Life Insurance for Canadians
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Types of Life Insurance
Policies generally fall into two categories: permanent and term. Permanent life insurance is typically used to cover needs that will always be there such as funeral expenses or supplemental income for your survivors. Term life insurance is suitable for more temporary needs or expenses that have a foreseeable end like your mortgage or putting your children through university.
Term Life Insurance
Term insurance covers you for a specific period of time, and has an expiry date. It is suitable for more temporary needs or expenses that have a foreseeable end like your mortgage, putting your children through university, or business obligations like training your successor or buying out shares. Term insurance is usually purchased in terms of one, five, ten or 20 years, or to age 60 or 65. If you die within this time, your beneficiaries receive the death benefit. If the specified time period ends within your lifetime the coverage expires, there is no death benefit payment, and you cannot claim the premiums you already paid. Term policies:
- Don’t include cash values, so you cannot borrow against the policy or receive cash back if you cancel the policy.
- May be renewable at a higher premium when they expire.
- Usually have lower premiums than permanent policies. Premiums are set by the insurer for the length of the term, and may increase if the term is renewed.
Permanent Life Insurance
Every permanent insurance policy is designed to provide you with coverage for your whole life. However, some are sensitive to interest-rate and/or stock market fluctuations and present a greater risk, while others provide guarantees. The basic features of permanent policies are:
- Level premiums: most policies have premiums that remain level over the lifetime of the policy. This doesn’t mean that the payments remain the same. It means that the premiums you pay in the early years of the policy when you are younger are higher than the risk you represent to the insurer, and when you are older the premiums you pay are lower than the risk you represent.
- Cash values: the amount of money that builds up in a permanent life insurance policy. You can use the cash value to boost your death benefit, pay your premiums, supplement your retirement income, or take out a policy loan.
- Participating policy dividends: participating policies share in the financial experience of the insurance company and receive annual dividends. Non-participating policies do not.
- Non-forfeiture options: these are options available to you if you miss or decide to discontinue paying premiums on your policy. The options will allow you to keep the policy in force or take a cash settlement.
A licensed life insurance company or agent can help you find the most suitable life insurance policy for you.
Source: Financial Services Commission of Ontario (FSCO)