You’re not alone in thinking about life insurance. For many Canadians, it’s an important part of a comprehensive financial plan. It can help your named beneficiary, such as your family, replace your income and fulfill their plans – such as going to university or retiring – in your absence.
But do you know what type of life insurance is right for you? And are you aware of what life insurance can do for you, beyond helping pay for a funeral and related expenses?
Term life insurance
Term life insurance is a lower-cost product that helps protect you for a set period of time, like 10 or 20 years. When that time’s up, your coverage is renewed at a higher cost if you don’t cancel. You can also convert it to permanent life insurance without having to answer questions about your health.
It also has a lower initial cost than permanent life insurance, and it’s a popular way for those just starting out to help protect themselves and their families. Term life insurance is usually less expensive than permanent life insurance, so you may be able to purchase more coverage.
Permanent life insurance
This is guaranteed lifelong coverage that helps protect the people you care about. Plus, over time your policy can build value you can access for cash during your life, with certain tax implications.
You can access money in your policy through a loan or a withdrawal. And when you die, the people you’ve chosen receive a tax-free payment, similar to term life insurance.
There are 2 types of permanent life insurance: participating life insurance and universal life insurance.
Participating life insurance
Participating life insurance gives you lifelong insurance coverage as long as you pay your premiums.
It’s called participating life insurance because the premiums you pay for your coverage, along with premiums from other participating life insurance policyowners, go into a participating account. The insurance company’s professional investment team manages this account, investing to increase its value.
It’s from this account that your death benefit and any potential dividends are paid. While dividends are not guaranteed, any you may receive can be used to buy additional coverage, reduce your annual premium payments or be taken out as cash (though any cash values withdrawn from the policy may be taxed).
If you borrow or withdraw money from your policy, it will reduce the policy’s cash value and how much money the person (or people) you’ve designated will receive (called a death benefit).
Universal life insurance
Like participating life insurance, universal life insurance lasts the rest of your life - as long as you pay the premiums. Universal life insurance combines the advantages of a permanent, lifelong policy with a tax-advantaged investment component.
So, what may make universal life insurance right for you today? The short answer: flexibility. This kind of insurance typically lets you to select your preferred premium schedule, the amount you want to pay (within limits) and an investment mix that matches your unique risk profile.
Life insurance benefits for employees
Many employers offer life insurance as part of their workplace benefits package. If an employee dies while they’re employed there, a lump sum is paid to the policy holder’s beneficiary. This money can be a lifeline as families struggle with funeral costs, outstanding debts or loss of crucial income.
Coverage amounts are usually based on some multiple of the employee’s salary and often come with the option to increase coverage if the employee pays additional premiums. Depending on your needs, you may require additional individual life insurance coverage.
If your workplace benefits are provided by Canada Life and you choose to leave your current employer, you may be able to continue your workplace life insurance coverage with our Freedom to Choose™ life insurance option.
What’s right for you today?
Term life insurance is the lower cost option in the short term. But while participating and universal life insurance tend to be more expensive initially, the growth potential of the cash value of these types of policies could make them better value in the long run.
It's important to work with an advisor to understand how much life insurance you need for your unique situation, and which type of life insurance will work best for you.