If you’re the sole income earner for your family, you need life insurance. If you have a spouse or a child(ren), they are dependent on your income so you will need life insurance. A general rule of thumb is to get a policy with a face value of at least 10 times your annual income (e.g. $700,000 policy if you earn $70,000). However, the amount of insurance you need really depends on things like how much debt you have and your expectations for the money (e.g., how long it needs to last).
Are you receiving child or spousal support? You should ensure those payments are insured, as well, incase something happens to your ex-partner. There may not be enough money in his or her estate to cover any ongoing support obligations.
A simple term life insurance policy can help protect the financial security of the people you love by paying them a tax-free, cash benefit when you die. Although you won’t be around to reap the benefits, it’s up to you to make sure you have not only ENOUGH insurance, but also the right TYPE of insurance, to adequately protect everyone who’s depending on you.
What type of life insurance is best for me?
There’s no “one-size-fits-all” type of life insurance. You need to look at your personal needs and current situation, the stage of life you’re at, and what you can afford. The cost of life insurance can vary based on your age, sex, health, lifestyle and medical history. The best solution may even be more than one type.
They are 4 main types of life insurance — term, permanent, participating and universal
Term life insurance:
Term life insurance is like renting an apartment. It gives you temporary and flexible protection from the financial impact of your death for those who depend on you. The cost won’t increase for the length of the term but will increase if you renew your coverage at the end of the term. You’ll also have the flexibility to convert to a permanent, participating, or universal life policy in the future. The death benefit is paid out to your beneficiary(s) as a tax-free, cash payment if you die before its expiry. Term life insurance is most suited if you have a young family and/or a mortgage; you’re looking for the most affordable option or if you’re a business owner who needs protection for a limited time.
Permanent life insurance:
Permanent life insurance gives you lifelong protection from the financial impact of your death. There’s an opportunity for tax-preferred cash value growth. Permanent insurance also pays out a tax-free, cash payment upon death, to your beneficiay(s) without a time limit. Some benefits are premium costs are guaranteed for life when you first purchase the policy and some plans even allow you to pay for a guaranteed number of years just like a mortgage. However, monthly premiums are more costly compared to term insurance.
Participating life insurance:
Participating life insurance gives you guaranteed lifetime protection. You get the opportunity for tax-preferred cash value and death benefit growth. Policies are eligible to receive dividends, which you can use to increase your coverage or reduce your premiums, leave on deposit to earn interest, or take as cash. It pays out a tax-free, cash payment upon death, to your beneficiary(s) without a time limit. Costs are guaranteed for life when you first purchase the policy, although, some plans allow you to pay for a guaranteed number of years and then never again.
Participating life insurance may be for someone who is looking for a guaranteed amount of coverage along with a guaranteed cost; an opportunity to increase your death benefit over time to keep up with inflation; you’ve maximized your RRSP and TFSA contributions and are looking for a tax-efficient strategy to grow your non-registered investments; prefer a hands-off approach to your investments or if you’re a business owner searching for a tax-efficient way to protect your business value.
Universal life insurance:
Universal life insurance gives you guaranteed lifetime protection combined with tax-preferred investment options. You get the opportunity for tax-preferred cash value and death benefit growth. Just as all other life insurance, when you die, with no time limit, your beneficiary(s) receives a tax-free, cash payment. Some benefits of choosing Universal insurance are: a) you choose how much you want to pay, as long as it’s enough to keep the policy in force, b) any amount over and above the cost of insurance is deposited into a tax-preferred account invested based on the options you select. Universal life insurance if for someone who is looking for flexible lifetime insurance coverage with the opportunity for tax-preferred savings; you’ve maximized your RRSP and TFSA contributions and are looking for a tax-efficient strategy to grow your non-registered investments; you prefer a hands-on approach to your investments or you’re a business owner searching for tax-efficient ways to protect your business value.