Life Insurance Learning Center

• Life insurance provides a tax-free lump sum to your beneficiaries when you pass away — offering financial protection for your family, business, or estate.
• Choosing the right policy depends on your age, health, financial goals, family responsibilities, and whether you want pure protection or a wealth-building component.
• Premiums are lower when you’re younger and healthier, so starting early can lock in better rates.
• Life insurance can also play a strategic role in business planning, estate transfers, charitable giving, and tax optimization.

• You select a policy and insurance coverage amount: When you buy life insurance, you determine its kind (e.g., term or permanent) and the amount of insurance (the amount of coverage) you need per your financial needs and objectives.
• Premiums are set to maintain the policy in force. Premiums can be paid either yearly or monthly. These payments continue to cover you and are based on various aspects such as age, health, lifestyle, and the nature of the policy.
• You specify one or more beneficiaries: These are the persons or organizations that will inherit the death benefit if you pass away when a policy is in force.
• When the insured dies, a claim is made: Beneficiaries notify the insurer and provide their documents. Once the verification has taken place, the insurance provider pays the set insurance benefit.
• Certain policies accrue value: Permanent life insurance can accumulate a cash value, the rights to which the policyholder may borrow or withdraw over the course of his or her lifetime, often for long-term financial planning.

• Death benefit to support loved ones financially after the policyholder’s death
• Income replacement for dependents
• Funeral and burial expenses
• Outstanding debts, such as mortgages or loans
• Childcare or education costs
• Estate taxes or settlement expenses
• Business continuity, such as key person or buy-sell funding

Coverage depends on the policy type and terms.

1. Term Life Insurance

A term life insurance covers a certain term, which may be 10, 20 or 30 years. In case of the death of the insured individual during this term, the policy will pay a tax-free lump-sum death benefit to the beneficiaries. Term insurance is usually cheaper than permanent insurance and covers transitory needs, like mortgage debt, children’s education, or income replacement in working years. Nevertheless, when the term expires and the policy is not renewed, the coverage goes away, and there is no payout or cash value.

2. Permanent Life Insurance

Permanent insurance has lifetime coverage, and the policy has a cash value which accrues over time. It has two primary types:

• Whole Life Insurance: Offers fixed premiums, guaranteed coverage throughout the rest of your life and a cash value that grows at a guaranteed rate. There are also policies which pay dividends.
• Universal Life Insurance: Premiums and investment alternatives in the cash value element are flexible. With its ability to adjust coverage and payments, it is an appropriate solution for individuals who are in need of customization and long-term tax-favoured growth.
  

Most individuals should consider life insurance, particularly those who have financial dependents, debt obligations, and life objectives. It is beneficial because of the financial stability it offers, not to the insured, but to those who are left behind.

Life insurance means your spouse, children, or aged parents (and even your business partners) do not bear the extra burden of paying funeral expenses, mortgages, or the loss of income. Even a relatively small policy can ensure that loved ones do not have to worry about this kind of financial burden in the middle of a situation that is already straining.

Life insurance is also useful for:

• Covering final expenses and taxes owed upon death
• Preserving wealth and transferring assets through estate planning
• Ensuring business continuity if you’re a key partner or shareholder
• Leaving a charitable legacy or funding future goals, like education

Life insurance premiums are typically lower for younger and healthier individuals and are locked in over a longer period. More costly, permanent life insurance may be useful to those concerned with long-term financial planning, tax-sheltered accumulation or guarantees of lifetime coverage.

But if you are single, have no dependents and are not facing any major debt, you might not need a cover, at least not just yet. You can touch base on the idea later when your conditions have changed in such situations.

Finally, the value of life insurance is based on your financial and individual status. It is not a one-size-fits-all product, but when used properly, it is one of the most powerful tools for protecting your family and legacy.

The price of life insurance is highly dependent on various aspects of your lifestyle and the policy itself. To know how much you will pay as a premium to maintain the policy, insurers calculate your level of personal risk. In most cases, the younger and healthier you are during application, the lower the premiums will be.

