What Is Life Insurance?

What is Life Insurance?

Life insurance is for anyone who has a spouse, partner, or children who rely on them financially. This could also include anyone who is taking care of older parents or guardians. You can get a life insurance policy depending on your needs. This means that if your monthly income helps support your family’s expenses (anything from groceries to debt payments to monthly retirement savings contributions, etc.), you’re probably someone who needs life insurance.

The agreement is between the life insurance company and the individual. You pay a monthly fee and in return, your insurance company agrees to pay out a lump sum of cash (TAX-FREE) to your family (known as the beneficiary) if you pass away during the time that your insurance policy is active.

To get an easy quote go to quote.tipservices.ca and get a FREE quote instantly. 

How Does Life Insurance Work in Canada?

The structure of a life insurance policy is simple – you pay premiums each month to an insurance company over an agreed period of time. If you pass away when the policy is active (while you are still paying premiums), the insurance company promises to give your loved ones a tax-free lump sum cash payment (the “death benefit”) if you pass away.

This death benefit will help your loved ones paying monthly bills, final expenses, maintain their lifestyle, and accomplish those bigger goals, even if your paycheck isn’t coming in to help support them.

This leads people to look at two types of life insurance, Term Life or Permanent Life.

Term Life Insurance

Term life insurance pays out a tax-free death benefit to your loved ones only if you die within a specified number of years (usually 10, 20 years). Term life is the right option if you want protection for the years that matter most (when you still have a mortgage & children in the house). For most people term life insurance is going to be the best fit. It’s the most affordable option which will give you the largest payout for your dollar. However, term life insurance is something that one day you will likely cancel, which brings us to the alternative Permanent life insurance.

Permanent Life Insurance

Permanent life insurance pays out a benefit to your beneficiaries no matter when you die (hence why it is called permanent insurance). Permanent life insurance comes in a couple of different forms, including whole life or universal life insurance.

Permanent life insurance policies are much more expensive than term life insurance policies because the policy also acts as an investment account. Your premiums are designed to build cash value over your life. The best way to think about this cash account is like a forced savings account that will gain you better returns than the bank. As we write this most saving accounts in Canada offer under a 2% interest with many of the big banks being around 1%. The Cash Value in most life insurance policies offers about a 4-5% return on investment over the long haul.

Permanent life insurance policies are not for everyone. There is a place in the market for it, especially if you own a corporation. However, make sure you learn the inner workings before making a decision on permanent life insurance.

How Do I Buy Life Insurance in Canada?

There are three main ways to buy:

1. Directly with a company online (like TIP Services) where we can help you shop the entire market and find the best plan at the best price for you
2. Through direct to an insurance company
3. Through an online advisor only (these are an option, however often they act as a middle man, thus you would pay more for the same options)

Are you confused? Don’t worry we are here to help! Our non-commissioned staff are here to help you find the right plan and answer any questions you might have. You can open a chat or click apply now and we would be happy to help.