available in policies such as whole life and universal life insurance. You have the option of cashing it in, saving it, borrowing against it, or applying the value to a current policy.
How much is life insurance?
The price of life insurance is determined by a number of unique characteristics. On a 20-year term policy, life insurance costs for most young, healthy persons are fairly inexpensive.
For example, a 30-year-old Ontario woman in average health would pay only $21 per month for a $500,000 death benefit over the course of a 20-year policy. Life insurance may and should be reasonable if you customize your coverage to meet your specific needs and budget.
| COVERAGE | 10-YEAR TERM | 20-YEAR TERM |
| $250,000 | $11/month | $14/month |
| $500,000 | $15/month | $21/month |
| $1,000,000 | $23/month | $36/month |
Premiums for female, non-smoker, 30-years old
Personal factors affect your life insurance cost. Factors include:
- Age: Insurance premiums rise in cost as you age.
- Smoking Status: Smokers pay more for life insurance.
- Gender: Generally, men have higher life insurance premiums than women.
- Health: Insurance providers see health problems as adding to the risk of insuring you.
- Family Medical History: Insurance providers also calculate the risk of known hereditary illnesses.
The price of your monthly premium is also influenced by the details of your life insurance policy. These are some of them:
- Term Length: The longer your coverage period, the higher the premiums.
- Coverage Amount: A larger death benefit will also dictate higher insurance premiums.
- Type of Insurance: Term life insurance is less expensive than whole life insurance.
What are life insurance premiums?
The amount of money you agree to pay the insurance company, usually monthly or annually, in order to receive coverage is known as a premium. The greater your premiums are, the older you are, the longer your term is, or the larger your death benefit is.
Do I need life insurance in Canada?
Perhaps a better thing to ask is whether or not the people in your life require it.
Insurance is used to pay off debts (personal or business-related) and provide a source of income to someone who relies on you but is no longer alive.
By purchasing life insurance, you can secure assets for your family’s future by investing in a secondary source of income. Without life insurance and the security of a death benefit, you’re putting all of your family’s financial eggs in one basket: your ability to produce an income while you’re alive.
You may believe you have life insurance through your employer’s group benefits, but such policies must be scrutinized carefully to ensure they cover all of your needs.
How much life insurance do I need?
You should purchase the most comprehensive life insurance policy you can afford. When they die, most people want to leave a multimillion-dollar fortune to their family and loved ones. However, most people are unable to do so due to budgetary constraints.
Determine what you consider to be a “affordable premium.” Create a budget to examine your family’s existing and future financial needs, as well as your current liabilities and debts, as well as any costs related to your death. This will show you what kind of coverage you should get and how much it will cost.
When should I buy life insurance?
Life events necessitate the purchase of life insurance. Purchasing a home, having children, and marrying are all signs that you have people in your life who rely on your salary to maintain their standard of living. Because insurance premiums climb as you get older, buying it earlier in life can save you money.
What happens to a term life insurance when it expires?
You have various options when your insurance policy ends. Normally, you
- re-enroll in the policy at a higher rate
- submit an application for a new life insurance policy
- If you no longer require coverage, let it lapse.
Can I renew a term insurance policy?
Most term life insurance policies include a renewability clause, which allows you to continue your coverage after it expires without having to retake your medical test.
The cost of renewing your coverage is increased because your premiums are reviewed (adjusted) to reflect your advanced age. As a result, some Canadians prefer to apply for a new insurance coverage when their current policy expires.
What personal information do I need to share with my insurance company?
During the underwriting process, life insurance firms are required to ask a list of questions. They are as follows:
- your gender
- your age
- where you live
- whether you smoke
Your insurance company wants to make sure you’re healthy before insuring you because they don’t want you to die while you’re insured. They will offer you lower life insurance rates if you can demonstrate that you are in good health. They’ll inquire about:
- your physical health history (cancer, diabetes, high blood pressure, sleep apnea)
- your mental health history (anxiety and/or depression, bipolar disorder, other mental health conditions)
- your family’s medical history
- how much you drink
- your history with drugs
- your passion for extreme sports (seriously)
- how dangerous your job is (like if you’re a logger for instance.)
You’ll be assigned to a risk category based on your responses to these questions, and rates will be calculated appropriately.
Additional in-person medical checks will be required on occasion, particularly when qualifying for higher coverage amounts.
What is an attending physician’s statement?
Your family doctor or any specialists you see concerning continuing health concerns may also be asked to produce a health report (called an attending physician’s statement or APS) to the provider.
Who should you name as your life insurance beneficiaries?
Your beneficiaries are the people you name in your life insurance policy to receive the death benefit if you pass away. It’s critical to include the correct persons on your policy’s beneficiary list so that the money is spent as you intended. Probate can affect your life insurance benefit if you do not name a beneficiary or if there is ambiguity at the time of your death.
