Are you looking for life insurance? If so, you’re probably wondering what type of policy is best for you. Deciding which types of life insurance are best can depend on several factors. There are many different types of life insurance policies available, and each has its own features and benefits.
Each type of life insurance has its purpose, how long it can last, its kind of coverage, and how much you can pay for them.
Choosing the best types of life insurance for you and your family is a big decision. However, by understanding the different options, you can make an informed decision that will provide financial security for your loved ones.
This blog post will break down the different types of life insurance policies offered by the biggest insurance companies in Canada and how you can determine which is best for you and your family.
What is Term Life Insurance?
Key features
- Cost: the most cost-effective option
- Policy length: Length is flexible and depends on your choice and wishes. It can be 10, 20, or 30 years, or you can set it to expire when you reach a certain age, like 65.
- Keg Advantage: It is a very affordable policy that covers you for the years you have financial obligations.
- Ideal Policyholder: An average Canadian family who have kids to care for and a mortgage to pay off.
Term life insurance is the most straightforward and affordable type of life insurance. It provides coverage for a set time, typically 10-30 years, and pays out a death benefit if the policyholder dies during that time frame. If the policyholder dies during the policy’s term, the death benefit will be paid to the beneficiary.
It can provide peace of mind in the event of an untimely death. The death benefit can cover expenses like funeral costs and outstanding debts or provide financial security for your loved ones.
Term life insurance provides protection for a set time, making it a more affordable option for many people. The premium for a term life insurance policy is usually lower than that for a whole life insurance policy because it does not build cash value.
While term life insurance does not build cash value like whole life insurance, it can be a more cost-effective way to provide peace of mind for you and your loved ones. So, if you are looking for a cheap life insurance policy, term life insurance is the way to go.
What is Whole Life Insurance?
Key Features
- Cost: It is usually more expensive because of the length of coverage and the cash value component.
- Policy Length: It offers you coverage for as long as you live and keep making monthly payments.
- Key Advantage: It has a cash value, fixed premiums, and a guaranteed death benefit.
- Ideal Policyholder: Ideal for wealthy Canadians who want to pass on a tax-free inheritance but have already maxed out their RRSP and TFSA.
A whole life insurance policy is among the popular types of life insurance in Canada. Whole life insurance is a flexible and versatile option that can offer peace of mind and financial security for you and your family. It provides protection for your entire life rather than just a set term. This means that your life insurance policy will remain in force as long as you continue to pay your premiums.
Aside from the set death benefit payout, whole life insurance also has the added benefit of building cash value over time. A part of your premiums is deposited into the cash value and grows over time.
The policyholder can access this cash value through loans or withdrawals, providing them with extra financial security in retirement. And because of this cash value component, whole life insurance is usually more expensive than term life insurance.
In addition, whole life insurance typically comes with higher death benefits than term life insurance, making it a good choice for those with dependents. If you’re looking for lifelong protection and the peace of mind that comes with knowing you and your loved ones are taken care of, whole life insurance is the way to go.
Types of Whole Life Insurance
A whole life insurance policy is subdivided into different types. They are:
Limited pay whole life insurance
Limited pay whole life insurance allows you to pay a specified premium for a specific duration or until you attain a certain age. Your premium payments stop once you reach the certain age or number of years.
However, your life insurance benefits would last your entire life, and the policy’s cash value will continue to grow.
Term-to-100 life insurance
Term-to-100 life insurance policy is more like a combination of term and whole life insurance. It operates like term life insurance but covers you for your entire life.
The ‘100’ in the term-to-100 policy refers to the age at which your death benefit is paid out and when you would stop paying premiums.
However, the policy doesn’t have a cash surrender value, and the premiums and death benefits are level and unchanging.
Participating and non-participating whole life insurance
A participating whole life insurance policy allows you to share in the earnings of your insurer. The insurance company invests your premiums in the mutual funds and pays you dividends annually.
In contrast, a non-participating whole life insurance policy offers only guaranteed death benefits and no dividends.
Participating whole life insurance usually costs more than non-participating whole life insurance. This is because you would be receiving dividends from the insurance company.
What Is Universal Life Insurance?
Key Features
- Cost: It usually costs more than term life insurance, but you can adjust your premiums.
- Policy Length: it can last your entire life as long as you keep making payments.
- Key Advantage: You can adjust your premiums and death benefit amounts.
- Ideal Policyholder: Ideal for young people who make a very high income, do not need money for decades, and are at no risk.
Universal life insurance is another popular types of life insurance in Canada today. This type of life insurance lasts your entire lifetime, as long as you keep making your premiums payments.
It also builds cash value and offers a very flexible policy. Its premiums are flexible, and you can adjust your death benefit to fit your current income. This flexibility makes it easier to maintain your insurance policy, especially if your annual income isn’t fixed.
The growth of your cash value isn’t guaranteed. Your policy’s cash value grows in line with the current market rates. If the market does well, your cash value grows faster, and if you pay more premiums, your cash value will be higher.
Your death benefit is adjustable as long as it is within the plan’s limits. However, if you lower the death benefit at any time, you must undergo an underwriting process, which would include a medical examination, before you can increase the death benefit again.
How To Choose The Right Life Insurance Policy For You
There are many factors to consider when choosing a life insurance policy, but the most important thing is ensuring you have enough coverage to meet your needs. You must put your needs and goals into consideration.
If you have young children, you may want a policy with a death benefit that is large enough to cover their education expenses. If you are retired or nearing retirement, you may want a policy with a cash value component to use as an inheritance for your beneficiaries or as a way to supplement your retirement income.
With so many different policy options available, knowing which life insurance policy is right for you can be challenging. Here are a few tips to help you choose the right life insurance policy for your needs:
- Decide how much coverage you need: Life insurance policies come in different sizes, so it’s essential to determine how much coverage you need. Factors to consider include your age, health, dependents, debts, and future expenses.
- Consider your budget: Life insurance policies vary in price, so it’s essential to find one that fits your budget. Consider how much you can afford to pay each month and compare that to the policy’s monthly premium.
- Choose a policy type: This blog post lists all types of life insurance policies. Choose the type of policy that best fits your needs.
- Shop around: Not all life insurance companies are created equal, so it’s essential to shop around to find the best rates and coverage for you. Compare quotes from multiple companies like Manulife before making a decision.
Final Thoughts on Types of Life Insurance
When looking for life insurance, it is crucial to understand the different types of policies available. I have outlined the most common types of life insurance policies in this blog post.
I believe this article has helped clarify some of the different types of life insurance policies in Canada and given you the information you need to make an informed decision about coverage.
If you have any questions, please don’t hesitate to reach out to us for more information.
Hi, I'm Adeola Adegoke. I am a licensed Insurance Broker in Manitoba, and I hold a master’s degree in Mathematical Sciences (with a major in Financial Modeling) from the African Institute for Mathematical Sciences (AIMS), Tanzania.
Also, I have a second master's degree in Statistics from the University of Regina, and I am currently pursuing my Ph.D. in Statistics at the University of Manitoba.
The primary purpose of Money Reverie is to help everyday Canadians make better financial decisions by providing up-to-date financial news and information, reports, product reviews, and government programs.
