Every individual has different needs when it comes to life insurance. Some need to find premiums that they can fit into their budgets, others need to make sure that their families' standard of living will not be affected, or, just want to lock in a low rate while they are young. To secure the proper coverage for the best price, it is important to understand the options available.
The difficulty many people encounter when purchasing life insurance is deciding on how much coverage they really need. Obviously, it is desirable to obtain enough coverage, but a policy that exceeds your needs can be a waste of money. Higher coverage means higher monthly premiums, so you'll want to pick a life insurance coverage amount that walks that fine line of giving you want you need yet is affordable. For those struggling to save for their children's education, build a retirement account or just meet monthly expenses, being "cash-poor but insurance-rich" may not be the best option.
When determining the amount of life insurance to purchase, it is critical to first decide what the policy needs to achieve. For example, a senior with no dependents may only want enough coverage to pay funeral costs; a young couple with children may need enough insurance to pay off the mortgage and/or to cover college expenses for their children; some people might want to provide a little extra to a parent or favourite charity; an individual with a non-wage earning spouse may want to see that their partner has the financial support needed to get on their feet, or they may want to guarantee that the spouse can continue to remain at home with the children.
Many times, the motivation for obtaining life insurance is a combination of several factors. To obtain preliminary quotes for rate comparisons, shoppers might want to begin with a life insurance coverage number that is between five and 10 times the amount of the pre-tax annual income of the individual to be insured. Another method is to add up the total bills, such as credit cards, mortgages, car payments, loans and funeral costs, while also estimating and anticipating future bills (the need for a new car, tuition for your children, inflation etc.) If the goal is to simply replace an income, as might be the case when both spouses are professionals, the estimate should be based on the annual income multiplied by the number of years of income that you want the life insurance to cover.
Figuring our how much life insurance is enough life insurance sounds complicated doesn't it? It doesn't have to be. The Kanetix.ca Life Insurance Calculator can help you find out roughly how much life insurance you'll need to have in order to ensure that your family is covered in the event of your death. The Life Insurance Calculator only takes a minute.
Our Life Insurance Calculator is not a replacement for the advice of a licensed life insurance broker, but it can serve you as a guide for determining the amount of life insurance you may need.
Once you have the results from the Life Insurance Calculator, you're ready to compare life insurance quotes.
After determining approximately how much coverage is needed, the next step is to decide on the type of policy to purchase. Rates can vary a great deal based on coverage type, so it is often best to obtain quotes on several types as well as from several companies.The two major categories of life insurance available to Canadians are:
Term life insurance policies are intended to meet coverage needs for a fixed length of time. Premiums and benefits remain unchanged for the policy term, which can be as little as five years or as long as 100 years, depending on the company offering the policy. Term policies are also available that expire when the insured reaches a certain age, such as age 65, 70, 75 or even 100.Life Insurance Article: Popular Life Insurance Products Term life insurance is the most popular life insurance product in Canada. At Kanetix.ca, the term most often quoted by life insurance shoppers is Term 10. This is a life insurance policy that will provide coverage for a period of 10 years, and the premiums will not increase over the course of the decade. There are other terms available too, including Term 20, Term 30 and Term to 100. The article, "Popular Life Insurance Products" looks at who will benefit most from each length, who it typically appeals to and includes quotes to give you an idea of how much the policy will cost each year.
Once the stated term has expired, most individuals are eligible to renew their policies for an additional term. Because the covered party is now older and his or her health may have changed, premiums for new coverage are always higher. Therefore, it is best to select the appropriate term for which coverage is needed so that the premium can be locked in for the longest feasible period. Most companies offer the option to convert a term policy to a whole life or universal policy without requiring additional proof of good health or evidence of insurability.
Most insurance companies set an age at which they will no longer renew a term policy. The usual standard is 75 years of age. This means that even if a 20-year policy is purchased at age 56, it cannot be renewed. Conversely, a 20-year policy purchased when the insured is 36 years of age can be renewed.
Some people mistakenly believe that term policies offered until a certain age are an adequate substitute for permanent coverage. However, these policies provide no coverage beyond the stated age and are not renewable, although most companies will allow the insured to convert to a different plan such as a 10-year term policy. With the increased average life expectancy, losing insurance coverage at age 65 or even 75 can mean a substantial gap in a family's financial plan.Life Insurance Articles: Death by Numbers - Life Expectancy and the Deadliest Months How long can you expect to live? It's the great unknown. Did you know that where you live in Canada affects your life expectancy as does your gender? In the article, "Life Expectancy" we look at Statistics Canada's Death Report, released in 2010, to learn more about Canada's life expectancy rate and how it varies across the country. The series "Death By Numbers" also looks at the Deadliest Months in Canada - any guess on what's worse: the bitter cold months of winter when shovelling snow is commonplace, or the dog days of summer when the only relief from the heat comes from an air conditioner? Permanent Life Insurance: Whole Life
Whole life coverage is available in two types, participating and non-participating policies. The primary difference between the two is that participating policies generate dividends, which provide a partial refund of premiums plus earnings, if any, from investments. The companies do not guarantee dividends, and dividends can vary a great deal from one year to the next. Non-participating policies do not pay dividends, but the future value of the policy is guaranteed, not projected as is the case with participating policies.
When comparing quotes, only non-participating whole life plans provide an accurate picture of what the premiums will truly be. This is because dividends on participating policies can fluctuate widely, which has a direct impact on the net cost of the premium. Although it is possible to obtain quotes on participating policies, the information is a statistical projection rather than an iron-clad guarantee.
