Education on what life insurance is and clarity around which policy is best for you could mean the difference between your family financially thriving or having a financial disaster on their hands. So, let’s get to the frequently asked questions my clients ask me when they are preparing to purchase a policy.
What is life insurance?
This is an agreement between yourself and the policyholder where you pay a predetermined amount so that in the event of death, your beneficiary will receive an agreed-upon amount. It serves two main purposes: to ensure that any debts or dependents are taken care of and to help build wealth.
The two types of policies you should be aware of are term life insurance and permanent life insurance.
Term life insurance vs permanent life insurance
Term Life Insurance
This type of insurance is similar to a mortgage in that you have to renew it every time the term is up. Term life insurance does exactly what you would expect it to do: offer financial coverage in the event of death. If you’re young and in good health, you can get lots of coverage, and it will be inexpensive, but the downside is that cost will most likely increase when your term has ended. This life insurance is excellent for business owners and families with a new mortgage.
Permanent Life Insurance
Permanent life insurance offers lifelong coverage and provides tax-preferred cash value growth. This type of coverage is for the individual who has taken full advantage of their other registered investment accounts such as TFSA and RRSP. There are many advantages to this type of insurance.
For instance, even if your health deteriorates you are still covered, and your cost won’t fluctuate– it will remain the same indefinitely (with most types of this insurance). This type of life insurance is for the person who is in a higher tax bracket. They have built up wealth that will be left behind to their family or an organization of their choice.
How to choose the right policy for you?
The first thing that is important to decide on is whether or not a term or permanent life policy is for you. Term life insurance is perfect for people who are looking for coverage until they pay off their mortgage and are looking to be covered while their children are still financially dependent.
Whereas, permanent life insurance is for those who have built up an estate. It offers lifetime coverage and supports further growth of assets. While it is the more expensive option, it will offer coverage no matter what your health is and the price will remain the same indefinitely (depending on the policy you chose).
How to choose your beneficiary?
Your beneficiary can be one person, multiple people, a trust or an organization. If you are naming multiple beneficiaries you can assign percentages that you would like each party to receive. Many people also consider adding a contingent beneficiary in the case of your beneficiary passing away.
You are always able to update your beneficiary without it affecting your policy.
How to choose a life insurance coverage amount?
The best way to estimate the coverage you need is to add up all the expenses you want to cover (mortgage, your child’s tuition fees, any additional debt, and income replacement). The number that you get is the amount you want to be covered for. If the number seems high, don’t worry about it. Get a free quote (here) and see if the policy for the coverage you need is affordable if it is not buying what you can afford and reevaluate when the term is up.
There you have it. The frequently asked questions when my clients decide they are ready for life insurance. Are you ready to take the plunge? Get in touch, I can help!
