What is life insurance and how does it work?
A life insurance policy is an agreement between you and the insurance provider. The insurance company agrees to make a tax-free lump sum payment to the person or people chosen by you (beneficiaries) in the event of your death. In return, you agree to pay the insurer a certain amount of money for this coverage. The purpose of a life insurance plan is to help your loved ones financially when you are no longer there.
Do I need life insurance?
A good question to ask yourself when considering life insurance is: Would the people I love and care about experience financial strain if I pass away? For more detailed information on why life insurance is important, please CLICK HERE.
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How much coverage do I need?
When deciding how much coverage you need, consider your current financial obligations, future expenses, income, and savings.
Check our Resource Centre for a comprehensive guide.
What types of life insurance are there?
Generally speaking, there are 2 types of life insurance:
Term Life Insurance
- Provides coverage for a certain period: typically 10, 20, or 30 years
- Premiums remain fixed for the duration of the policy
- More affordable compared to permanent life insurance
- Ideal for meeting short-term goals, like when children gain independence or the mortgage is fully paid
Permanent Life insurance
- Provides lifelong coverage that never expires
- Premiums are typically fixed for the duration of the policy
- More expensive compared to term life insurance as it provides lifetime protection
- Well-suited for fulfilling long-term objectives, including covering funeral costs, settling estate taxes and expenses, and creating a lasting financial legacy for your family
What can life insurance do for your family?
If your family relies on your income and you were to pass away, they will face not only profound emotional pain but also considerable financial hardship. A life insurance benefit can help pay for everyday expenses, pay off debts, and ensure your family maintains their quality of life.
For many Canadians, taking on a mortgage is the largest financial commitment they'll make in their lifetime. Now imagine you're no longer there—how would your family cope with the financial strain of continuing these payments without your support?
This is where the value of a life insurance policy becomes evident. The policy could provide a lump sum that has the potential to either completely pay off the remaining mortgage balance or contribute significantly towards the monthly payments. Such financial support could be the difference between your family facing economic hardship and the assurance of keeping the family home.
In Canada, funeral expenses and other final costs can easily exceed $10,000. This substantial amount can be a considerable burden on loved ones during an already difficult time.
A life insurance benefit, paid as a lump sum, can ensure your family does not incur debt or experience unnecessary stress. By having a policy in place to cover funeral costs and other related final expenses, you can significantly ease the financial strain on your family.
A life insurance benefit can safeguard your estate, ensuring that it is preserved for your loved ones. This is achieved by:
- Income replacement
- Covering final expenses
- Covering taxes/debts owing on assets such as a family home, cottages
- Covering legal and probate fees
A life insurance plan is also a way to create an instant estate, with a tax-free, lump-sum payment going to your family if you pass away.
Got questions about life insurance?
Visit our Resource Centre for clear, comprehensive information.
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