What is life insurance?
The main purpose of life insurance is to provide financial security for your loved ones in the event of your death. If you die, your chosen coverage amount is paid to the people of your choice (the beneficiaries).
This money is not taxable. If your life insurance contract stipulates that your beneficiaries are to receive $100,000, they will receive $100,000.
Types of life insurance
There are various types of life insurance. The two main types are:
Term life insurance
Term life insurance covers you for a set period of time, e.g., 10 years. It’s often cheaper than permanent life insurance. But when the term is up, you’ll either need to renew it (often with higher premiums) or cancel it.
Permanent life insurance
Permanent life insurance covers you for your entire life, as long as you keep paying your premiums. It doesn’t expire. As a general rule, the premiums (your payments) will not increase.
There are also different types of permanent life insurance, including universal life insurance, which combines savings and insurance. You can choose different types of investments, and you can either withdraw the money accumulated or use it to pay your premiums. This type of insurance may be part of your financial plan.
It’s also possible to combine term and permanent life insurance to benefit from coverage that’s tailored to your specific needs.
When should you buy life insurance?
You can take out life insurance at any age. The right time for you is likely to be determined by important events in your life.
Example: The arrival of a child may lead parents to take out life insurance to help meet the child’s financial needs if something happens to them.
Buying a home is also a good time to revisit your insurance needs. In this case, you may also opt to insure your mortgage loan or line of credit. Loan insurance protects your ability to repay your debt.
Expert tip: When a major life event occurs, take the time to think about your insurance needs. For example:
- Travel insurance if you’re planning a vacation or a big adventure
- Health insurance if you want to work remotely from abroad or spend your winters in Florida
- Home insurance when you move to a new home
- Loan insurance or credit card payment insurance when you’re carrying out projects that are important to you
- Car insurance when you purchase a vehicle
In all of these cases, the aim is to provide peace of mind. Check out our page about the different types of insurance.
When naming beneficiaries, you can choose to make them revocable or irrevocable.
The insured can change a revocable beneficiary at any time, without notice. An irrevocable beneficiary, on the other hand, will remain on the insurance contract unless they give their written permission to be removed.
How much does life insurance cost?
How much you pay for life insurance depends on a number of factors. These include:
- Your age
- Your occupation
- Your health
- Your lifestyle
All these elements will have an impact on your insurability and, as a result, on the premium you pay.
What are the benefits of life insurance?
Protecting your loved ones and your assets in the event of your death
The main objective of life insurance is to provide a certain amount of money to your beneficiaries in the event of your death.
The money can be used to pay off your mortgage or to protect your loved ones’ financial health.
Safeguarding the future of your business
If you own a business, you might want to protect your partners and employees through a life insurance policy held by your business.
In the event of your death, this would provide a lump sum payment to your partners, which they could use to settle debts, pay general expenses or buy your share of the business from your estate.
If you’re a business owner, creating a family trust may also offer certain benefits, like reducing the taxes payable at death.
Making a gift to charity
You can take out a life insurance policy to ensure that a charitable organization receives the insured amount and avoid the gift being challenged.
In the case of an immediate gift, the insured may benefit from tax relief.
How much life insurance do you need?
The amount of life insurance needed differs from one person to another. The amount chosen should make up the difference between your heirs’ income and their expenses.
To estimate how much life insurance you need, ask yourself these questions:
- Do you have debts for credit cards, personal loans, etc.?
- Do you have a mortgage?
- Will your death lead to new expenses, such as childcare costs?
- What will your heirs’ income be?
- How long will your heirs require financial support?
- Will the insurance benefit be needed to cover expenses related to your death, such as funeral costs, legal fees, estate executor fees or taxes?
Life insurance can give you the peace of mind that comes from knowing your loved ones and assets will be protected. Take the time to shop around and talk to a specialist!