Life insurance

Life insurance pays the purchased amount of insurance (death benefit) when the insured dies. The features of this kind of insurance are summarized below.

What can you use life insurance for?

Life insurance can meet a wide range of needs, depending on your situation. Here are three examples:

Protect your family

Daniel and his spouse, Galina, both 32 years of age, have just bought a new house so they can start a family. They want to purchase life insurance to cover a number of needs, including maintaining the standard of living of the remaining family members if the two of them die. They would like to be insured for a large amount—$500,000, for example—but only for the period of their life when they have debts and small children.

Optimize your inheritance

Robert, 50, has spent years building a prosperous business. If he dies, his family members will inherent significant assets. He earns far more each year than he will ever spend. He wants to maximize the value of his inheritance and is thinking of working with a representative to implement a strategy that includes a life insurance policy.

Cover your funeral expenses

Louis, 70, realizes he’s depleted most of his financial assets. If he dies, his loved ones may be stuck with his funeral expenses. He wants to purchase a large enough life insurance policy to cover most of those expenses, which, he reckons. will be around $15,000.

Each of these situations will likely require a different type of insurance policy. To choose the right policy for your needs, you’ll have to ask yourself some questions. For example:

If you were to die prematurely, what would be the financial impact on your spouse or children?
Could the members of your household keep up the same standard of living and still pay the mortgage and other household expenses?
Will your spouse have to hire people to do things around the house that you’re currently taking care of?

Life insurance can also be used to:

Pay your funeral expenses
Repay personal debts like your credit card balance
Cover taxes on death on illiquid assetsIlliquid assets are assets that cannot be quickly and easily converted into cash without incurring substantial costs or a significant loss in value.. When a person dies, most of their assets are deemed to be sold, potentially resulting in a tax liability. If the person’s assets are illiquid, like a business or land, a life insurance policy could provide the cash needed to pay the tax liability without the assets having to be sold.
Leave an inheritance or make gifts

Also see our section explaining the steps to follow before buying life insurance.

Insight

It’s important to shop around!

Before buying an insurance product, take the time to compare different insurers’ offers. Prices can vary significantly from insurer to insurer for premiumsA premium, or insurance premium, is an amount that a person or company must pay on a regular basis to keep their insurance in effect. For example, if Mary has to pay $200 per year to keep her life insurance in effect, then the premium is $200.
The premium should not be confused with the face amount, or insured amount, which is the amount that the insurance company has to pay out. In the same example, if Mary has life insurance that pays $100,000 to Peter upon her death, then the face amount is $100,000. (fixed or that increase over time), contract expiry and options.

The right insurance product for you is available. It’s worth taking the time to find it.

End of the insight

What are the main types of life insurance that are available?

Some insurance products cover you for a limited period of time (term life insurance); others, for your lifetime (whole and participating life insurance). Some have premiums that go up over time; others, premiums that never go up. Some cover anyone, without health questions (guaranteed issue life insurance), others, only people who are in good health. You can find out more about the main types of life insurance here.

See our section on the main types of life insurance

Choose how long your insurance will last

As a general rule, the shorter the term of the policy, the lower the annual cost. Because of this, you might be tempted to purchase a policy that lasts less time than you will need insurance for. If you are, check the prices at renewal. Compare the costs for various terms.

You buy 10-year term insurance (called T10 insurance). Your goal: Cover the financial needs of a future child in the event of your death. Your child will still depend on your financial help after 10 years, so you’ll probably still need insurance after that time.

How much would it cost to renew your T10 policy?
Would it be more advantageous to immediately purchase a policy for the time you actually need insurance—for example, 20 or 30 years?
How much higher would the premium be?

Depending on your age and the insurer, it could be significantly higher, even up to twice as much at renewal.

What is insurability?

Before insuring you, an insurer usually has to assess your “insurability” by checking whether you already have a critical illness. Insurance is a safety net: You put it in place before you need it. Once you start falling, it’s too late.

Insurance and illness

Some insurers may agree to insure you even if you are already ill, but the premiums will be much higher. It’s always less expensive to get insurance when you are healthy.

Doubling up on insurance

If you like, you can insure your life with more than one insurer. On your death, your beneficiaries will receive several insurance payouts.

Cancelling your insurance contract

Whether for life, sickness or any other type of insurance, your needs can change and you may have to cancel your current coverage or replace it with new coverage. Here’s what you need to know before going ahead.