Life insurance coverage can be classified into two types: term life insurance and permanent life insurance. A specific period i.e. 10 years or lifelong coverage
Coverage: Life Insurance In Canada Explained
Choose Between Term Life or Permanent Life
Life insurance is a contract between an individual and an insurance company, where the individual pays premiums in exchange for a lump-sum payment, known as a death benefit, to beneficiaries upon the insured's death. In Canada, life insurance is a crucial part of financial planning, providing financial security to loved ones in the event of the insured's death.
The term 'coverage' in life insurance refers to the amount of money that the insurance company promises to pay to the beneficiaries upon the death of the insured. This article will delve into the intricacies of life insurance coverage in Canada, exploring various aspects such as types of coverage, factors affecting coverage, how to choose the right coverage, and more.
Types of Life Insurance Coverage
In Canada, life insurance coverage is broadly classified into two types: term life insurance and permanent life insurance. Term life insurance provides coverage for a specific period, typically 10, 20, or 30 years. If the insured dies within this term, the death benefit is paid out to the beneficiaries. However, if the insured survives the term, the coverage ends, and no benefit is paid out.
On the other hand, permanent life insurance provides lifelong coverage. As long as the premiums are paid, the death benefit will be paid out to the beneficiaries, regardless of when the insured dies. Permanent life insurance can further be divided into whole life insurance and universal life insurance, each with its unique features and benefits.
Term Life Insurance
Term life insurance is the simplest and most affordable type of life insurance coverage. It is designed to provide financial protection for a specific period, such as 10 or 20 years. With term life insurance, the premium remains the same for the duration of the term. If the insured dies during the term, the death benefit is paid out to the beneficiaries.
However, term life insurance does not build cash value over time. This means that if the insured survives the term, no benefit is paid out, and the coverage ends. The insured can choose to renew the policy for another term or convert it into a permanent policy, but this usually comes with higher premiums.
Permanent Life Insurance
Permanent life insurance provides lifelong coverage and has a cash value component. This means that a portion of the premiums paid is invested, allowing the policy to accumulate cash value over time. The cash value can be borrowed against or withdrawn during the insured's lifetime, providing additional financial flexibility.
There are two main types of permanent life insurance: whole life insurance and universal life insurance. Whole life insurance has fixed premiums and a guaranteed death benefit, while universal life insurance allows the insured to adjust the premiums and death benefit and offers potential for higher cash value growth.
Factors Affecting Life Insurance Coverage
Several factors can affect the amount of life insurance coverage an individual can get in Canada. These include the individual's age, health condition, lifestyle habits, occupation, and income. The type of life insurance policy and the term length (for term life insurance) also play a significant role in determining the coverage amount.
Insurance companies use these factors to assess the risk of insuring an individual. The higher the risk, the higher the premiums, and potentially, the lower the coverage. For example, a smoker will likely pay higher premiums and may get lower coverage compared to a non-smoker of the same age and health condition.
Age
Age is one of the most significant factors affecting life insurance coverage. Generally, the younger an individual is, the lower the premiums and the higher the coverage. This is because younger individuals are considered lower risk as they are less likely to die compared to older individuals.
As an individual ages, the risk of health issues increases, which can lead to higher premiums and lower coverage. Therefore, it is often recommended to get life insurance at a younger age to lock in lower premiums and get higher coverage.
Health Condition
The health condition of an individual also plays a crucial role in determining life insurance coverage. Individuals with pre-existing health conditions, such as heart disease or diabetes, are considered higher risk and may have to pay higher premiums or may get lower coverage.
Insurance companies usually require a medical examination as part of the underwriting process to assess the individual's health condition. This may include blood tests, urine tests, and a physical examination. The results of these tests can significantly impact the coverage amount and the premiums.
How to Choose the Right Coverage
Choosing the right life insurance coverage is a critical decision that requires careful consideration. The right coverage should provide enough financial protection to cover the financial needs of the beneficiaries in the event of the insured's death.
