Life insurance guide
Life insurance provides a tax-free amount that will be payable to your loved ones if you die. This amount, which you will choose when purchasing the insurance, will be given to your beneficiaries, who are the heirs of your insurance. You could choose your life partner, your children or even your parents.
Here’s what your loved ones could do with your insurance amount:
Leave a legacy for your loved ones
Pay your mortgage and other debts
Pay funeral expenses
Replace your income to continue paying living expenses
Put money in a fund for your children’s education
Leave a legacy for your loved ones
Pay your mortgage and other debts
The typical cost of life insurance
Many people overestimate the cost of life insurance. You may be surprised to learn that term life insurance could cost you as little as $25 to $35 per month. When we compare it to other expenses of everyday life, we realize that ultimately, it does not make such a big hole in a budget!
$500,000 coverage for 20 years for a 30-year-old non-smoker.
Sources: Statistics Canada, CRTC and Groupement des assureurs automobiles
What is the price of life insurance based on?
The price of life insurance is established according to a few basic criteria, such as your sex, your age, and your consumption of tobacco and non-prescribed drugs, as well as the insurance coverage, the duration of the contract, and your state of health.
Sex
Men and women have different life expectancies. Life insurance is, therefore, cheaper for women than for men.
Age
Statistics show that the younger a person is, the lower the risk of dying. So insurance is cheaper for young people.
Insurance amount
Pricing is based on a rate per $1000. The higher the amount, the more volume discount you get.
Tobacco or marijuana use
Tobacco and marijuana use is responsible for hundreds of thousands of deaths per year according to Statistics Canada. This is why the cost of insurance for a smoker can be twice the cost for a non-smoker or ex-smoker.
Health status and lifestyle
Depending on your health, family history, and lifestyle, the price of your insurance may change. For example, if your favorite sport is skydiving, your insurance may be more expensive than that of someone who walks.
Duration of insurance
The longer the duration, the higher the price. However, a long duration saves you increases if you want to renew in the long term.
Types of life insurance
There are two main categories: term insurance and permanent insurance. Permanent insurance, on the other hand, can be full or universal.
TERM INSURANCE
This insurance is primarily for those who have temporary insurance needs, such as mortgage payments or financial support for dependents.
WHOLE LIFE PERMANENT INSURANCE
This insurance is mainly aimed at those who have permanent insurance needs, such as paying their funeral expenses, paying taxes on death, or who wish to leave an inheritance.
UNIVERSAL PERMANENT INSURANCE
This insurance is intended primarily for those who have maximized their RRSPs and TFSAs and want to invest other amounts tax-free.
Term life insurance
Term life insurance is an economical and wise choice for parents with young children.
Term life insurance provides insurance for a specific period that you choose. If you die during this period, your beneficiaries will receive the amount.
Benefits
- The cheapest type of insurance.
- Easy to understand.
- You can take the duration that suits you, for example, the duration of your mortgage payments or until your children enter the labor market.
- Flexibility: depending on your future needs, you can renew it, reduce the amount of coverage, cancel the policy or even convert it to permanent insurance.
Disadvantages
- If you do not die during the term of your insurance, you do not benefit from the amount of your insurance.
- At the end of the term, if you decide to renew your insurance, the premiums will increase (to take your age into account).
permanent life insurance
Permanent life insurance is a good choice if you want lifelong protection and estate planning is a priority for you.
There are two types of permanent insurance: whole life insurance and universal life insurance. The first provides insurance for your lifetime, while the second is also a tax-sheltered investment tool. You can also use part of the insurance during your lifetime by using the cash value of your insurance, which is an amount, increasing over the years, that will be returned to you if you decide to give up your insurance or reduce it.
Benefits
- Covers you for your whole life.
- Allows you to receive a cash value if you no longer need the insurance.
- Allows you to save tax-free.
- Economical in the long term: if you want to be covered for your whole life, it may be better to have permanent life insurance rather than continually renewing term life insurance.
Disadvantages
- This type of insurance is much more expensive than term insurance; for example, permanent insurance of $75,000 will cost the same as term insurance of $500,000.
- More complex insurance.
Which type should I choose?
Before making a choice, it is very important to clarify your objectives.
Term insurance protects you in the event of financial obligations that will not follow you for the rest of your life. During the repayment of a mortgage or other important debts, it is the ideal insurance. It is also used to replace income to meet the needs of your loved ones for a certain number of years, for example when your children depend on your salary.
Permanent insurance, on the other hand, protects you against costs that will follow you throughout your life, for example, to guarantee an inheritance, to pay funeral expenses, or to cover the tax payable on capital gains at the time of death. . This type of insurance sometimes increases in value over time. As an investment, it is possible to withdraw the money later or receive a dividend from the insurer.
In many cases, term insurance is not only the easiest choice but the most appropriate. It makes it possible to cover greater financial needs more affordably. For some, the best formula is a combination of both types.
