Types of Life Insurance in Ontario & Canada

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When it comes to buying life insurance in Canada, it means making a lot of important decisions. Many life insurance shoppers are becoming more aware of the importance of this type of insurance. This is driving them to become more informed before they make their final decisions. Some become overwhelmed with the types of life insurance available and then the variations of these that may exist.

What Is Life Insurance in Canada?

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Life insurance is comprised of a contract that is agreed upon by the insurance shopper and the insurance provider. The insurance companies agree to provide a specific amount of money to the beneficiaries of the insured upon the insured’s death. The insurance buyer agrees to pay a specific amount of money called premiums for this insurance product.

There are various types of life insurance products in Ontario that can be purchased.

  • Term Life Insurance
  • Permanent Life Insurance
  • Universal Life Insurance
  • Whole Life Insurance
  • Term to 100

Term Life Insurance for Canadians

If you are going to buy term life insurance, then you are investing in insurance coverage for a specific amount of time. One of the choices you will have to make is how long that term is going to be for. To make that decision, it will be based on your wants and needs according to your specific circumstances.

You Should Choose Term Life Insurance

  • A lot of families have a high debt load for the first five to fifteen years of their life. If they want to be sure their family will have funds to deal with these debts in the event of a death, then term life is a good option.
  • Having a high debt load often means there isn’t a lot of extra money. Term life insurance is more affordable than many of the other types of insurance.
  • If you are concerned that your health situation may change in the future, then term life insurance is a good option. No matter what your health condition is, you cannot be denied the opportunity to renew the policy.
  • You may feel that term life insurance is your best choice now, but this may change in the future. Then you will want a term life insurance that you can convert to one of the other types of insurance.

You Should Not Choose Term Life Insurance

  • If you want options to a higher amount of insurance coverage.
  • You are not able to predict your financial situation for the future. For example, you are not sure how long your debt ratio will be high, or if it will increase
  • Perhaps you want insurance where it does not have to be renewed; therefore premiums will always remain the same.

Pros of Term Life Insurance

  • Good coverage for a high debt ratio
  • Affordable
  • Guaranteed renewal options
  • It’s convertible

Cons of  Term Life Insurance

  • Coverage amount limitations
  • Difficult to predict the right amount of coverage
  • Premiums will increase if renewed

Permanent Life Insurance for Canadians

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Permanent life insurance is the type of insurance where one continues with the insurance coverage unless they decide to cancel it. There is no specific period attached to it. This type of insurance comes with some additional options such a whole life or universal life coverage.

Whole Life Insurance for Canadians

Some life insurance shoppers want to contemplate life insurance that will be in place for the rest of their life. Not just for a specific period like that which applies to term life insurance.

You Should Choose Whole Life Insurance

  • If you want to pay the same premiums for the entirety of the policy. It is for those who don’t want to have to be concerned about renewing or buying other types of insurance later in life.
  • This insurance is a good choice for those who want insurance that has some cash value to it. Whole life insurance allows for the value to grow during the duration of the policy.
  • It is for the insurance shopper who knows exactly how much money they want their beneficiaries to receive when the insured passes away.

You Should Not Choose Whole Life Insurance

  • If you are not in a financial position to be able to afford higher premiums. Compared to those for term life.
  • If you are looking at the cash value as being a high return investment, compared to other forms of investment the cash value of a whole life insurance policy yields a lower return.
  • Some find that buying whole life insurance to be more complex and difficult to understand. Or, to make decisions about. It is because this type of insurance may come with some additional options like choosing some of the living benefits that the coverage may offer, which may increase the cost of the insurance overall.

Pros of Whole Life Insurance

  • Premiums remain the same
  • Coverage stays in effect during the life of the insurance policy
  • A guaranteed death benefit is paid out
  • There are additional options
  • There may be a cash value to the policy

Cons of Whole Life Insurance

  • It is much more expensive
  • Limited investment gains
  • More difficult to understand and more decision making

Universal Life Insurance for Canadians

Universal life insurance has a lot of similarities of whole life insurance, but it also has some distinct differences. It is these differences that the insurance shopper has to consider carefully. You can opt to pay higher premiums to increase the cash value of the policy.

You Should Choose Canada Universal Life Insurance

  • If you have the funds to be able to invest in this type of insurance. The policyholder can decide on how much more they want to pay for their premiums.
  • For those who also want to use their insurance as an investment, this insurance gives more options. Some of the decisions to be made revolve around where the investments are to be made.
  • You feel comfortable making investment decisions. Such as determining how much you want to pay in premiums, and choosing where the investment portion of the policy should be invested.

You Should Not Buy Canada Universal Life Insurance

  • If you are not interested in using the insurance policy as part of your investment portfolio. This type of insurance comes with more decision making. Some individuals find this too burdensome.
  • You are not in a position where you can afford to pay higher premiums. If you are not able to pay higher premiums, then it reduces the opportunity to grow the investment portion of this type of insurance.
  • Some individuals are not comfortable with having to make decisions as to where the cash value investments should be made. This type of policy gives the policyholder options as to where they want to put their investments. This can be confusing for some individuals, and they don’t want this responsibility.

Pros of Universal Life Insurance

  • The cash value can be greater compared to whole life insurance
  • It can be implemented with estate planning
  • More investment options to increase the cash value
  • Tax advantages
  • More flexibility

Cons of Universal Life Insurance

  • Premiums can fluctuate
  • Inconsistencies in interest on cash values
  • More decision making

Buying Life Insurance Based on Priorities

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Life insurance is a personalized product. Meaning that everyone has their own specific needs for buying it. Which means buyers have to determine what the priorities are that the insurance coverage must meet.

Then comes the challenge of deciding which of the types of life insurance meets those priorities. The following is a quick reference chart based on the common priorities and which type of insurance could be the most suitable based on that particular priority.

PRIORITY

POSSIBLE INSURANCE CHOICE

POSSIBLE REASONS

Premiums that are affordable for those on a tight budgetTerm life insuranceHigh debt ratio not a lot of extra money for premiums
Want insurance for a specific period of lifeTerm life insuranceComfort in knowing insurance will help to pay out debts if necessary
Possible concerns for health in the futureTerm, or Permanent life Insurance options (whole or UniversalConcerns about health issues in future-polices in effect cannot be voided
Opportunity to convert insuranceTermDebt load may be reduced-can afford higher premiums
Ability to withdraw funds from the cash valueWhole or UniversalInterest-free money available to make purchases or clear debts
Less decision makingWhole life insuranceNot interest in making a lot of investment decisions
Tax benefitsUniversal life insuranceInvestment growth is not taxed
Investment opportunitiesUniversal life insuranceOpportunity to choose where the investment portion is applied to
Flexibility in premiumsUniversal life insuranceThe option to decide how much one wants to pay for premiums

Summary

With insurance being such an important purchase to make it means making the right choice. It also means shopping around for the best coverage at the best prices with the best options. It is well worth taking the time to compare life insurance quotes. Contrary to the belief of many, not all insurance companies are the same. Nor are all insurance products identical. Each insurance company will do their best to attract new policyholders and they may do this by adding additional benefits to their products.

Resources

http://www.lifeinsurancestar.com/lifeinsurance/term/term-life-pros-and-cons.php
https://www.bankonyourself.com/whole-life-insurance-pros-cons
http://www.insurancedirectcanada.ca/types-life-insurance-policy-canada/
https://www.advisor.ca/insurance/life/faceoff-whole-life-or-universal-life/