Life Insurance 101
At some point in your life, it is likely that someone has recommended that you purchase life insurance – whether it be to protect your family in the event of your untimely death, to pay for final expenses, or to leave a legacy. But if you have ever done some research on life insurance, you may have found that it can quickly become confusing. There are so many types and price points, you may be unclear on what is best for you.
In this article, we will cover some of the basics so that you will have a better understanding of life insurance next time you speak with your insurance broker.
Why you might need life insurance:
There are many reasons you might need life insurance including:
Paying for final expenses.
Protecting your family. Eg. Ensuring there is money to pay off the mortgage, or pay for a child’s education.
Providing an income for your surviving spouse. Eg. Leaving enough that can be invested later into an income product such as an annuity.
Estate equalization Eg: If you have a business or an asset like a cottage that you wish to leave to one child, a life insurance policy can provide cash to the remaining children to ensure everyone gets a fair portion of the estate.
- Leaving a legacy to your favourite charity.
When should you get Life Insurance?
Life insurance is always more affordable when you are young and healthy. Unfortunately, many young people fail to purchase life insurance at this time either because they think that they do not have enough assets for it to matter or because they think they can do it later.
But if you have a spouse or young children, life insurance can be incredibly important. Even an affordable Term 20 (explained in more detail below) can be enough to ensure the kids are protected until they get through school and can earn a living for themselves.
Temporary vs. Permanent Life Insurance
While there are different categories even within these, all life insurance products can be divided into main categories: temporary and permanent.
Temporary or term insurance lasts for a specified term. For example, a Term 10 plan is good for ten years; a Tern 20 Plan is good for 20 years and so on. During your term, your premiums never change, but if you wish to renew your term insurance at the end of that term, you will find the premiums will be quite a bit higher as you are now older. That being said, a term insurance policy can be somewhat more affordable than permanent insurance policy.
Permanent life insurance such as Whole Life Insurance or Universal Life Insurance will last you your entire life as long as you continue to pay the premiums. At the start, this insurance is more expensive than term insurance, however it is usually a much more affordable option than getting term insurance and continually renewing after each term.
As you might expect, temporary insurance is best for temporary needs. For example, if your purpose for life insurance is to ensure your mortgage is paid off, and you have 15 years left to pay on it, then getting a Term 20 may be sufficient.
Permanent insurance is used for needs that are permanent. Since you don’t know when you are going to die, these needs would include providing an income to your spouse, estate equalization, or leaving a legacy.
If you have a permanent need but cannot afford the premiums on permanent insurance right now, you might consider getting temporary insurance and converting it to permanent down the road.
Contact ICD Insurance today!
Understanding life insurance and knowing what type and how much you need can be confusing, and for this reason it is important to work with a broker who is willing to sit down with you and assess your needs.
To arrange a consultation on life insurance with one of our brokers, contact ICD Insurance today.