Frequently Asked Questions / Life Insurance 101 Guide

Why is life insurance important?

Having a plan to take care of your loved ones when you’re not there to support them financially makes a lot of sense. A Life insurance coverage gives you an opportunity to do just that. 

Types of insurance: which one makes sense for me?

When buying life insurance in Canada, you can choose from two types: term life insurance and permanent life insurance.

Term Life Insurance has a specific duration during which it is effective. Your beneficiaries can only get a pay out if you pass on within this duration, usually 10, 20 or 30 years. Term life is especially attractive to young families because its premiums are cheaper compared to permanent insurance.

Permanent Insurance, on the other hand, remains active for your whole life unless you stop paying the premiums or cancel the policy. Permanent is generally more expensive than term life insurance.

If you have a young family, it makes more sense to get term life insurance because under this arrangement you’ll pay for coverage only when you really need it – I.e. when servicing your mortgage, or when your children are still young and schooling.

Critical Illness Insurance

Apart from life insurance, you can also buy insurance to protect you in the event that you get critically ill. Also known as dread disease insurance, the critical illness cover is a long term policy that caters for serious illnesses named in the policy document. Should you be diagnosed with any of these illnesses, the insurer makes a tax-free lump sum payment to you.

Comparison of types of insurance chart

Term life Insurance

Whole life Insurance

Low premiums

You choose policy length

 

Life long coverage

Rates locked in

Guaranteed death benefit

Accumulates cash value

 

Dividend payments

How do I buy life insurance?

When you decide to buy life insurance these are the steps you’ll take to ensure you get the right policy:

  • Choose the life insurance policy type that best suits you. The decision as to whether you choose term insurance or permanent insurance will depend on your age and income.
  • Find out who the different life insurance providers are. Ideally, you’ll be looking for providers that offer flexible covers customized to your needs. We work with Canada’s largest and most reputable insurance providers.
  • Choose whether you want to get insurance through an agent, a broker or directly from the insurer. You can also buy insurance online from the comfort of your home or office. The main advantage with buying life insurance online is that it’s cheaper and hassle free, and you get an unbiased analysis of the different premium rates.
  • Get life insurance quotes from different companies and compare them to decide which one you prefer.
  • Fill out the application form once you’ve made a decision.
  • Do a phone interview with the insurance company’s representative.
  • Schedule for a life insurance medical exam
  • Wait for your policy to be approved.
How much does life insurance cost?

It depends on the type of policy cover you choose. Generally, term insurance is cheaper than permanent insurance. However, there are several other factors that affect the cost of your policy, including: 

  • Age: the older you are the more expensive your policy becomes.
  • Health: your medical history, family history, and lifestyle choices such as smoking and drinking can increase the premium costs.
  • Gender: women have a higher life expectancy compared to men, so they can end up paying lower premiums for their insurance.
  • Occupation: higher risk jobs like roofing, driving or mining incur a higher insurance premium compared to low risk jobs like working in an office.

Here are what the premium payments for a 10 and 20 term life insurance plan with a $100,000 death benefit would look like for a healthy non-smoking male.

Type of insurance

10 year term life insurance

20 year term life insurance

Age 30:

$13 monthly or $148 annually

$15 monthly or $172 annually

Age 40:

$16 monthly or $183 annually

$21 monthly or $252 annually

Age 50:

$28 monthly or $329 annually

$46 monthly or $544 annually

Age 60:

$65 monthly or $771 annually

$124 monthly or $1480 annually

Age 69:

$172 monthly or $2060 annually

$214 monthly or $2559 annually

 

The $100,000 policy cover is the typical minimum coverage amount. For every extra $100,000 above this amount, you can estimate the premium by proportionately multiplying the premium.

Females usually pay about 10-25% less than their male counterparts, while smokers will typically pay 50 to 100% more than non-smokers.

How does life insurance work?

When you buy a life insurance policy, you sign a contract with the insurance company which commits to make a lump sum payment to whomever you choose in case you pass on. In exchange for this benefit, you agree to make premium payments to the insurance provider.

Who needs life insurance?

You need life insurance if you have a partner, children or ageing parents who rely on you for financial support. However, life insurance can still be a huge help even in situations where your loved ones don’t entirely depend on you financially. 

Let’s look at several scenarios where life insurance can be highly useful:

1. Parents with minor children or adult children with special needs

Having a life insurance cover ensures they’re provided for financially until they can support themselves. In the case of those with special needs and require life long support, the insurance benefits can be used to start a trust fund that will meet their future financial needs. 

2. Partners with joint ownership of a property 

A property like a home may require loan payments, payment of taxes or funds for its upkeep which your partner may not be able to afford when you’re not there. Take an example of a couple who’ve bought their first house using a joint mortgage; in the event one of the two passes on, life insurance would be able to pay off any outstanding financial obligations related to that property.

3. Young adults with debts like student loans

You may think you don’t need insurance if you don’t have dependents, but as a young adult whose parent has co-signed a loan for you it may be wise to take out life insurance. This can act as a safeguard so that in case anything happens to you, your cover is able to pay off the debt. 

4. Young adults who want to enjoy lower premium rates 

Although it may not seem like a priority for you as a young adult to get a life cover when you don’t have dependents, buying life insurance when you’re young and healthy can help you lock in lower premium rates. At any rate, there’s usually a likelihood you may get dependants in the future, so why not get an early head start

5. Entrepreneurs

If you own a business and you want it to stay afloat even when you’re not there to run it, you may consider taking out a life insurance policy to prevent your business from getting financial difficulties in your absence.

How much insurance coverage do I need?

The size of debts you may have will play a big part in making this decision. Ideally the policy should be able to take care of any outstanding debts so as not to leave your loved ones with a debt burden.

Other than that, you also need to factor in your income, family needs as well as other financial obligations that you have.

A sensible amount of life insurance to have is six to ten times the size of your annual salary. Alternatively, you can multiply your salary by the number of working years you still have before retirement.

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