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Find Out Why Every Canadian Needs Life Insurance: The Top 3 Benefits

Dec 30, 2022 | Insurance, Life Insurance

If you feel concerned about your family’s future in case of your death, consider buying life insurance. Though life insurance may seem like a large investment, it creates a backup plan that will provide your family with funding upon your death. Furthermore, the benefits of life insurance include helping to pay for burial and other unexpected costs when you pass away. 

According to the Canadian Life and Health Insurance Association, life insurance companies paid out a total of $14.3 billion in benefits to clients throughout Canada in 2021. This figure included $8.8 billion in death benefits and $5.5 in other payments such as disability benefits and dividends. Thus, life insurance companies provide significant financial security and reduce stress after the loss of a loved one. Let’s summarize the top 3 benefits before we dig into the particulars of how different types of life insurance plans work.

1. It Protects Your Family from Financial Difficulty

Managing the death of a loved one is a mentally and emotionally taxing process that can cause your loved ones extreme stress. Investing in an individual policy for life insurance guarantees that you don’t add financial stress to their mourning process, as it provides funding for costs associated with the passing of a family member.

2. The Death Benefit and Payout Are Tax-Free

Your beneficiaries will receive a tax-free payout upon your death. Thus, if you are the primary breadwinner or have debt that you don’t wish to pass on, your life insurance policy will provide your beneficiaries an extra sum of money that can help them get through their time of mourning.

3. You Don’t Have to Commit to Permanent Life Insurance Until You’re Ready

If you have a small family or don’t feel like you’re old enough for permanent life insurance first, you can always start with a term life policy. This ensures that your family will receive a death benefit in the unlikely event of your passing but doesn’t lock you into payments for life. If you want to change from term insurance to life insurance, you can likely request to switch with your company with no penalties.

What Is Life Insurance?

Life insurance is a contract between you and an insurance provider. It guarantees that a pre-assigned beneficiary will receive a tax-free death benefit upon your death. Insurers provide this payment in the form of a lump sum.

In return for this tax-free benefit, you must pay a monthly premium. Most people invest in life insurance to ensure that their family does not suffer financially immediately after the passing of a family member. For example, if you are the primary provider of income in your family, a death benefit can provide a cushion in the event of your death to help your family continue in their lifestyle. Life insurance comes in many forms and is accessible to almost anyone who requires it. Whether you are single, are a senior, are a parent or even someone with cancer, there is a policy out there for you.

Death benefits can also pay for medical bills, outstanding debts, and other unexpected costs that may arise when you die. Some policyholders also invest in life insurance for estate-planning purposes.  

What Is a Death Benefit?

A death benefit is an official term for the payout that your beneficiary receives when you die. Some companies offer an extra sum along with the original death benefit in the event of death by a terminal illness or other unexpected events, though this varies depending on which policy and company your insurance broker suggests. 

Who Should I Assign as My Beneficiary?

Most people name one or multiple members of their family as beneficiaries. This may include your spouse, dependents, and any other family member that you believe should receive a death benefit in the event of your passing. Some policyholders opt to name a close friend or even a charitable organization as their beneficiary. 

If you choose multiple beneficiaries, you must assign a specific percentage of the death benefit to each beneficiary. Furthermore, you can name your beneficiaries as either revocable or irrevocable. You have the right to remove revocable beneficiaries from your policy at any time without notifying them. 

If you choose to assign an irrevocable beneficiary to your life insurance policy, you cannot remove them from your policy freely. Rather, you must ask for their written permission to remove them from your policy or perform other changes. According to Insurdinary, “one of the most important considerations when you purchase a policy, is naming your life insurance beneficiary”.

Term vs Permanent Life Insurance

There are two types of life insurance that you can request from your insurer: term and permanent. Term life insurance will provide you coverage for a set time. Most companies offer term life insurance policies in decade segments (10, 20, or 30 years), and you can usually renew your policy (until a certain age or a certain number of times). 

On the other hand, when you invest in permanent life insurance, you will receive lifetime coverage. Some permanent life insurance policies include an investment account enabling your money to accrue cash value as you pay into the policy. Other policies simply give you a set monthly premium rate in return for your beneficiary(ies) receiving their lump sum in the event of your death. 

Term policies are fantastic for anyone who wishes to protect their family from financial ruin in the event of a sudden death. However, most policyholders tend to outlive their term policy, meaning they must either renew or change to permanent life insurance at some point in their lives.

When renewing a term policy, the cost of your monthly premium will rise based on your age. Your health condition will also affect your eligibility and premium cost. Term policies are ideal for young families and anyone who has debt that they do not wish to pass on to their family. Likewise, a term policy is a great option for anyone who is not sure if they are ready to invest in permanent life insurance.  

Most companies allow their customers to change from term to permanent life insurance if they stay, meaning that they will not lose any of the monthly payments that they have already made. Rather, they will count toward your new plan. 

Types of Permanent Life Insurance Policies 

When buying permanent life insurance, you will pay a higher premium than term insurance. This occurs because the company must pay out a death benefit on your behalf when you die. To ensure that the cost of your premium is as low as possible, it is best to invest in a permanent life insurance policy when you are younger and healthier.

We recommend permanent life insurance plans to high-income clients who cannot invest more in other tax-free mediums or who want to include their policy in estate planning. The two main types of permanent life insurance are:

  • Whole life: This is the standard life insurance plan where you can build cash value over time as you pay into it. You can also borrow money from this plan (which you must pay back to ensure that your beneficiaries receive their full lump-sum death benefit) or use it as collateral for a loan. 
  • Universal life: Universal life insurance allows you to put money into a life insurance policy and investment account at the same time. This frequently offers the highest payout to your beneficiaries, as you will also receive the same cash value accrual that you would on a whole-life policy. 

Looking for a Trustworthy Life Insurance Broker?

If you believe the benefits of life insurance can help you protect your loved ones or beneficiaries, contact Alliance Income. We are an insurance broker company with a staff full of certified experts who search for both policies and trustworthy insurance companies to meet your exact insurance needs. Contact us today to save time looking for your term or permanent life insurance policy.

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