• Leilah Perchaluk

What is life insurance? What type should I get?

Updated: Oct 14, 2020

Life Insurance can be difficult to comprehend due to the fact that it is not usually dinner table conversation, nor do we like to discuss our own demise. Though, it is and should be a vital part of one’s financial portfolio.

Life insurance is a great way to protect the people who depend on you against financial struggles due to the loss of your income. It is a legal contract between you (the policyholder) and the insurer you have chosen (Manulife, Canada Life, Industrial Alliance etc…). In exchange for month or annual payments The insurance carrier promises to pay your designated beneficiary a sum of money (the death benefit) tax free.

The cost of the life insurance you agree to purchase is dependent on your age, gender, health, medical history and your lifestyle.

There are two basis categories of life insurance you can purchase:

1. Term Insurance

2. Permanent Insurance

Let’s dive a little deeper.

Term insurance is temporary insurance, it is easily the simplest life insurance you can buy as there is an end date and there are rarely bells and whistles accompanying your policy. This can be compared to renting an apartment. You live there as long as you pay your landlord the rent, as soon as your lease is up you are either no longer allowed to live there or your prices may increase for your next lease.

Term insurance will give you a fixed amount of coverage for a specific period of time. Usually for 10 or 20 years, depending on your needs. This product is usually used to cover off mortgages, debt, and income loss in the case of premature death.

Permanent insurance means there is no end date and your monthly or annual premium payments will never change. There are 2 types of permanent insurance: whole life and universal life.

Whole life insurance is just that, insurance for your whole life. The premium payments remain level and it protects your family while also building up a cash value inside your policy. You are able to protect your family and also work towards long term financial goals.

Universal life insurance is the most flexible type of protection that offers both permanent and term coverage with adaptable payment and investment options.


What type should I get?

If you have short term needs for insurance, examples include: a 20-year mortgage on a house, children or a spouse that is dependent on your income, and/or needs for an education fund for your children. Term insurance is right for you.

If your needs are long term, you should consider purchasing permanent insurance that will last you for your whole life. If you expect to have considerable capital gains taxes, you would like to leave a charitable gift, you would like to begin a legacy plan or succession plan you should learn more about the products available under the umbrella of permanent insurance.

The way to get the best value out of your life insurance is to match it to the amount of time you want to cover. You shouldn’t buy a policy that lasts longer than you plan on needing protection and you shouldn’t buy term insurance if what you really need is something more permanent.

Life insurance can seem complicated when we make generalizations and use other people as examples, but truthfully it can be quite simple when you can relate it to your own personal situations.