Are there different types of beneficiaries?
Yes, there are revocable and irrevocable beneficiaries.
- Revocable Beneficiary: a beneficiary who can be replaced without their permission.
- Irrevocable Beneficiary: Any changes to the policy, including coverage and beneficiary changes, must be approved by the beneficiary.
Should you name your children as beneficiaries?
Minor children under the age of majority in Canada are not permitted to receive funds from a life insurance policy until they reach the age of majority. As a result, many people establish a trust to manage the funds of their children’s life insurance death benefits.
A trust is an estate planning tool that allows you to appoint someone else (the trustee) to manage financial assets for a beneficiary until a certain time or until they reach the legal age to manage their own funds.
Should couples get life insurance?
Is it necessary for couples to have life insurance?
Couples’ life insurance policies offer a variety of advantages, including the ability to save money on policy fees and the convenience of maintaining a single policy. Couples can choose from a variety of life insurance policies, including:
- joint first-to-die life insurance
- joint last-to-die insurance
- combined or multi-life insurance
Should you choose individual or joint life insurance policies?
Joint life insurance policies, like any policies, offer advantages and disadvantages.
Pros
- Save money on policy fees
- One policy to manage
Cons
- There are fewer options than with individual coverage.
- Depending on personal health considerations, cost reductions may be lower.
You can still save money on policy fees if you apply for individual coverage together.
What happens to life insurance after a divorce?
A divorce will not automatically change the beneficiary of your insurance policy if you’ve designated your ex-partner to receive the death benefit.
If you and your partner divorce, you may want to reconsider your life insurance needs. After a divorce, you must evaluate the sort of life insurance policy you have, who is named as your beneficiary, and the circumstances of your divorce.
Do business owners need life insurance?
After the death of the owner or a key employee, life insurance can help alleviate financial problems and let the business continue to operate. A life insurance policy is frequently obtained by a corporation to fulfill the needs of the business, whether it is to pay a tax liability upon death, to secure appropriate finance for a buy-sell deal, or to use as collateral for a loan.
Can I buy life insurance coverage through my business?
Life insurance has a unique and particular tax classification that allows business owners to use it as a tax and estate planning tool. They can safeguard their families, preserve their personal and commercial assets, and ensure the stability and profitability of their company by purchasing a corporate-owned coverage.
Do seniors need life insurance?
Life insurance is a fantastic idea for people over 60 who don’t have any savings and may still owe money or have dependents. Seniors aged 75 and up are rarely eligible for term life insurance. Permanent insurance (whole life, universal life, term to 100) is an excellent alternative because it provides coverage for the rest of one’s life and can cover burial costs and medical debt.
Is final expenses insurance worth it?
Final expenditures insurance is essentially a life insurance policy that lasts forever. This policy contains a small death benefit that is intended to cover end-of-life expenses that your loved ones would otherwise be responsible for if you died.
Funeral expenses, burial charges, medical bills, and tax obligations can soon mount up. If you have a whole life insurance policy, final costs insurance is normally unnecessary, but it does have the advantage of a quick benefit payout.
Should I add life insurance riders to my policy?
A life insurance rider is a provision that can be added to your policy to better meet your specific insurance needs. An insurance rider usually requires an additional payment on top of your monthly premium, while some riders may be included for free. There are a variety of riders to choose from. Additional term riders, critical illness riders, and assured insurability are all common riders.
Should I get life insurance for my children?
There are advantages to getting a life insurance policy for your child or grandchild as a parent or grandparent. Children’s life insurance ensures that your child will be insured in the future, regardless of their health. The policy can also be a good tool to create wealth and a good alternative to a Registered Education Savings Plan (RESPs).
Do you need insurance to travel to Canada?
Certain visas that allow you to go to or stay in Canada require you to have insurance. Those seeking approval for their super visa status must purchase super visa insurance. Other travelers to Canada are required to have insurance, but it is not required for entry into the nation.
Which is the best life insurance policy?
The answer to this question isn’t found in the back of the book. Life insurance is a deeply personal purchase and there are many factors to consider. In addition to taking into account your current family’s financial needs, you should also account for future expenses like tuition, funeral arrangements, estate taxes, and any other debts you would like settled if you died. (If that sounds complicated, there are insurance calculators).
When you search for insurance quotes, there are a multitude of options to choose from. Nevertheless, you should only purchase a policy you can afford and that makes sense for you and your family.
Thankfully, AG Group Enterprise Ltd, is here to help! Our mission at AG Group is to provide a wide range of life insurance policies, including term coverage, permanent coverage, RRSPs, RESPs, and more!
With AG group’s insurance policies, you can protect the future of your family and your finances. A good policy ensures a bright future!
