Life Insurance Basics for Canadians in 2021
Getting protection for your family is more important than ever before, especially with the threat of COVID-19 still active. Even if this virus will not come to pay us a visit this year, death can occur anytime. While it may not be fun to think about it, getting life insurance can keep your family safe and may allow you to live your life to the fullest.
In case you pass away unexpectedly, your family will definitely feel relieved if you signed up for a life insurance policy. In the following paragraphs, we’ll try to give you an overview of life insurance for Canadians in 2021 and help you decide which type of life insurance is the best type for you.
What is Life Insurance?
In simple terms, life insurance is a contract that ensures that your family members, or those closest to you who rely on you for constant financial support, will receive financial aid or money support should something unexpected happen and you would pass away.
The life insurance policy can be made with any type of insurance company and can be personalized to your own needs, factoring in the amount paid out to the beneficiaries. As a policyholder, it lies in your responsibility to pay a monthly fee, also known as a premium. Upon death, that premium is forfeit, and the amount of money established in the contract is released to the next of kin. The sum that is issued by the insurer to the beneficiaries can be used by them for any purpose, including but not limited to:
- Funeral costs
- Living expenses: rent, mortgage, utilities, clothing
- Charitable gifts
- Education-related costs
- Child-care costs
- Taxes on assets such as car, house or non-registered investments
Life insurance acts as a security blanket for your loved ones. As the virus is still rampaging throughout the country, getting life insurance becomes mandatory for most people, and especially for those with large families or for people who already have difficulties providing for their families.
Types of Life Insurance
In Canada, there are two main types of life insurance: permanent insurance and term insurance. Each one has its own traits and specs. As the name implies, permanent insurance covers the policyholder for life, while term insurance can only cover you for a predetermined period of time.
Let’s break down each one of these life insurance options below:
Permanent Life Insurance
This type of type insurance provides you coverage for life, coming with the option of fixed premiums. In other words, you’ll pay the same amount every month. While the premiums do not increase while you age, they are somewhat higher than the premiums offered for term insurance.
The high fees are somewhat normal since a payout is guaranteed at one point, as we all get to die. As a rule of thumb, permanent life insurance is used for estate planning purposes, leaving beneficiaries, children and other third-parties a tax-free inheritance.
In Canada, you can choose from 3 unique types of permanent life insurance:
- Term 100: this is the most basic option which guarantees coverage for life. Premiums are fixed and need to be paid before the insurer reaches 100 years of age.
- Whole life insurance: this is similar to Term 100 but comes with an additional cash value that can increase over time. As the policy owner, you can use this collateral as a payout should you cancel the policy, or as collateral on a loan.
- Universal life insurance: this is more like an investment. The total amount paid to the beneficiaries after the death of the policyholder will strictly depend on how well the investment has performed. Similarly, the cash value should the insurance be cancelled depends on how profitable the investments were.
Term Life Insurance
Compared to permanent life insurance which can cover you for life, term life insurance can only cover you for a limited period of time, such as 10, 15, 20 or 30 years. If you have no outstanding payments and die within that term, your direct beneficiaries will be paid an amount of money. However, if you reach the end of the term, no payment will be made in the eventuality of death.
Term life insurance is undoubtedly more affordable than permanent life insurance. However, the premiums go up once the insurance is renewed. Seniors over 60 years of age could pay even twice as much as someone in his/her 30s.
If term life insurance is a great option for single young Canadians who have high expenses and education costs, couples and married people can also benefit from additional options.
- Creditor insurance: people with another loan or mortgage can purchase creditor insurance. This will cover the outstanding balance upon death, so children and other family members left behind should not carry the burden of the credit. Creditor insurance is a unique type of insurance policy paid directly to the creditor and not to the beneficiaries.
- Joint first-to-die insurance: both you and your spouse can be life insured under one policy. In this case, if either spouse dies within the term, the other receives a single death benefit. However, if both spouses die, the direct beneficiaries will only receive a single death benefit.
Which One Should You Get?
For most young couples and families, the best option in terms of insurance is term insurance. Paying for life insurance is very costly and might not be worth it in the long run. With term insurance, you can gain the peace of mind that your beloved ones are financially secure, especially during those years when your mortgage is at its highest and you have young kids that need to be raised up.
Who is Life Insurance For?
It’s pretty clear by now that most people need a certain form of life insurance, regardless of age. Even children might need life insurance. However, life insurance is extremely useful in certain cases:
- Heads of households: if you are a key member of your household and you provide financial security, getting life insurance gives you the peace of mind that your spouse and kids will be able to meet their future needs and become financially independent should an accident happen. Even if your household is comprised of just a person, life insurance ensures that those who remain behind will be able to take care of any bills or expenses.
