What is life insurance?
Life insurance is a way to protect and safeguard the financial security and the future of your family and the people you love most, should you unexpectedly pass away. It is one of the main tools used by successful providers. It can give you the peace of mind that, when you are no longer able to provide for them, your loved ones can avoid the financial problems that may arise whenever a loss of income occurs.
Losing a major portion of a family’s income can potentially lead to a loss of savings, educational possibilities and even the foreclosure and loss of a house. Fortunately, life insurance can prevent these problems from occurring and it is now very affordable.
A life insurance policy pays a cash benefit, tax free, to your beneficiaries when you die. The amount of money for which you are insured and the type of insurance you purchase depends on your needs. (See below for an outline and comparison of the different types of insurance).
Life insurance may be obtained through your employer (some companies offer it to employees using Group Benefits Plans, which normally end when you leave your job) or it may be obtained by buying it on your own (usually from an insurance advisor like us).
The death benefit of a life insurance policy is the amount of money paid or due to be paid when an insured person dies. The death benefit is paid, tax-free, to the beneficiary designated by the policy owner.
Losing a family or household member often has a financial impact the death benefit from a life insurance policy can help your loved ones avoid having to rely on savings, cash and investments or even selling your home cover unexpected expenses like:
* Funeral costs
* Travel expenses to bring the family together
* Replacing lost income and health benefits
* Child care and education fees
* Home events
* Estate in legal fees
* Final Income taxes
* Outstanding debts and bill payments
How can life insurance help me?
Life insurance can help both individuals and businesses:
- Safeguard your loved ones: provide financial support to your beneficiaries which will enable them to maintain the same standard of living and help them avoid financial problems.
- Funeral: ensure that there is enough money for proper funeral and burial expenses.
- Debt: pay off personal bills, credit cards, student loans, income tax and other liabilities.
- Mortgage Protection: pay off the existing balance of a mortgage or provide an income stream to pay monthly mortgage or rent payments.
- Education: ensure that the education costs of your children are covered.
- Tax-advantaged Savings: Permanent life insurance policies accumulate cash value, which can be withdrawn at any time by the policy owner tax free.
- Taxes: eventual income taxes can be pre-funded using life insurance in order to preserve the value of an estate.
- Donations and Gifts: fund a donation to a charity or leave a gift to a family member. In some instances this can be effectively used as an income tax credit for charitable donations.
- Estate Planning: reposition or leverage your assets in order to provide additional financial security for your family.
- Loan collateral: Many lenders will consider the death benefit of a life insurance policy as collateral when underwriting a loan.
- Employee Benefits: Life insurance protection for employees is commonly included in company Group Benefits Plans.
- Executive Compensation: companies can use cash value life insurance policies (premiums often paid by the employer) as a component to executive employee benefits packages.
- Key-Person: protect your business from the loss of income and profits caused by the death of a key employee.
- Business Continuation: fund a buy/sell agreement or stock redemption plan to enable a partner or group of employees to buy the business interest of a deceased partner
- Business Loans: protection on a key employee or business owner can be used to pay off the debts of a business in the event of that person’s death.
In Canada, the benefit payment from a life insurance policy is paid directly to the person(s) you name as beneficiary and is not taxed.
What type of life insurance is right for me?
To develop the right plan to protect your family and your estate, you first need to understand the different kinds of life insurance coverage available in the features and benefits they offer.
Perhaps your needs are simple and unique just one type of insurance. Or, you may need more than one type if your situation is more complex.
Keep in mind that examining the different types of insurance with one of our advisors in determining the potential advantages each one holds for you is the best way to determine the level of financial security you need.
One of our advisors can explain how to build a plan using individually owned insurance together with other coverage you may have at work or as a member of an association.
Generally speaking there are three basic types of life insurance: Term, Permanent (or Whole Life) and Universal Life. The table below summarizes all three:
|Term insurance||Permanent insurance||Universal life insurance|
|More details on term insurance||More details on permanent insurance||More details on universal life insurance|
|Summary||Low cost, temporary protection for times of high financial risk (e.g. when you have a mortgage)||Stable lifelong protection without the complexities of universal life. Over the long term, it offers generally a better financial choice than buying and renewing term insurance||A more flexible but intricate type of insurance that combines long term life insurance with an opportunity for tax-deferred savings|
|Duration||Coverage will end at a certain age||Guaranteed lifetime protection||Typically lifetime protection|
|Amount of insurance||Once chosen, doesn’t change||Once chosen, doesn’t change||Choice of level or increasing amount of insurance|
|Cost||Lowest initial cost, but cost may increase each 5, 10 or 20 years. Cost can rise dramatically in later years||Typically guaranteed not to change for the life of the policy but some products are adjustable.
Premiums tend to be higher than term insurance when you’re younger but will be lower than term when you’re older
|Cost of the insurance may be:
|Cash value||None||A cash value usually accumulates, and is paid to you upon cancellation||Payments made, in excess of required cost of insurance, can be invested and grow tax-deferred|
Life Insurance, Critical Illness Insurance, Long Term Care Insurance: issued by Sun Life Assurance Company of Canada