What Is Life Insurance?
Life insurance is financial coverage that pays a specified amount of money to a chosen beneficiary upon the death of the main policy holder. The face value of the insurance policy is paid by the insurer in exchange for regular payments over the insurance term, referred to as premiums.
There is a large variety of life insurance policies on the market to meet a wide range of policy holder needs, and choosing the best coverage for your specific situation depends on several factors including income, dependents, and additional financial priorities. However, life insurance can be divided into two main categories: permanent life insurance and term life insurance.
Permanent life insurance is lifelong and only pays out upon the death of the policy holder. Term life insurance lasts for a set period of time, such as 10, 20, 30 or 100 years, at which time it may mature, or be renewed for a longer term.
Benefits of Life Insurance
While buying life insurance is a way to ensure your loved ones will be financially protected in the case of your death, there are several ways it can be used to benefit both you and your beneficiary. Here are a few ways life insurance can protect you and your assets.
It provides a source of income: Funds provided by a life insurance policy can be used to supplement the otherwise lost income provided by the deceased. In two-income households, this is an effective way for the beneficiary to maintain the same standard of living.
Pay for final expenses: End-of-life expenses such as funeral costs or medical bills can quickly add up. Funds from a life insurance policy can be put towards paying what may be unexpected final expenses.
Cover ongoing costs: Coverage from a life insurance policy can be used toward ongoing payments and financial commitments, for example a mortgage or post secondary tuition payments. This ensures the security of keeping your home or providing for your child’s education in the case of the death of a main income provider.
Access your equity: Some life insurance policies allow you to access funds accumulated by paid premiums over time. Similar in nature to a HELOC, these insurance types accumulate a cash value, and offer a liquid investment opportunity. They can be withdrawn prematurely and used for any purpose, including an emergency fund.
Funds can be withdrawn from a life insurance policy on a borrowing basis, or the removed value can be surrendered, which means the money is permanently removed. This causes the face value of the policy to decrease, leaving less to the beneficiary at maturation unless the withdrawn funds are replaced.
Do I Need Life Insurance?
There are many ways life insurance can benefit a policy holder, and different policy types exist to fulfill a large range of needs. While some consider life insurance to only be required for those who are married or have children, this is a misconception – those who are single or without dependents can also benefit from this kind of coverage. In fact, anyone who requires money to cover their expenses and debts or provide for their loved ones after death is in need of life insurance.
To see what policy type is right for your specific needs, click here.
How Much Coverage Do I Need?
Determining the level of coverage needed is the first step to choosing the right life insurance for your specific needs. Often, the suggested monetary amount for a policy should be 5 – 7 times your yearly net income.
Other factors, such as your assets, required ongoing income, financial liabilities and possible end-of-life costs should also be considered when determining your coverage requirements. It’s best to speak with a qualified life insurance agent who can further analyze your financial needs and help you create a strategy for your life insurance.
You can also check out RateSupermarket.ca’s handy Coverage Calculator to see just how much coverage is required to cover your specific financial needs.
Why Should I Compare Life Insurance?
Everyone’s life insurance needs are different, and the coverage and policies offered by insurers can greatly vary. It’s important to compare life insurance rates, types of coverage and term options available on the market to find your best fit.
Click here to compare life insurance.