Several factors should be considered when choosing the right coverage, including the insured's income, debts, future expenses (such as children's education or spouse's retirement), and the lifestyle the insured wants to provide for the beneficiaries. It's also important to consider the premiums and whether they fit into the insured's budget.
Income Replacement
One of the main purposes of life insurance is to replace the insured's income in the event of their death. Therefore, the coverage should be enough to cover the income the insured would have earned had they lived. A common rule of thumb is to get coverage that is 10 to 15 times the insured's annual income.
However, this rule may not be suitable for everyone, as it does not take into account the insured's debts, future expenses, and other financial obligations. Therefore, it's important to consider these factors when determining the coverage amount.
Debt Repayment
Life insurance coverage should also be enough to cover the insured's debts, such as mortgage, car loans, credit card debts, and other personal loans. This ensures that the beneficiaries are not burdened with these debts in the event of the insured's death.
When calculating the coverage amount for debt repayment, it's important to consider both the current debt balance and any potential future debts. For example, if the insured plans to take out a mortgage or a car loan in the future, this should be factored into the coverage amount.
Coverage and Life Insurance in Canada: Conclusion
Life insurance coverage is a crucial aspect of financial planning in Canada. It provides financial security to the insured's loved ones in the event of the insured's death, covering their income, debts, and future expenses. Understanding the types of coverage, the factors affecting coverage, and how to choose the right coverage is essential in making an informed decision.
Whether it's term life insurance or permanent life insurance, each type of coverage has its unique features and benefits. The right coverage depends on the individual's needs, financial situation, and risk tolerance. Therefore, it's important to carefully consider these factors and consult with a financial advisor or insurance professional to choose the right coverage.
Life Insurance Canada Advisor Contact
Life Insurance Need Not Be Complicated
Here are answers to frequently asked questions...
No, the only thing you will ever pay is a premium to the insurance company that provides the life insurance policy for you. We provide you quotes and advice on best options for your situation.
Yes, we have access to various discounts based on your health and the amount of life insurance you purchase. For example if you've never smoked in your life and are buying more than $1 million in life insurance
Rates are based on your age, health history, smoking status, gender and income. The insurance company also compares and makes assessments based on similar individuals with the same profile like age, gender, smoker status. Unlike workplace or association rates which are cheaper and based on you working at a particular company, being associate with an affinity group or the claims of the whole group i.e. your rate is affected by someone who smokes even if you don't smoke, or if you never claim and other claim multiple times, for example.
We simplify the process knowing how busy life gets. The first step is simply to request your quotes and getting a sense of the cost and coverage available. Next, we compare the policy options and other riders like guaranteed insurability and discuss what makes sense for you and answer your questions. Lastly, you apply and buy risk-free.
We are an independent life insurance broker, meaning that we do not have an affiliation with any one Canadian life insurance company. We are looking out for your best interests as we don’t have to meet any requirements to do business with any specific company. We actually get a finders fee from these insurance companies and they are all the same, so we don’t have any financial conflict of interest either.
In most cases, it can take between 2 weeks and 1 month from beginning to end. A lot of the time may depend on follow up information required by the insurance company. In our experience 1 month is usually a standard timeframe. Sometimes, depending on the amount you apply for and your age, for example children's life insurance or no medical, the approval is instant.
Underwriting is where the insurance company verifies your information that you submitted on the application your complete with us and gathers additional details such as health history, travel, and personal history to determine the best rate possible.
Any type of life insurance is great especially if you suddenly pass unexpectedly. However, just like getting a company car allowance, you only have it for as long as you work for that company because it's a benefit or "perk" of working there. When you leave you lose that perk. You are also limited to 2 or 3 times your salary which may not be enough. More importantly, how many times have you changed or will potentially change jobs?
When you buy your own personal private insurance you don't worry about losing it if you change jobs or your health changes.
As the name suggests, the AD & D policy will only pay if your death is caused by an accidental death or dismemberment of a body part. Personal private life insurance will pay regardless of the cause with the only exception being cases such as suicide.