Should I Get Life Insurance?

_{By Loans Canada | 1142 words | Reading Time: 5 minutes and 42 seconds | Date: 2022/09/02}

What does life insurance mean, and do you need it? Life insurance transfers the financial risk of death to the insurance company. In return for the premium payment, the insurance company promises the beneficiary a payout following your death. Premiums are based on the customer's risk profile. Anything that increases mortality risk also increases the cost of life insurance.

Do I Need Life Insurance?

Consider if your family would be financially strained without your income. Do you have any existing debt, like student loans or a mortgage? Or a business with employees, taxes and bills that need to be settled?

If you are reliable for any of the following you might want to consider getting life insurance:

• Supporting a family
• Children's education
• A business
• A mortgage
• Debt (consumer, student, etc.)

What Forms Of Death Are Covered By Life Insurance?

Life Insurance typically covers most forms of death, insurable deaths are:

• Old age
• Illnesses
• Accidents

Suicides may also be covered depending on your insurance agency. In the case of a homicide, the death is typically covered given that the insured has no role in the murder.

What Forms Of Death Aren't Covered By Life Insurance?

When shopping for life insurance you might find that certain aspects of your lifestyle, job and family history require extra coverage. This is usually because lifestyles considered to be ‘risky’, require the insurance agency to compensate for the added risk.

 

You may be required to pay an added premium if you:

 

• Have A Hobby That Is Considered ‘Risky’ - Dangerous hobbies can be understood as any extreme sports like skiing or snowboarding.
• Suicide - Suicide is generally covered unless the suicide happens within the first two years of purchasing life insurance.
• Smoker - If you are or were a smoker or use any recreational drugs without notifying your insurance provider, it is likely that your death will not be qualifiable for a payout. If you do notify your insurance provider, you will most likely be required to pay a higher premium. 

 

In some cases, your insurance provider may not provide the death payout if:

 

•  Expired life insurance policy
• Committed insurance fraud
• Died while committing a criminal activity

 

Medical Expenses and Terminal Illness

Named the ‘Accelerated Death Benefit’, this is an add-on is meant to alleviate financial stress during the end of your life. Usually, this occurs when facing a critical or terminal life illness/disease with a maximum life expectancy of 2 years.

What Age Should I Buy Life Insurance?

Typically, it is best to purchase one while you’re young and in good health with no pre existing conditions as you’ll qualify for cheaper premiums. As you grow older, your risk of dying increases which can make your life insurance premiums much more expensive.

What Kind Of Life Insurance Is Available In Canada?

There are several different types of life insurance policies available in Canada.

Term Life Insurance

Term life insurance provides coverage for a certain number of years, typically 5 to 30 years. It tends to be cheaper than whole life insurance as you’re only covered for a fixed period. Moreover, there’s no cash value and you can generally cancel your policy at any time.

Should You Get A 10 Or 20-Year Term Life Insurance Policy?

Whether you should get a 10 or 20-year policy depends on your insurance needs. For example, if you’re looking to cover a debt obligation you expect to fulfill within 10 years, then a 10-year policy should suffice. Similarly, if you have more long-term debt, then a longer term would be better as your premiums would remain the same for that time. If you choose a shorter term and renew at a later date, you may end up with a more expensive policy.

Whole Life Insurance

Whole life insurance (aka permanent life insurance) provides coverage for your entire life. This form of life insurance is more expensive than term life insurance but comes with an investment benefit called “cash value”. With each payment you make, a portion is deposited into a savings account which accumulates interest.

 

Your cash value can be used as a financial safety net by taking a loan against it or by withdrawing money from it. You can also end your policy and simply take the cash value.

Term Insurance or Whole Life Insurance?

 

	Term	Permanent
Insured Amount Of Time	Insured only for a set amount of time Chosen by the insured.	Insured for a lifetime without an expiry date.
Payout Benefits	Aid family members with lost income. Pay post-death bills like existing debt, funeral costs and mental health support.	Aid family members with lost income. Pay post-death bills like existing debt, funeral costs and mental health support. Builds cash value over time. Property, Goods and Fortune Planning
What's the cost?	Depends on the Insurance provider. Typically more affordable than Permanent life insurance.	Depends on the Insurance provider. Typically less affordable than Permanent life insurance.
Does the payout amount build cash value over time?	No	Yes
Benefits	The relative who receives a one-time tax-free payout is chosen by the insured. Can change coverage over if needed.	The relative who receives a one-time tax-free payout is chosen by the insured. Can access funds while still alive.

 

What Factors In Canada Are Considered When Determining My Insurance Rate?

Age

Life Insurance rates are most often cheaper when you are younger as the assumed risk is lower for the insurance company. This is because the older you are, the risk of medical and natural lead deaths are typically higher.

Gender

The average life expectancy in Canada is 84 years old for women and 80 years old for men. In general, women tend to live longer than men and due to this disparity, an insurance policy will likely cost more if you are a man.

Health

Insurers prefer healthier applicants as they tend to live longer. Though not all insurance agencies require a full assessment of your health, some may ask you health-related questions to assess your health alongside medical tests and health records.

Smoking

Smokers are more likely to develop serious illnesses such as a stroke or different types of cancers, thus making them a liability for the insurer. To compensate for the added risk, insurance companies ask smokers to pay extra on their premiums.  If you’ve stopped smoking for a year before applying for life insurance, you will be asked to pay a higher premium, but likely not as much as an active smoker.

Family Health History

Your family medical history is taken into consideration when calculating the cost of life insurance as it is an indicator of your own health later in life.

Occupation and Hobbies

The cost of life insurance depends on the level of risk you are to insure. For this reason, if your job involves performing dangerous tasks then your premium will be raised.

Driving Records

Recent traffic violations and negligent accidents can significantly increase the cost of your life insurance. In some cases, a DUI conviction may even exclude you from coverage altogether.

Bottom Line

Life insurance is a great way of insuring your family’s financial security in the event of your death. If you’re interested in purchasing life insurance, make sure to discuss all details with your insurance provider and choose a plan that makes the most sense for your lifestyle and the needs of your beneficiaries.