Almost everyone has heard of or knows that it is important to have Life Insurance, however such financial product isn’t common knowledge, even these days and many of us are confused about why we need it or how it works.
Life Insurance is definitely an important tool that is very much worth learning about, especially if you have a family.
We know just how complicated life insurance can seem and we would like to shed a bit of light on how it works in Canada and help you figure out if you should get it.
What is Life Insurance?
Life insurance is an arrangement or a contract between an insurance company and a client. The idea is that upon the client’s death, the insurance company will pay out a death benefit to a beneficiary, who is chosen by the insured person. The payable benefit is tax free and can be paid in a single installment known as lump sum . The policy holder, in exchange for this agreement, pays a monthly or yearly premium.
Some policies, such as Whole Life plans let the policyholder access some of the death benefit while they are still alive. This cash value component typically earns interest or other investment gains with time and grows tax-deferred.
Life insurance can be used by the beneficiary to pay for things such as a funeral, everyday living expenses, potential lost income and also cover debts and taxes.
How is Life Insurance Premium Calculated?
Life insurance premiums depend on many personal factors, such as age, gender, health, smoking status and family medical history.
The older the insured, the higher his or her premiums will be. Males typically pay more for Life Insurance because their life expectancies tend to be shorter. On top of these, the premiums for a Life Insurance are also affected by the length of the chosen term, the coverage amount and the type of the insurance. The longer the term the more you pay for the policy and the larger the benefit the more expensive it will get.
Whole Life Insurance premiums are quite a bit higher than the Term plans because they cover you for life, hence the bigger risk for the insurance companies that they will eventually have to pay the death benefit.
Life Insurance premiums are definitely worth it, especially if you have a partner and/or dependents.
It can provide a financial safety net for your loved ones if something was to happen to you and there is nothing like having that peace of mind, knowing your family will be taken care of in that event.
Other reasons for having such insurance policy can be wanting to leave a substantial donation amount to a favorite charity or giving a financial gift to a child or grandchild after the passing.
Should I get Life Insurance?
If you are wondering if you should get Life Insurance, the best question to ask yourself is if there is anyone in your life who relies on your income and would face a significant hardship or even a reduction in the quality of life without it.
If you own a home or have a business, have a family and children, all of these are good indicators that there will be a need for financial help if you were to die. If you dream of leaving an inheritance or plan to leave some money to a charity, Life Insurance can be a very wise choice for you.
In either case, if you are already thinking about it, the best step to make it is to speak to a knowledgeable advisor and seek financial advice.
We are always here if you want to chat with us about Life Insurance and other types of insurance and are happy to help with any of your other financial needs.
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