Life insurance consists of a contract with premium payments to an insurance company for a tax-free lump-sum payment or death benefit to the insured person’s beneficiaries after they pass away. Life insurance is often determined based on the insurer’s goals and needs. It can be left to a trust or estate, used to pay off the insured’s debts and funeral expenses, provide for their children and other dependents, replace the insured’s income to help family members’ financial situation, or be donated to a charity.
There Are 2 Types of Life Insurance You Can Get in Canada.
1. Term life insurance.
Term life insurance is a lump-sum payment or death benefit that is given to beneficiaries if an insured person passes away within a certain time period or before they reach a specific age. For instance, the fixed time could be ten or twenty years, and the set age could be at 65 years old. However, if the term expires and the insured person dies, the listed beneficiaries do not receive any payment. Also, while term life insurance may be eligible for renewal, you will not receive any cash value back if you cancel your policy. Overall, term life insurance is typically less expensive than permanent life insurance when first purchasing the policy.
You can purchase a term life insurance for couples or a single term insurance. A joint first-to-die term insurance insures a couple under one joint policy, pays a death benefit when the first partner passes away, and gives each person the same coverage. It is often cheaper than purchasing two single policies, though it only pays for one death benefit. Policies can also change if the couple divorces. A single term policy has a separate policy per person, each with their own coverage. It is even more flexible to change beneficiaries in case the couple separates.
2. Permanent life insurance.
Permanent life insurance offers a death benefit if you pass away at any time while your policy is in effect. The cash value builds up, so you can receive some of it back if you cancel your policy. You also receive coverage throughout your lifespan. A different type of permanent life insurance is called whole life insurance, where you obtain coverage for your full lifetime, and your premiums stay the same even as you get older. An additional type of permanent life insurance is universal life insurance, which adds an investment account with cash value. Your investment may grow or diminish based on your returns, which can also affect your premiums. It may also be possible to withdraw loans.
The Risks of Not Having Enough Life Insurance
There are several risks with not having enough life insurance.
Inability to Cover Expenses.
Beneficiaries such as family members could have a difficult time covering final and every day expenses with not enough life insurance coverage. For instance, funerals can cost thousands of dollars, and the loss of your income can cause your loved ones to lose many assets in order to make demanding payments. Regular expenses can be challenging, such as paying for basic needs like food. Losing cash flow can disrupt loved ones’ livelihood, and your dependents could struggle to pay for their rent and added expenses. It will already be challenging to manage each day with your passing, but having to owe surmounting expenses will add more financial burdens and stress upon your family.
Getting stuck in debt.
Life insurance can pay off your debts, unless there is an insufficient amount of funds. For things like mortgages, student loans, and car loans, anything co-signed could make the other person liable to pay off your debts. There is a chance that the estate your dependents rely on and live in can be taken away. For example, if you have a 30-year mortgage and a 10-year life insurance policy, your dependents may be left without proper protection which could result in them paying for the debt out-of-pocket or possibly losing your estate assets altogether.
Inability to plan for the future.
Think about how you want to support your children in the future. If you are going to save for their college funds or make sure they can afford a house, it’s helpful to invest in life insurance so they can be more financially independent when the time comes. Moreover, you can think about investing in your partner’s retirement in case they far outlive you. The death benefit they receive could allow them to be financially secure and achieve financial freedom when they reach their retirement age.
Overall, having life insurance can bring peace of mind that you and your loved ones will be taken care of and not financially anxious in the unfortunate event of you passing away. It is also vital to have if you work in a dangerous environment instead of sitting at a desk all day. Lastly, life insurance is pertinent if you are a thrill seeker who engages in extreme sports or activities.
FINAL THOUGHTS
When finalizing your life insurance coverage, think about your beneficiaries, dependents, income, financial responsibilities, and future plans. Speak with a trusted insurance company about the right life insurance and coverage you need to ensure that everyone will be well cared for.
If you are unsure if your current life insurance coverage is sufficient, it is important to take the time to review your life insurance needs. Our Hometown Life Insurance team can help you understand what level of coverage you may need. We pride ourselves on providing our customers with an exceptional and simple experience. Getting proper life insurance doesn’t have to be overly complicated or confusing. We want to ensure that you and your family feel secure with your life insurance coverage so you don’t have to lose sleep over what could happen if you pass away unexpectedly.
