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Do You Need Life Insurance in Canada?

The concept of life insurance is one of the most discussed topics and yet some people fail to understand its importance. There are so many quotes stressing the need to have life insurance for your family and loved ones, some of them are penned below. 

“If a child, a spouse, a life partner, or a parent depends on you and your income, you need life insurance.” ― Suze Orman

 

“I don’t call it “Life Insurance,” I call it “Love Insurance.” We buy it because we want to leave a legacy for those we love.” ― Farshad Asl

 

“Life Insurance is the only tool that takes pennies and guarantees dollars.” ― Ben Feldman

 

“A man who dies without adequate life insurance should have to come back and see the mess he created.” ― Will Rogers

 

“A policy of life insurance is the cheapest and safest mode of making a certain provision for one’s family.” ― Benjamin Franklin

 

A life insurance policy is like a security net, that won’t let your family fall when you are not around to catch them. Are you still wondering whether you need life insurance? Well, I dedicate this post to you.

Read: Understanding the Old Age Security Pension (OAS)

What is Life Insurance?

A life insurance policy is a legal contract that would ensure financial aid to your family in case of your demise. It is a legal contract between an insurance company (insurer) and an individual taking the contract (insuree). The life cover – the amount your family would get is pre-decided and is tax-free while receiving it. In return, the policyholder is liable to pay monthly, quarterly, semi-annually, or annual fees, known as premium till the policy term ends. 

In case of your unfortunate demise, it helps your family or beneficiaries to live a comfortable life. It is like taking care of them and making them feel that you are around them, even if you are not available physically. Some of the main factors that can be handled with a life insurance policy sum are listed below. 

  • Funeral cost 
  • Estate fee
  • Daily living cost 
  • Paying off debts if any
  • Child’s education expense
  • Taxes on various items like home, investments, etc. 

How to Decide – Do You Need Life Insurance or Not?

As stated earlier, a life insurance policy is in place to help your family members have financial support after your demise. If you have an amount saved to cover the following, it is alright if you don’t buy a life insurance plan, otherwise, you must. As you imagine, you wouldn’t want to leave your family in distress, right?

Mortgage or Debt Payment

If you have taken on debt or have purchased your home on mortgage, it would be expensive for your family to continue doing so without you. You need to have provisions to fill the gap, and that provision is a life policy. It should ultimately replace your earnings. 

Your Child’s Education

Giving a good lifestyle to kids is the desire of every parent. Whether you are a single parent or share this responsibility with your loved one, colleges are pretty costly. You wouldn’t want your child to miss out on such an important part of life, and thus either you should have that amount of savings or life insurance that can make sure that your child’s future remains bright. 

Miscellaneous Expense Cover

This includes paying for funerals, estate fees, making a gift to charity, etc. Buying a life insurance policy would help your family cover all these expenses in your absence. 

In Canada, employers provide death benefits. So, if your employer provides you with life insurance, it is great, but that is tied to your annual income’s “x” percent. If you feel that that amount would be enough for your family to cover all the expenses and live a happy life, you can choose not to buy a life insurance policy. In all the other cases, you must. 

What are the Different Types of Life Insurance in Canada?

There are mainly two categories of life insurance plans in Canada as stated below. 

Term Life Insurance

In a term life plan, the policyholder is covered for a certain time frame like 10 years, 15 years, 20 years, etc., or till the person reaches a certain age. If the insured individual dies within this phase, the beneficiary gets a lump sum amount. But if nothing happens to the insured person, there are no payments made, and no return is given. 

This policy does not have cash value and thus you would not be able to borrow money against it. Also, if you cancel this, you receive nothing. A few term policies are qualified for renewal. In case of failure to pay the premium amount, the chances are high that your policy would be nullified. When compared to a permanent life policy, a term policy is indeed less costly. 

Term Life Policy for a Couple

There are two types for a couple’s term life insurance policy. If you think that the coverage you get from your employer is not enough, you can opt for any of these. 

1. Joint First-to-die Term Insurance

  • It lets two individuals get insured under a signal term policy. 
  • The policy gives death benefits when one of the partners dies.
  • The coverage is the same for both partners.
  • This is not as expensive as buying two separate term insurance policies.
  • It can get complicated in case of separation.
  • It covers just the first individual death in consideration, if one partner dies, the other has to apply for another life coverage. 

2. Single Term Insurance

  • It is a separate policy for each partner. 
  • The coverage amount is also separate for each partner. 
  • Compared to a joint policy, this costs more. 
  • In case of a separation, the change of beneficiary is easier in this policy. 

Permanent Life Insurance

This insurance plan gives you a lifetime of coverage. The beneficiaries would get coverage amount in case of your unfortunate demise during the insurance policy in place. This also has a cash value and thus if you want to borrow money against it. But if you fail to repay the money, it would reduce the amount of your coverage. You can get a refund if you cancel it. Though it would be less than the premium amounts paid. 

There are two types of permanent life plans as stated below. 

1. Whole Life Insurance

In this type of permanent life policy, you get death coverage for a lifetime. There would not be any change in your insured sum and it has a minimum guaranteed cash value as well. 

2. Universal Life Insurance

This option is good for individuals that want investment options in their life insurance policy. Here, the investment account works as a cash value and allows withdrawals and borrowings. 

Though depending upon the investment amount you want to have and the return you desire on the same, your investment account’s cash value may vary. 

The best part is that you can choose how you want to invest your premium amount, it can also be increased or reduced as per your preference. Note that as your investment return reduces, it would hike your premiums. 

Conclusion

While it is true that buying an insurance policy when you are young is cheaper, it holds importance at any age. The goal is to secure your family, and you can’t go wrong with it based on age, right?

“You don’t buy life insurance because you are going to die, but because those you love are going to live.”

I hope this article has helped you to answer your questions, and you can make an informed decision based on your needs. All the best! 


Jason Cohen

Jason is a writer and personal finance expert at YourFirst.ca. He is a finance enthusiast and loves to talk about Canadian Finances, Real Estate and Financial Freedom. He is an advocate for financial literacy and is helping to make a difference by educating Canadians on personal finance via his platform at YourFirst.ca

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1 Comment
  • Bob
    10:33 AM, 12 May 2021

    Do You Need Life Insurance in Canada? – My answer before reading this article: Not sure, My answer after reading this article: Yes Definitely, Obviously.
    Loved the quote you mentioned in the conclusion! “You don’t buy life insurance because you are going to die, but because those you love are going to live.” BTW nice post.

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