Wondering how to get the best life insurance in Canada for you and your family? You’re not alone. The pandemic has shown Canadians that we are not invincible. In fact, 44% of us now plan to buy life insurance because of the effects of COVID-19, but not everyone is confident in understanding what life insurance is the cost, and other details. That’s why we’re breaking it all down here.
You likely know the gist of life insurance. In Canada, it is a contract between you and an insurance provider that you make monthly or annual payments (better known in the industry as “premiums”); in return, under specific conditions—namely, death—your family or other people you name will be paid an agreed-upon amount. The amount you pay has many factors, such as how much coverage you need and the type of policy, or package, you select. Packages can vary, but generally, Canadians opt for enough coverage for funeral expenses, to pay any outstanding debt (think: mortgage, credit cards, car loans, etc.), as well as to supplement any income that would be lost during a grieving period (should their surviving loved ones miss work) and beyond (the absence of your paycheques to provide for the family members left behind). It can also be used to pay for future expenses, like your children’s post-secondary education or to make charitable donations.
To be clear: Life insurance isn’t for you—it’s for your dependents. It is intended to help the people you leave behind continue life in a way that’s as close to what they are accustomed to as possible. That includes the ability to make mortgage payments, as well as pay household bills and any other debt. That also includes future debt, too, like your children’s education. The life insurance industry is formed around offering Canadians the ability to customize their policies, so that payments and coverage fit your budget and your financial priorities for the future. We explain how life insurance works, as well as how to get the best coverage for your loved ones for a price you can afford.
It’s fair to say that not everyone needs life insurance: No dependents, no debt, no problem. But before you write off the idea that you don’t need it, ask your self these questions:
If you get the sense from your answers that your loved ones would benefit from a life insurance policy payout if anything were to happen to you, then you could request a quote. Of course, shop around and compare quotes, but know that if you complete too many questionnaires for quotes, it could raise a red flag and increase your premiums or even get you denied coverage. (It is like how applying for too many credit cards can affect your credit score.)
To get the best life insurance for your situation, start by deciding how much you need. This number determines not only how comfortable your family will be after you pass, but how much you will pay for it, too.
The average Canadian life insurance policy is $200,000, but many life insurance professionals suggest that this coverage may not be enough. In fact, the rule of thumb is 10 times your annual income. The truly ideal amount for you is specific to you, and your family and lifestyle. Here is a simple calculation that can help you come up with your own number
LIFE INSURANCE POLICY AMOUNT = Outstanding debt + (Net annual income X number of years you want to provide for family) + Mortgage still owing + Children’s educations
Or you can use the more detailed chart below. This will help determine and predict the assets (what you own) and your liabilities (what you owe) that you will leave to your loved ones. It can help you determine your current financial state, which could also help you create new goals.
There are two major types of life insurance in Canada: Term and permanent. Term life insurance is purchased over a set period of time—say, 10, 20 or 30 years. It tends to be cheaper than permanent life insurance for most people’s situations. On the other hand, whole life insurance, a very common type of permanent insurance, doesn’t expire. It covers you for your whole life, hence the name. Other types of permanent insurance include universal and term-to100. The value of universal life insurance is based on the underlying investments in the policy. Meanwhile, term-to-100 provides covers until you are 100 years old and has no cash value.
Term and whole are often compared as the best life insurance options in Canada. You should know there are other differences between these two. For example, with whole, you can pay off your premiums early and still be covered. With term insurance, once you stop paying, the insurance coverage is done. Plus, you may be able to cash out a whole life policy, but that is not an option with term.
Life insurance rates vary, with monthly premiums ranging from $13 to $100. The reason for such a wide gap? Life insurance policies are created around individuals, and they can be as unique as you would like them to be. In addition to the above, what insurance packages can pay for after you pass, your debt and your risk of death affect the cost, too.
Before you get a quote online or connect with a broker, it is a good idea to have a sense of your liabilities and assets, which indicates what you are leaving behind for your family. It is also eye-opening how much money you may need to leave your family. Then there are the types of life insurance, as well as your health, lifestyle and age and more to consider.
This MoneySense article was legally licensed by AdvisorStream.
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