In a nutshell, life insurance is where you pay a certain amount to an insurance company every year, in exchange for a tax-free lump sum to be paid out to a designated person(s), should the unthinkable happen while your policy is in effect.
Life Insurance 101: Five Key Things to Know
Life insurance can be complicated. Between legal-speak and the many different types of plans, it can get downright confusing. The good news is, it doesn’t have to be. We’ve broken down the basics into five key questions below.
1. What is life insurance?
2. What are the basic life insurance terms to know?
Before you can understand the different types of life insurance available, it helps to understand some basic terms:
- Policyholder/Owner: The person who is named and owns the life insurance policy, which is usually the insured person.
- Insured: The person who the life insurance policy was taken out for and who the Policyholder has an insurable interest in.
- Beneficiary: The individual(s) or estate who will receive the tax-free benefit when the insured person passes away.
- Tax-Free Benefit: A major benefit of life insurance: the lump sum the beneficiary receives is 100% tax-free, free of probate and estate taxes.
- Coverage Amount: The amount that the Policyholder is insured for and what the beneficiary could receive.
- Term: The amount of time the insurance policy provides coverage for.
- Premium: The amount paid in exchange for coverage.
3. What are the different types of life insurance?
Life insurance in Canada falls into two basic groups: Temporary Coverage and Permanent Coverage. Think of it as the difference between owning or renting a home: we all need somewhere to live, but we can choose to pay for that home in different ways.
- Temporary Coverage: Often referred to as Term Life Insurance, this type of plan covers you for a specified amount of time (10-, 20-, 25- or 30-year terms).
- Permanent Coverage: These types of plans cover you for life and can include Permanent Life Insurance, Universal Life Insurance and Guaranteed Life Insurance. Different plans offer different benefits; some provide you with protection while helping you save towards your financial goals, others are designed for specific types of consumers, such as those who have difficulty getting insurance.
4. Do you need life insurance?
If you’re over 18 and have people depending on you financially, then the answer is yes. It’s a great way for newly married couples, parents with young families, those not covered fully by employee work plans and even retirees to protect loved ones financially.
5. Why is life insurance important?
Life insurance helps protect what’s important to you and provide peace of mind. It allows your loved ones to maintain their existing standard of life and ensure your dreams are realized (like ensuring your child’s schooling is covered or your house is paid off), if anything were to happen to you. It also allows you to protect what you want to pass on to your family without taxes and capital gains. Finally, it can ensure that your loved ones are not left with any extra financial burden when it comes to final expenses.
__Choosing which type of insurance solution is best for you is something best discussed with a licensed professional. If you have questions about life insurance or want to learn more, we can help. The Advisors here at CAA can help you select the right coverage to meet your needs, based on your financial goals and the protection you want. Connect with a licensed Advisor at CAA by calling 1-888-444-6711 or by booking an appointment online.