Different types of life insurance
Thinking about life insurance can be done at any point in your life and can benefit you, your assets, and your loved ones. While dismissing the thought of life insurance is common amongst most Canadians, insurance may be more relevant than most people realize.
As you look through insurance companies and policies, you may realize the different types of insurance available. Each kind of life insurance comes with its own advantages and drawbacks that are worth exploring before making your decision.
By Gabby Ortega · 26 August 2023
What is life insurance?
Before going through the different kinds of insurance available to Canadians, understanding life insurance is essential. Most people ignore life insurance altogether because of its implications. However, premature death is essential to consider for your relatives’ sake.
Life insurance can do more than pay for funeral expenses and provide to your beneficiaries. They can also provide financial support to your family, repay any outstanding balances, or make a charitable donation. If none of those options appeal, you can entrust your assets to your estate. All types of life insurance can give you peace of mind that what you leave behind will be safe. With that in mind, the next step is determining what type of life insurance is best for you.
Term life insurance
One of the popular types of insurance is Term Life insurance, which typically protects until age 80 to 85. As a result, the policy gets its name because you can choose how long you want your coverage, from a choice of 10, 15, 20, or 30-year terms. Because of its lower price than Whole Life insurance, Term Life is a popular choice.
Each policy’s cost is relevant to the length of the term and may or may not be renewable. Premiums may have different details depending on the company, but you can expect the insurance to be customized to your specific needs.
Benefits
- Flexible
- Straightforward coverage policies
- Budget-friendly option
- Temporary supplemental option
- Can be cancelled anytime
Limitations
- If electing to renew another term, premiums can increase substantially.
- Will expire at age 80 or 85 and not applicable for estate tax planning
Term 100 life insurance
A notable stand-out is the Term 100 policy (T100), which is a type of permanent life insurance despite its name. In T100, you pay the premiums until you reach 100 years of age. If you surpass 100 years old, you stop paying, but the death benefit will still pay out. T100 is the most basic form of permanent life, so the premiums are fixed with no cash value.
Benefits
- Simple and easy to understand
- Budget-friendly level premium
- Guaranteed tax-free death benefit
- Lifetime coverage
Limitations
- Static death benefits can slowly lag with inflation
- Rarely comes with the option to pay-up over a shorter period of time.
Permanent life insurance
The counterpart to Term Life insurance is Permanent Life insurance, which may be a more favourable option for those who want to invest in lifelong insurance policies. Regardless of how old you get, Permanent Life premiums typically remain constant. Often used for funerals, final expenses and taxes, premiums may also be paid up over a short period of time to allow for planning and paying for final arrangements.
A unique aspect of permanent life insurance is that some can allow people to earn cash value in a tax-advantaged way. Borrowing or leveraging the cash value of a life insurance policy can be a handy source of financing in more urgent situations. In Canada, you can find up to four types of permanent life. They are Whole Life, Participating Whole Life, Universal Life, and Term 100.
Benefits
- Lifelong insurance coverage
- Possible to borrow from the policy’s cash value
- Possible to increase death benefit
- Adjustable premium payment amount and frequency
- Predictable death benefit and premiums, great for tax planning
Limitations
- Higher price point in comparison to Term Life
- Higher complexity of policy structure can require increased assistance from a licensed advisor
- Some policies are market-dependent for cash value growth and therefore come with elevated risk
Whole life insurance
A basic form of permanent life insurance, Whole Life is a complete package where the premiums you pay, the death benefit received, and the cash value are all guaranteed. It gives you just what you need, which are stable premiums and financial protection for your family. The fully guaranteed aspects make Whole Life insurance a reliable planning tool for those relying on life to perform as expected over a lifetime.
A unique aspect of permanent life insurance is that some can allow people to earn cash value in a tax-advantaged way. Borrowing or leveraging the cash value of a life insurance policy can be a handy source of financing in more urgent situations. In Canada, you can find up to four types of permanent life. They are Whole Life, Participating Whole Life, Universal Life, and Term 100.
Benefits
- Fixed premiums provide stability
- Lifelong coverage
- All values are guaranteed
Limitations
- Cannot change premiums
- Policy guarantees and values come at a higher price point than T100
Participating whole life insurance
By combining insurance policies with wealth growth, you have Participating Whole life insurance. A subtype of Permanent Life insurance that allows your policy to grow from the dividends of the insurance company. Participating Whole Life policies typically contain both guaranteed and non-guaranteed cash value growth. The earned dividends may be taken in cash or be used to buy more insurance, adding death benefit and cash value to your policy. Your beneficiaries enjoy a tax-free death benefit, and you enjoy asset growth and lifelong coverage.
Benefits
- Coverage for entire life
- Can accumulate cash value
- Hybrid between investment and insurance coverage
- Both guaranteed and non-guaranteed cash values
Limitations
- Additional premium deposits are required for any considerable growth
- Policies can be very complex
- Can require expert advice to navigate options on how to structure them properly
Universal life insurance
Another type of Permanent Life insurance is Universal Life. Like Whole Life, it allows you to grow the cash value of your insurance policy and receive lifelong coverage. The distinction between the two is that Universal Life derives its tax-advantaged growth from investments tied to the stock market. Premium deposits are flexible and make an attractive option for business owners and entrepreneurs to protect and grow their business assets. On top of that, Universal Life also gives you the other basic insurance components such as access to cash values and tax-free death benefit to your family.
Benefits
- Flexible investment options including managed portfolios and guaranteed interest
- Opportunity for tax-advantaged cash value growth
- Flexible control over investment selections
- Flexible premium deposits
Limitations
- Due to market dependency, growth can fluctuate
- Dropping interest rates aren’t beneficial
Conclusion: Finding the right insurance for you
Many Canadians wonder what the best insurance policy is, but the most suited insurance will be different between individuals. Insurance companies will have a variety of products to accommodate your lifestyle, your financial situation, and your other preferences. Choosing the right company and insurance may take time, but the search will be worthwhile.
Contact Amur Life today and a Life Insurance Advisor will get connected with you right away. Each person is an expert in life insurance and will answer any of your questions. Whether you want to go into further detail about each type of life insurance or you would like to discern what the best-suited insurance policy is, Amur Life’s Insurance Advisors will have a response.
What topics are covered in our FAQs ?
Frequently asked questions
I have benefits at work, do I still need to own my own life insurance?
The necessity for life insurance ultimately depends on your specific situation, financial, personal, or otherwise. Regardless of the situation you are in, getting your own Life Insurance policy will benefit you by always being there when your family needs it the most.
What is the most popular type of life insurance?
In Canada, Term Life insurance and Whole Life insurance are the two most popular choices. They each provide individuals with their own set of advantages and cater to more varying financial needs.
Do I get my money back if I cancel my life insurance?
If you cancel during the 30-day free trial period, any premiums paid will be refunded. Cancelling life insurance should be carefully considered, and never done in haste. As health and age increase, so does the cost and availability of coverage