Life insurance is an important issue that concerns many Canadians. However, not all of them dare to take out life insurance. We all want to live happily ever after, and we don’t think about what will happen when we are gone. But life is unpredictable, and people who do not want to burden their loved ones after their death, buy an insurance policy. With this document, relatives will be able to get money and pay off any debts of the insured person. How does life insurance work in Canada – let’s understand it in our article.
What is life insurance?
Life insurance is the execution of a special contract between you and the insurance company. According to the documentary agreement, it is obligatory to pay your loved ones a certain amount of money after your death. In return, you fulfill the conditions – you make small contributions to the insurer. Their amount and frequency of payments will depend on the terms of the insurance company. Some organizations require you to make payments once a year, while others require you to make payments monthly.
The amount that is due to relatives after the death of the insured person is not taxable and must be paid in a lump sum and in full. The purpose of money does not matter. It can be spent on burying the deceased or paying off his loan debts. You may also use the insurance money to provide for your family, i.e., you may use it for your personal needs.
Types of life insurance in Canada
Two types of life insurance are popular in Canada – term and permanent. But there are also other types of policies, which we’ll talk about next. Each of the varieties has both advantages and disadvantages. Term life insurance is the most popular. Statistics show that approximately 75% of Canadians take out term life insurance on their own or at a group rate through their employer. Let’s look at each option in more detail.
Term life insurance
Term life insurance involves taking out a policy for a set period of time. Usually, it is 10, 20, or 30 years. If something happens to you during this period, your loved ones will be covered. If the term passes, you can extend the policy or choose another type of insurance.
Full life insurance
This type of insurance completely covers the applicant for life. In this case, the policy does not specify the term. The cost of insurance premiums will also vary because some insurers even pay dividends during the term of the insurance contract.
Limited Payout Insurance
Limited payout insurance means insurance for life, but you only have to pay premiums for a certain period of time. For example, if you took out a policy for 20 years and you make transfers during that time. However, after that period, if nothing happens to you, the insurance will still be valid, but you don’t have to pay anything. This type of insurance is advantageous, but it is considered the most expensive. This is because premiums are accrued in advance to make up for the period when you won’t be making premiums.
Universal life insurance
This type of insurance can also be compared to whole life insurance. But unlike it, universal insurance has more flexible terms and conditions and the insured has more options to choose from. He can take out a policy not only for death but also for illness. The number of benefits will depend on the size of the investment. Accordingly, the higher they are, the more compensation the heir receives.
Life insurance up to 100
Some residents of Canada choose to take out life insurance for up to 100 years. This policy will provide full coverage for life in case of an emergency. The premiums will be minimal. After you reach 100 years of age, you won’t have to make a payment to the insurer because the insurance covers everything.
Renewable insurance
This type of insurance is not the most popular service in Canada. If you want this type of insurance, you will have to pay premiums every year. The policy can be renewed an unlimited number of times. This option will be convenient for those who have not decided on long-term insurance or whose health status does not yet allow them to do so. If we compare the cost of such a service, it is quite expensive.
How does life insurance work in Canada
So, how does life insurance work in Canada? Insurance benefits are for the policyholder’s heirs in the event of the policyholder’s death. However, money may not be paid out in certain situations. For example, if the person intentionally risked his or her life or committed suicide. The choice of insurance service will depend directly on the person who applies to the insurance company. The main thing is to understand what expenses are required to be covered in the future.
If you do not want to burden your relatives, you should choose insurance that will cover not only the funeral expenses but also the repayment of all debts. This category can also include credit obligations, expenses for daily living, future purchases, or education. When choosing the right option, consider that you will have to make contributions every month or every year.
What’s the difference between term and life insurance
Term insurance policies will be more expensive than those you take out for life. This is because it is more likely that their holders will outlive the coverage. After the term ends, many Canadians re-insure. The number of premiums will depend directly on the insurance company’s terms. In most cases, it will be the same for the entire term of the insurance.
Also, the amount of premiums depends on the age of the person. The younger and healthier he is, the less he will have to pay. The amount of payments is also affected by the period of insurance: the longer it is, the lower the amount. Despite the apparent benefits, investing in life insurance is not an option for everyone.
What to do if the policy has expired
Before taking out a term policy, keep in mind that when it expires, all of your premiums will be canceled. In other words, if nothing happens to you while the policy is active, you won’t get anything when it expires. If you have a life insurance policy, on the other hand, you are more insured against accidents.
You can cancel it at any time by contacting your insurer and writing an application to that effect. In that case, however, all of your premiums will be burned off irrevocably. Before you sign a life insurance policy, read all the terms and conditions carefully. If you do not have the legal knowledge, it is advisable to contact a trusted professional for advice. Remember: Life insurance is an investment in the future of your descendants!