Life Insurance De-Mystified

Life insurance in Canada provides a tax-free benefit to an Estate or named beneficiary, in case of an insured person’s death. For families, life insurance can help prevent the stress associated with a sudden passing and financial obligations such as housing costs, debt, and living expenses.


Who needs life insurance?

Anyone whose death would cause financial hardship. This could include any immediate family member, not just the primary income earner.


How much life insurance is needed?

That depends on each situation. One starting ballpark could be 10x annual income. However, high mortgage or other debts need to be considered. As does the valuable work that a stay at home parent does. A licensed insurance advisor will do an insurance needs analysis that will help determine the right amount for your family. Affordability also plays a part, and modifications can be made to put appropriate coverage in place.


What type of life insurance is best?

There are two types: Term and Permanent.

Term insurance is like your car insurance – you pay a guaranteed rate for a set amount of time and when you don’t need it anymore, you cancel. Common terms are 10 and 20 years. A sample cost for a 35-year old non-smoking couple (male, female) for $500,000 Term 20 life insurance policy each ($1 million total) is ~$65/month.

Permanent insurance stays in place as long as you (or the cash value) is paying for the policy. Depending on the type of policy you get, there can be accumulating cash values or you can have flexible premiums. As expected (because the insurer will be paying this out at some point in the future) permanent insurance costs more. A sample cost for a 35-year old non-smoking couple (male, female) for $50,000 permanent life insurance policy each ($100,000 total) would be ~$85/month.


How do I get life insurance?

Work with a licensed insurance advisor. Once the advisor has helped you determine the amount and type (or mix of term & permanent coverage), he or she will help with eligibility and finding the best fit. Factors such as lifestyle, occupation, height/build, drug use (past or present), medications, recent medical history, upcoming tests/surgeries, etc. can all play a part on whether life insurance is available and from which company. There is a range of medical requirements from guaranteed issue (very few questions, but most costly) to full underwriting (including blood/urine tests) which helps determine exact risk (and therefore may provide the best rates, for healthy individuals).

The May 2017 Canadian Genetic Non-Discrimination Act means that no insurer can use genetic testing (pending or results) to determine life or health insurance eligibility. However, family history and non-genetic tests are still used and must be disclosed.

When you arrange your mortgage the bank will offer you life and disability mortgage insurance. For various reasons, it’s best to look at individual life and disability insurance rather than going with the cookie cutter option they offer.


As always, get in touch if you have questions about insurance for your family.


–       Alyx

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