- Homeowners: if you are a homeowner, you can use a life insurance policy to assure your family members that they would never lack the money for the mortgage. They’ll never have to face the terrible prospect of losing the home you leave behind. Thanks to life insurance, they’ll have the reassurance that they will continue to enjoy the perks of your home.
- Business owners or business partners: if you are an associate partner or a business owner, you could definitely make the most out of insurance, as it can protect your property from creditors or real estate sharks. With a good life insurance policy, you may also be able to transfer a family business over to the next generation and pay off any outstanding debt or obligations.
- People who think about others: Lastly, life insurance is a perfect fit for anyone who wants to provide for their children and grandchildren long after they’re gone. You can also use life insurance to provide a generous gift to a foundation, cause or charity.
How Much Coverage is Enough?
Most experts recommend getting a life insurance coverage that is worth up to 10 times your annual salary. Of course, this also depends on your revenue and the amount you can put aside each money for insurance premiums. We recommend you to talk to your financial advisor who can guide you in this regard and show you the best option for your needs.
How much does Life Insurance Cost?
The cost of life insurance in Canada is strongly connected to several factors, all of them listed below:
- Age: insurance premiums increase with age since seniors are more likely to die
- Coverage: the more benefits you want to enjoy, the higher your premiums will be. For example, if you want your beneficiaries to get a $1million paid on your death, you’ll have to pay much more on a monthly basis than for a policy that only covers $100k.
- Gender: in Canada, premiums are slightly higher for men than for women, since men are more prone to dying at their workplace and also love to live riskier lives.
- Policy type: permanent insurance will always be more expensive than term insurance.
In order to determine the cost of life insurance for you, take a closer look at two main aspects: how much you can afford on a monthly basis in premiums and the amount of money your family might need should you pass away. You can use a free life insurance quote calculatorto get an estimate of how much you would be required to pay. However, the final cost will be determined by a multitude of factors and also by the unique offers from creditors.
At a glance, for a 35-year male, non-smoker and with no criminal record, the cost of life insurance starts from $32 for a 10-year term for over $481 for a whole life insurance policy.
How can you Find the Best Life Insurance Policy for your Needs?
Choosing a life insurance company is a tedious process that takes time and quires a lot of digging on your part. Basically, you want to look at several aspects before making a final choice.
First, check out the institution’s financial health. Are they reliable? Will they be able to meet their end of the deal? The great news is that, in Canada, all life insurance companies are regulated by the Government and function under strict rules and regulations. Of course, you should back up your efforts by looking at the services provided by companies like Assuris. In the unlikely case that the insurance company fails, Assuris guarantees that you will receive 85%.
Second, you want to ensure that you are getting a high-quality product. You want to enjoy robust coverage, plus the option to renew your coverage if needed. Try to be mindful of words like “guaranteed” or “simplified”. You want to carefully read the policy you are about to sign to ensure that you are not compelled to sign something you don’t need.
Third, you want to look at the actual ratings of credit companies. In 2021, you can easily find multiple review sites, blogs and forums, where people post their own opinions about certain credit companies. You can even find tons of comments and reviews on social media platforms and in other places. You can also check insurance comparison engines such as PolicyMe.com, Kanetix.ca or PolicyAdvisor.com, to find the best insurance for your needs.
Lastly, you want to compare the prices and choose the best insurance policy for you. Note that the best might not always be the cheapest. You might get a higher quote from an insurer, but you’ll also be able to capitalize on more benefits.
How to Get Life Insurance Quotes
You can easily get quotes on life insurance by filling out the online forms on sites like PolicyMe.com, Kanetix.ca or PolicyAdvisor.com. Narrow down your choices on play with the fields in order to find the best type of policy for your needs.
You should also consult with your financial advisor and understand your own eligibility and needs.
Getting life insurance in 2021, in the post-COVID era, has become a necessity for most people. Despite the additional costs associated with insurance, you can invest in the future of your spouse, kids and other direct beneficiaries by taking life insurance.
In Canada, you can buy life insurance either online from a life insurance company, through an independent broker or by talking to an independent local insurance agent. After you have determined your need and you have found just the right company for you, apply for a permanent or term insurance policy.
Your family is the most important asset you have, so do not hesitate to protect them from any unforeseen or unexpected threats. Choose the best life insurance policy for you and stay in control of your life, knowing that your finances and possessions are backed up.
This article was written by Mohamed Konate and published on RateMyCompass.ca on Jan 21, 2021