What is Life Insurance in Canada?
Life insurance is simply a contract between a life insurance company and you to pay a death benefit to you for series of payments. You are purchasing a promise by the life insurance company to provide cash in the future. It is used to move the financial risk of not having the cash required in the event of your death from loved ones to an insurance company. You purchase home insurance which transfers the financial risk of losing your home due to a fire or suffering other damage to your home from an insurance company. From time to time you hear of people who have chosen to self-insure and then there is a fire and they lose everything. Canada Life insurance moves financial risks to your family in the event of you or your partner’s passing. There are two types of life insurance, temporary and permanent. The names explain what they are – one is temporary life insurance to cover risks that will last for a set period of time like a mortgage, and permanent life insurance is to cover the risk that there will be cash shortfall when you die – final expenses is an example of this.
Temporary Life Insurance
Almost everyone with a mortgage will have life insurance to cover their mortgage to ensure that it is paid off in the event of the death of homeowner(s) but fewer look at the income loss or other future costs like children’s education. How much do you need to cover the risk of leaving your loved ones early? It will take a couple of minutes to calculate how much life insurance you will need:
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This will identify how much life insurance you will require for you and your spouse’s temporary needs. You can purchase life insurance for terms of 10, 15, 20, and even 30 years. The use of an experienced life insurance agent to choose the best time period or combination of time periods is strongly recommended. There are many ways to pass the risk to the insurance company and there may be ways to structure it that will cost significantly less than what a search engine quote would suggest.
Permanent Life Insurance
Permanent life insurance is the kind of life insurance that will be there when your loved ones need it and hopefully it is many years in the future. We are constantly contacted by people in their 60’s and 70’s who suddenly realize that there will be a cash shortage when they pass. Many of these people either can no longer afford the premiums or have developed health issues. Take a look at the difference in price for say $50,000 of whole life insurance for a 30- and 60-year-old male non-smoker using the life insurance calculator.
We recommend that people purchase a little permanent insurance when they start, the cost is reasonable and then as the temporary insurance ends, they have the permanent insurance they need in place. If cash flow permits, they opt for a permanent insurance policy that is fully paid for in 20 years which eliminates the need to pay for life insurance during their retirement.
This is the kind of insurance that is best purchased before the age of 40 and the sooner the better as companies are increasing the costs of insurance to reflect lower returns and new regulations.
The biggest issue with purchasing life insurance is apathy. I can do it tomorrow and usually that is not a problem but for the few tomorrow is too late and the financial risk is not passed on to the insurance company.
