We all know that things can go wrong in life, and that life itself is temporary. When we die, most of us want to protect our dependents from the loss of our income, our funeral expenses, the burden of our debts, and probate taxes, among other risks. In Canada, we recognize that the main way to do something about those inevitabilities is through life insurance.
To boil it down to its essence, you buy life insurance so that the insurance company will bear the financial risk of your demise, rather than the people you leave behind. We can extend the purposes of life insurance a little further to include protection of your home mortgage, estate planning, managing your retirement savings plans, and managing your wealth generally.
Types Of Life Insurance
Life insurance comes in two main varieties: temporary and permanent. Examples of temporary life insurance include term life, mortgage insurance, and group life insurance. Permanent life insurance can take the form of whole life, universal life insurance, or term to 100 life insurance. For practical purposes, life insurance comes under the headings of term life, permanent or whole life, and universal life insurance.
Each of these kinds of life insurance has its areas of application. Some goals can be met regardless of which kind we buy, such as arranging for the financial needs of our loved ones if we pass away. Other objectives have particular requirements that determine which kind of insurance we buy. An example is managing our estates and investments. For this purpose we require permanent life insurance, not term.
Term Life Insurance
We need to take a quick look at the various types of life insurance in order to make intelligent choices when requesting life insurance quotes. If you are seeking cheap life insurance, then most likely term life is what you want. Term life is temporary insurance that provides coverage against death for a limited time period - the "term". This may be until children are raised, or until a couple retires. Usually the term is 5, 10, 15, or 20 years.
In general, the purposes of term life insurance are to provide funds if you pass away, to pay off your debts including mortgages and loans, to compensate for your lost income, to support your husband or wife in retirement, and to see to your children's education and possibly marriage.
Another use for term life is covering a debt such as a mortgage for a specific period of time. In a case like this, permanent or whole life insurance may not be affordable. Term insurance is cheaper than permanent insurance, and it is convertible to permanent insurance later on provided the policy is "convertible".
One particular application is to substitute for mortgage insurance. In fact, the mortgage insurance offered by banks is usually inferior to life insurance for several reasons. It is more expensive, lacks flexibility in coverage amounts, also lacks preferred health prices, does not always pay out, and makes the bank the beneficiary of the policy, among others. Since you have the option to buy term life insurance instead, you should always buy your mortgage policy from an independent insurance broker rather than a financial institution like a bank.
On the negative side, term life insurance carries no cash value. All you receive for your payments is the coverage itself, until the term is up. Thus, you cannot use it to manage your wealth. In addition, the premiums go up as you age.
If you need cheap life insurance more than anything else at a given point, you will likely prefer term insurance. Other indications for term life are that you only need the insurance for a limited time period, that your need disappears as your children grow up and move out, and that your loans and mortgages are paid off. Term life insurance is the lowest-cost life insurance.
A caveat when buying term life insurance or requesting life insurance quotes in Canada or anywhere else is that while the premiums are guaranteed for the term, they automatically jump to higher levels on renewals. If you are in good health, you need to shop around for a new term life policy, because the new policy's premiums can be far cheaper. You will also want to make sure a term life policy is convertible to permanent insurance with the fewest possible restrictions.
Permanent Life Insurance
If you need something more than cheap life insurance, or you want to do anything beyond the limitations of temporary term insurance, your alternative is permanent insurance. Here are some of the reasons why you may prefer it instead.
Life term insurance, permanent insurance can help to ensure that your husband or wife will have enough money to retire. It can also enable you to leave wealth to your children, as well as to avoid taxes and probate if it is done properly. You can leave money to the charity of your choice. You can move money from an RRSP (which would be taxed at more than 40% on your death) to an insurance policy to make sure that your beneficiaries will receive the proceeds tax free, avoiding probate and executor fees. You can also pay taxes on estate taxes or capital gains to save your beneficiaries from having to sell some of the assets to pay those taxes. Finally, you can utilize your policy to arrange the largest possible pension for your retirement.
A particular type of permanent insurance is the whole life policy. Whole life insurance provides permanent insurance that pays out on your death along with a savings or investment component which is included in one monthly premium, which is fixed, staying the same each year. The savings component makes whole life insurance an investment vehicle. The policy holder is not privy to the amount of the investment portion, however, and has no control of how it is invested.
To fix this problem, universal life insurance was created to provide an insurance option for people who formerly would simply buy term insurance and invest their remaining capital elsewhere. Disclosure of the proportions of the premium allocated between the costs of insurance and administration and the investment portion, and the provision of investment options, make universal life more attractive to thoughtful investors.
Other advantages of universal life are that the funds increase tax-free, you are free to invest the investment portion in a fund indexed to the foreign index of your choice, and you can protect your funds against creditors. Like other permanent life insurance, universal life allows you to pass your inheritance to your children free of taxes or probate. It is also very helpful when it comes time to plan for long term care.
A caveat regarding universal life policies is that the added control you gain over the investment component exposes you to risk as well as opportunity. You must do your homework carefully before making final decisions.
In general, you can save on premiums by observing the current assessment methods used by insurance companies. Your lifestyle, including your eating habits and exercise, as well as older factors such as smoking and risky activities, will play a big part in determining your rates. In particular with term life insurance, when you request life insurance quotes in Canada, you stand a much better chance of qualifying for preferred rates if your health and lifestyle backs you up.
If you want to be able to request cheap life insurance quotes, your best bet is term life insurance. However, if you want your policy to double as an investment vehicle, or to protect your assets as they pass to your heirs, then you may want to examine permanent life insurance for its possible benefits. Each has advantages and disadvantages, so it is not a simple choice. It is, however, a worthwhile one that can affect future generations. It is yours to make. Get your free life insurance qoute today!