How Does Life Insurance Work in Canada?
On the face of it, life insurance seems quite simple. However, when you dig a little deeper, it’s easy to get confused by the different types available and all the options you have. Thankfully, we’re here to clear it all up for you.
To understand life insurance, you need to know the type of policies available, how to obtain coverage, and the benefits it offers. Here we’ll have a comprehensive review so you can choose your life insurance with much more clarity.
Types of Life Insurance
Life insurance primarily comes as either a term or permanent. Term is the simpler of the two but we’ll explain them both here.
Term Life Insurance
With term life insurance, your policy is active for a specific term. For example, you opt for a 10-year term. Here the beneficiaries will receive a payout if the policyholder dies within those 10 years, but after those 10 years, the policy expires and is no longer valid.
This type of life insurance can be popular as it’s more affordable and straightforward than permanent policies. A great example of where it can be useful would be a young family that needs to cover a specific financial obligation, typically a mortgage.
Permanent Life Insurance
As you have probably figured out, permanent life insurance covers you for the entirety of your life as long as the premiums are paid. This type of insurance can be split into two main types, whole life and universal.
Whole Life Insurance – With whole life insurance, you’ll get a guaranteed death benefit but also a cash value that grows over time. This effectively acts as a savings account that can be withdrawn with each insurer having their own rules on how you can do this.
Universal Life Insurance – Universal life insurance works on the same principle but the premiums are flexible and instead of the extra money being placed in savings, it’s invested. This makes it less predictable than whole life insurance but can lead to higher returns.
Obtaining Life Insurance
If you’re interested in life insurance the first step is to assess your needs. Think about how much coverage you want and whether a term or permanent policy is right for you. You’ll need to evaluate your financial obligations such as a mortgage, income replacement needs, and education costs.
Once you have an understanding of what you need, you can apply for a policy. Using an insurance broker can make the process easier. They’ll be able to guide you through the steps and find the right policy for you.
A medical examination may also be required, depending on the insurer. If you do need a medical, this usually just involves a physical check-up, blood tests, and a review of your medical history. The insurance company will then assess your risk and determine the premium based on this. All going well, the policy will begin after the first payment has been made.
Choosing the Right Policy
There are several factors you need to consider when choosing the right policy. It’s vital to ensure you’re comfortable with your terms before signing up. Here’s what you need to think about.
Coverage Amount – Ensure your biggest financial obligations are covered. However, it’s important to note that with higher coverage comes higher premiums.
Policy Type – Simply put, term insurance is better for temporary needs, whereas permanent life insurance is better for lifelong coverage.
Premiums – You never want to risk your policy being void due to missed premiums. If affordability may be an issue, opt for the cheaper term life insurance.
Insurance Provider – Each provider will have different terms and conditions. It’s important to read over these while also checking their customer reviews, financial stability, and claims process.
Riders – Look at the additional coverage options available and see if they’re right for you. Examples can include critical illness coverage and accidental death benefit.
Common Myths About Life Insurance
If you’re still unsure if life insurance is right for you, it may be because there are several misconceptions about this type of policy.
Too Expensive – It’s easy to overestimate the cost of life insurance. Policies, especially for younger people, are highly affordable.
Only for Breadwinners – Life insurance for primary earners is vital. However, it’s also crucial for their partners too. For example, if a stay-at-home parent dies, the breadwinner may need to leave their employment or cover additional costs.
Complicated – While there are a few steps involved, working with an insurance broker can simplify the process.
Not Needed if Single or Childless – Even without direct dependents or a partner, life insurance can benefit wider family members, cover final expenses, or leave a legacy.
Final Thoughts
Hopefully, now you have a much clearer picture of how life insurance works in Canada. There are a few different types available and it’s important to assess your circumstances to get a policy that fits in with your budget and needs.
There is never a better time to get a life insurance policy than right now, as premiums will only increase as you age. If you’re interested in a policy, contact Ron Johnston Insurance today and we’ll be more than happy to guide you through the process.
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