Non-participating policies usually have fixed premiums over a long period -typically to age 100- and then no additional premiums are due beyond that point regardless of how long the insured remains covered. However, it is also possible to "back-load" the cost of the policy by choosing lower premiums during the first few years of the policy's life; the premiums increase each year to a set point and then remain consistent for the duration of the policy. Non-par policies are also available that allow level premiums for a set period, such as 10 or 20 years, or until a certain age is attained, such as 65 years of age. Naturally, when the total policy cost is compressed into a briefer time span, the premiums will be more expensive.Permanent Life Insurance: Universal Life
Universal life is a popular choice for many who seek not only investment growth but also relief from taxes. The cost of a universal life policy may be paid with pre-tax money and can be an attractive non-RRSP investment growth. Essentially, payments toward a universal policy are placed in a holding account, which the insurance company then invests. The purchaser of the policy directs the choice of investments. Earnings are deposited into the holding account, where they are sheltered from taxes.
The insurance company withdraws funds from the holding account to pay for the covered individual's life insurance and to pay administrative fees associated with the account's management. Typically, the policy guarantees a minimum growth rate, currently around 3 per cent in most cases. Growth in excess of the insurance and administrative costs is allowed to accumulate as savings, which the insured may withdraw at a future time to fund retirement, education or similar costs. Current tax laws also allow the possibility of assigning the policy to a bank and then taking out a loan, tax-free, against the insurance policy.
People who benefit the most from universal life policies usually share six qualities. First, the individual actually needs life insurance. His or her marginal tax bracket is a high one, and he or she has already maximized pension and RRSP contributions. He or she should have the desire or need to generate additional income for the future. The investment horizon should be a minimum of 10 years. Finally, the purchaser is typically seeking to reduce his or her taxes on investment income.
Because universal life is a complicated affair, due in large part to the Canadian income tax laws related to this type of insurance, it is advisable for anyone considering such a purchase to consult a trained professional for advice. For example, contributions from the tenth year forward cannot exceed 2.5 times the value of the fund 3 years before. This provision may prove an unpleasant surprise to those who do not make substantial deposits during the policy's early years.
Rate comparisons for universal life policies are difficult due to the number of variables possible. Only certain factors remain relatively constant. These are the actual cost of the life insurance; whether insurance costs increase periodically or remain level for the duration; initial benefit amount; amount and duration of deposits; and the assumed rate of growth.Other Types of Life Insurance
Mortgage reducing term or declining benefit coverage is often purchased to cover the pay-off on a home loan. For example, if the mortgage term is 20 years, the insurance benefit will decline each year for 20 years, after which no coverage remains. When such policies are sold by an insurance company, the named beneficiary, typically the spouse, receives the death benefit tax-free. When purchased through the lender, the lender receives the death benefit to offset the balance due on the mortgage. For most people, term life is a better option as the premiums are typically less and the insurance is not lost if the home is sold.Life Insurance Articles: Is Mortgage Insurance Your Best Choice? Buying a home will likely be the largest purchase you make in your lifetime, which is why protecting it should be a key part of your overall financial plan. For this protection, chances are someone has suggested you buy insurance-whether it's mortgage insurance, term life insurance or both. Learn more about both, mortgage insurance and term life insurance, because you have options.
To help you understand some of the distinctions between the two types of insurance, we've compiled a library or sorts that speaks to the main differences:
Critical illness insurance is a type of hybrid policy. As a rule, should the covered party suffer a stroke, kidney failure, heart attack or certain coronary surgeries, be diagnosed with a potentially fatal cancer or become deaf and blind, he or she receives a lump-sum benefit tax-free. Other conditions, such as paralysis and multiple sclerosis, may also be qualifying events. Should the covered individual die prior to making a claim, many policies provide for a full refund of the premiums already paid. This coverage is normally available only to those who are in good health and whose immediate family has a good health history.
Learn more about critical illness insurance in Canada:
There's no law that says you have to have life insurance in Canada. It's a personal choice whether you get it or not; however, life insurance in Canada can play a vital role in your family's financial future. Consider life insurance:
In each case, your premature death could have a serious financial consequence and life insurance in Canada can help offset this financial loss.
Did you know at the end of the year, 2010, almost 21 million Canadians owned a life insurance policy? And, of those policies the average amount was $173,700 for insured individuals and $345,400 for insured households? These statistics are available from the Canadian Life and Health Insurance Association Inc (CLHIA). The CLHIA also state that in 2010 alone, over 733,000 policies were purchased during the year and the average size of these new life insurance policies was $292,600.Websites for life insurance industry resources in Canada:
Both life insurance agents and brokers will help you assess your life insurance needs; arrange for the purchase of a policy; provide ongoing support (say you want to change your beneficiary, renew, convert or change your coverage amount); and help your beneficiary submit a claim should you die while the policy's in force. The only real difference between the two is:
Life insurance agents typically place policies with one particular life insurance company, whereas a life insurance broker can place policies among a wider variety of life insurance companies.
One isn't better than the other; they both can help you with your financial planning needs.Life Insurance Companies in Canada
According to the CLHIA, in 2010, there were 95 life and health insurance companies in Canada and Kanetix.ca offers online life insurance quotes from some of the best known and reputable of these, including:
Kanetix.ca can provide you with competitive quotes in the following provinces:
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|SSQ Financial Group||$553.05|
|Industrial Alliance Financial Group||$609.00|
|BMO Life Assurance Company||$627.00|
|Transamerica Life Canada||$668.00|
|Range of top quotes||$114.95|
|SSQ Financial Group||$1017.60|
|Industrial Alliance Financial Group||$1080.00|
|BMO Life Assurance Company||$1131.00|
|Transamerica Life Canada||$1202.00|
|Range of top quotes||$184.40|