Understanding life insurance
Life insurance - What is it?
Life insurance is used to protect the financial security of the people you love most.
A life insurance policy pays a cash benefit, tax free, to your beneficiaries when you die. The amount of money for which you are insured and the type of insurance you buy depends on your needs.
People can get life insurance through work (some employers offer it through group benefits plans. This type usually ends when you leave the employer.) or they buy it on their own (usually from an insurance advisor).
There are 3 types of life insurance: term, permanent and universal.
|Term insurance||Permanent insurance||Universal life insurance|
|Summary||Low cost, temporary protection for times of high financial risk (e.g. when you have a mortgage )||Stable lifelong protection without the complexities of universal life. Over the long term, it offers generally a better financial choice than buying and renewing term insurance.||A more flexible but intricate type of insurance that combines long term life insurance with an opportunity for tax-deferred savings|
|Duration||Coverage will end at a certain age||Guaranteed lifetime protection||Typically lifetime protection|
|Amount of insurance||Once chosen, doesn't change||Once chosen, doesn't change||Choice of level or increasing amount of insurance|
|Cost||Lowest initial cost, but cost may increase each 5, 10 or 20 years. Cost can rise dramatically in later years.||
Typically guaranteed not to change for the life of the policy but some products are adjustable.
Premiums tend to be higher than term insurance when you're younger but will be lower than term when you're older.
|Cost of the insurance may be:
|Cash value||None||A cash value usually accumulates, and is paid to you upon cancellation.||Payments made, in excess of required cost of insurance, can be invested and grow tax-deferred.|
|More details on term insurance||More details on permanent insurance||More details on universal life insurance|
As a member of the Canadian Life and Health Insurance Association (CLHIA) , we're committed to the insurance industry's initiative to give consumers clear information about insurance products and companies.