The policy type is one of the largest cost determinants. Term life insurance is usually the cheapest type of insurance because you are only insured over a specified number of years, and it is not structured to incorporate investment. Permanent life insurance, which can be whole life or universal life, usually costs more since it provides lifetime protection and could have a cash value feature.

Other factors that affect cost include:

• Your age and gender
• Your medical history and overall health
• Whether you smoke or use tobacco
• Length and amount of coverage
• Things like your travel patterns or high-risk hobbies in general

Additional riders or benefits can also be included under some policies, leading to higher premiums. It is necessary to understand the level of your financial demands and compare various policies in order to determine the appropriate equilibrium of affordability and coverage. Early coverage will provide more favourable rates over the long term.

After a term life insurance policy ends, coverage can no longer be provided, and no money can be collected unless the person insured has died during the term. This is how it usually goes:

• No payout is made if the insured outlives the policy term
• Premium payments stop, and coverage ends automatically
• Some policies offer renewal, often at a higher cost
• Others may allow conversion to a permanent policy without a medical exam
• If no action is taken, the policy simply lapses with no residual value

You should always check on your options prior to expiry.

When seeking life insurance, the insurers will evaluate your risk level and consider your eligibility and rates. This is also called underwriting and requires providing detailed personal and financial information, including:

• Personal information: Age, sex, marital or civil status, nationality and contact information
• Health history: Past and present conditions, procedures and medications, and family health history
• Lifestyle patterns: Smoking, alcohol consumption, drug consumption, nutritional habits and physical activities
• Occupation and hobbies: Hazardous occupations (or hobbies, e.g., aviation, scuba diving) can raise premiums
• Financial history: Salary, loans and current insurance (to determine insurance requirement)
• Travel plans: A lot of travelling to risky areas can influence approval or pricing
• Results of medical examination (where needed): Blood work, urinalysis, blood pressure, and BMI

This information can be used to determine the kind of risk insurers are taking on by insuring you and designing a policy accordingly.

The designation of a beneficiary is an important aspect of your life insurance policy. When you die, the person or entity that stands to benefit is called the beneficiary. The option depends entirely on your personal, monetary and family circumstances.

Typical choices are:

• Spouse or partner: The spouse is usually mentioned as the first beneficiary so as to supplement domestic expenditures, personal loans, or childcare costs.
• Children: Whenever naming minor children, you should also name a trustee or establish a trust, because minors are not able to receive insurance distributions directly.
• Other family members: Your parents, siblings or other dependents might be mentioned, in particular, when they depend on your financial assistance.
• Estate: You can name your estate, but it can expose the benefit to the delays of probate, and could create exposure to creditors.
• Charity or Organization: You can donate to a recognized charity to leave a legacy or contribute towards a cause in which you have an interest.

You may also have contingent (secondary) beneficiaries in case the primary beneficiary fails to accept the payout.

A beneficiary designation should also be updated to reflect any big life change, such as marriage, divorce, or the birth of a child. Frequent reviews make sure that your intentions are upheld.

Life insurance does not fit only a certain kind of person; many Canadians at various life stages can use life insurance as a financial instrument. It depends on your financial obligations and future plans, and whether you need it or not.

The following are the key beneficiaries of life insurance:

• Parents with dependent children: Provided your children depend on your wages, life insurance can cover their expenses, such as food, education and housing in the event you are gone.
• Jointly financed couples: If you and your spouse are married, or in a common law relationship, life insurance will assist your spouse with debts, his/her lifestyle, or funeral expenses.
• Homeowners with a mortgage: This will help pay off the mortgage so that your family is not affected by the loss of the house.
• Business owners: Business owners can also use life insurance to finance a buy-sell agreement or to insure the loss of a key person.
• Stay-at-home parents: Though they do not have a formal income, what they provide (childcare, managing the home) has a financial value. Services that would be required in their absence could be paid for with the help of insurance.
• Single adults with debt/dependents: In case you have co-signed a loan or financially support your family, a policy guarantees that it does not take a toll on them.
• High-net-worth individuals and retirees: Life insurance may be used to fund the expenses of estate planning or pay final expenses, or be utilized to transfer wealth in a tax-efficient manner.