People often purchase life insurance policies from insurance companies in Canada to provide peace of mind for their loved ones should something happen to them. While many people think of life insurance as a way to financially provide for their families after death, it can also be used to cover various other costs and expenses.
So, what does life insurance cover? This is a question that many people have, and there is no easy answer. There are many misconceptions about what life insurance covers.
Life insurance policies vary significantly in what they do and do not cover. Generally, life insurance policies will provide financial protection for your family in the event of your death.
However, it is essential to understand precisely what does life insurance cover and does not cover. This post will explain what life insurance actually does and what to consider before purchasing life insurance.
What Does Life Insurance Cover?
Between the costs of the funeral and day-to-day living expenses, your family and dependents would face severe financial pressure if you passed away. Life insurance helps keep your family afloat if you die.
Life insurance offers a payout to your designated beneficiaries. Your loved ones can use the death benefit payout from your life insurance to cover a handful of expenses, from paying off debts to replacing your income to sending kids to college and paying for everyday living expenses.
Monthly Bills and Expenses
There are no restrictions on what household expenses your beneficiary can use your payout for. Upon receiving the death benefit, your beneficiary can pay for bills and other costs that might pop up in the home.
Life insurance payout can cover groceries, utility, and childcare expenses. Those who depend on your income can replace it with life insurance death benefits when you die.
This is why it is advisable to work with an insurance advisor to determine how much life insurance coverage you need. This will help ensure that your loved ones will be taken care of when you pass away.
College Tuition and Education
Incorporating your children’s college expenses into your life insurance coverage can provide significant support when you die.
Adding the cost of college tuition and other expenses like books and supplies, meal plans and food costs, and accommodation expenses into your life insurance coverage can increase the amount drastically.
However, your life insurance beneficiaries can spend your payout however they want. So, you can add enough coverage to fund your children’s college tuition.
Co-signed Debts
If you have cosigned any debts with your parents, spouse, or siblings, you need to provide enough coverage to cover those debts.
Repaying debts can be tough on anyone’s budget, and paying co-signed debt after losing a loved one can be more challenging.
Receiving a death benefit can relieve your loved ones and help cover those co-signed debts.
End-of-life Expenses
Life insurance payouts can cover your end-of-life expenses, like funeral costs, buying a casket, and reception expenses.
Suppose you only want life insurance to cover your funeral cost. In that case, you should consider buying final expenses insurance.
This permanent life insurance offers a small death benefit, not more than $25,000. It doesn’t require a medical exam.
Child Care or Dependent Care
Life insurance death benefits can cover the cost of childcare for your kids. From daycare to nannies to other after-school programs, your beneficiary can use your policy’s payout to cover whatever concerns your child.
If you have aging parents or other dependents, your beneficiary can use your life insurance death benefit to cover the care costs if you pass away.
Leaving a Legacy
You can use life insurance as a vehicle to leave a financial gift to your beneficiary, loved ones, children, or a charity.
Suppose you want your loved ones to maintain their quality of living even when you pass away. In that case, you can use life insurance to leave them a substantial amount that will cover their daily expenses and costs.
What Life Insurance Does Not Cover?
There are no limitations on how your beneficiary should use your life insurance death benefit. However, there are cases where the death benefit of your life insurance policy might not be paid out.
In such cases, your beneficiary would not get any money from your policy after death.
- Fraud: All life insurance policies have a two-year contestability period. If you die within this contestability period and your insurance company discovers that you intentionally lied or misrepresented something on your insurance application, your beneficiaries will not receive any payout.
- Suicide: Many life insurance policies come with a death by suicide clause, which implies that suicide is not covered in the first two years of your coverage. So, if you end your life within the first two years of taking out the insurance policy, while this clause is still in place, your beneficiaries will be denied a payout.
- Expired or lapsed policies: Some life insurance policies, like term life insurance, cover you for a specific time. Once the term ends, your coverage expires and is no longer active. Whole life insurance does not expire but may still lapse if you stop paying premiums. If your policy expires or lapses, your beneficiaries will not receive any death benefit from your insurance company.
- Criminal activity: If you die while performing a criminal activity, an insurance company like Manulife, will not issue any death benefit to your beneficiary. If you die in a road accident while driving under the influence or break into someone’s home and go shot by the homeowner, your loved ones won’t receive any payout.
- Exclusions: Your insurance policy might include exclusions that identify circumstances in which your beneficiary won’t receive a payout. So, suppose your hobby is skydiving, and you get cheaper coverage by adding this exclusion to your policy. In that case, your beneficiary won’t receive any payout if your death is skydiving-related.
Read more about What deaths life insurance cover
Final Thoughts on What Does Life Insurance Cover
Like most people, you probably think of life insurance as something you need to buy in case you die. While that’s one crucial use for life insurance, it’s not the only one.
Before you take out any life insurance policy, take a moment to understand what does life insurance cover and does not cover. This will help you make an intelligent choice in protecting your loved ones.
Speak to an insurance advisor to find the right policy that covers your family’s needs, and help you pick the best value and coverage for you.
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.
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