What is the life insurance?
A life insurance policy is the contract between you and your insurer. The insurance company agrees to pay a certain amount of money to the person or people chosen as beneficiaries in case of the insured person’s death. You pay the certain amount to the insurer for this coverage. This is known as premium. When an insured person dies, and an eligible claim is made, the tax-free death benefit is paid to the designated beneficiary. This is a way to help provide future financial security for the people you care about in the event of your death.
Do you need life insurance?
There are the people in your life who depend on you. Life insurance can be part of your plan to help provide financial support to your loved ones when you die. The money they earn can be used however they like. For example, it can replace lost income, fund post-secondary education, or pay for late expenses. A life insurance policy can be the way to help pay back your loved ones.
The right time to apply for the life insurance
Once you’ve decided you need life insurance, you should consider the following:
- Life insurance usually costs less when you are younger.
- However, your health will deteriorate as you age, making premiums more expensive
With these reasons in the mind, you may want to consider getting life insurance sooner rather than later. In addition, major life events such as getting married, having children, retiring, or buying a home can be reasons to consider your life insurance needs.
How to get the life insurance policy?
Keep in mind when buying the life insurance is the amount of coverage you need. You then select a product, get a quote, and complete a life insurance application. You can get automatic approval and instant coverage if the insurer offers it and you meet the eligibility requirements. Automatic acceptance means no medical examination is required.
If there is no automatic approval, an underwriter will evaluate your application and determine if a medical examination is required. The requested information is to verify your health and lifestyle status, which is used to decide on your application. Upon approval, a policy is issued, and coverage begins immediately.
What factors are considered in calculating premiums?
Insurance companies consider various factors while calculating the premium. Understanding these factors, including your general health, lifestyle, age, gender, and smoking status, is essential.
What are some different types of life insurance?
Although there are the different types of life insurance, this article will briefly discuss two categories – term and permanent life insurance.
Term life insurance:
Term life insurance expires and may expire before the insured person dies. The premiums remain the same for the entire term you choose. At the end of each term, the policy is automatically renewed at a higher premium to reflect your age. Term 10 and term 20 are examples of term life insurance plans. Term insurance can be used for temporary needs such as a mortgage or to replace lost income to support your children if you die.
The Permanent life insurance:
The permanent life insurance is not expire and gives you coverage as long as you live and pay your premiums. Some types of permanent life insurance include whole life, universal life, term-100, and life insurance.
With a whole and universal life, a portion of your premium can go into investments to build cash value. So while the premiums are higher, you get coverage and the potential for increased cash value.
Whole life insurance:
A form of the permanent life insurance, whole life insurance provides coverage for as long as you live. It has an investment component managed by an insurer from which the insurance cost is paid. Premiums are also fixed.
Universal Life Insurance:
Universal life insurance is a type of permanent insurance that offers flexible premium options. The policy has an insurance and investment component. You choose an investment account or account to pay the money into. The insurance and other expenses necessary to maintain the policy are charged to the report by the insurer. Any remaining money can be accumulated as investment growth, also known as cash value. The policy owner can increase or decrease the premium and death benefit within specified limits. Depending on the selected investment account, investment growth is not guaranteed and may increase or decrease. As a result, the death benefit can also increase or decrease.
Universal life or whole life insurance policy can be part of a comprehensive estate plan. The cash value growth in these policies is not taxable. Therefore, these plans may be preferable for those who have significant taxable investment assets, have maxed out their RRSP and TFSA limits, and are looking for ways to minimize taxes on investment income.
Because of their additional features, universal life and whole life insurance plans require more funding and management. This means they can cost more than term life insurance plans.
Permanent life insurance can be used for living needs such as final expenses or income replacement for disabled dependents.