22 million Canadians have life insurance. This protects roughly $4.3 trillion in assets.
If you don't have life insurance, you might be curious to join the ranks of those who do. But finding a place to start can be difficult. There are many phrases and conditions that can make understanding policies difficult.
Before you consider purchasing life insurance, you should be aware of the difference between term life vs whole life insurance. This distinction is important, and you should know which type of insurance you're committing to. After all, your family's future depends on it.
Read on to learn about some of the main differences between these two types of life insurance policies.
What Is Life Insurance?
If you're a total insurance newbie, or simply new to adulting, you may still be unsure as to what life insurance actually is. Don't worry, we've got you covered with the answers.
There are many types of life insurance policies you can take out. But, the insurance itself exists so that your family is protected in the event that you die.
Life insurance policy payouts can vary dramatically depending on how you die and when you die. The premiums you pay will also affect the payout amount.
In some cases, a life insurance policy amounts to a year of your salary. This is so that your family can get back on their feet and make adjustments for life without your income contribution following your death.
Other life insurance policies offer much greater coverage, which can allow your family to pay off your debts, pay your final expenses and even to possibly allow them to temporarily quit working.
Basically, a life insurance policy ensures that your family won't suffer financially in the event of your death, as the average Canadian funeral is around $4,500, not including burial services. You can rest assured that your family won't be scrounging for money to pay for your memorial service.
Term Life Insurance
As the name suggests, term life insurance only exists for a specific term. This means you can only use it for specific periods in your life.
Most life insurance policies are term policies. They protect your family not only if you die, but if you die before you're older. So, if you die when you're still working, your family will be protected.
A term life insurance policy has an end date. This can be when you're 50, when you retire, or when your children are old enough to stand on their own two feet. The end date will depend on the policy, your premiums, and what you've worked out with the company.
It is assumed that once you reach a certain age, you'll have paid off your home, have money in savings and be able to pay your final expenses yourself. It is also assumed that there will be some money left over to give your children and grandchildren a portion of your assets.
Term life insurance protects you until your money and assets have matured. As such, if you die before fully paying off the house, for example, a term life insurance policy will likely make that a reality for the family members left behind.
When taking out a term insurance policy, you can specify how long you want it to last. And, if you still want the coverage when the term is up, you're eligible to renew it depending on the policies of the company you're insured with.
It is advisable to purchase a term life insurance policy before the age of 50. You can purchase them after your 50th birthday, but it can become much more difficult to obtain. It is also much more expensive.
Whole Life Insurance
A whole life insurance policy is just as it sounds: it protects you for your entire life. A whole life insurance policy has no expiration date. Instead, your family will be able to cash it in if you die at 45 just as they're able to cash it in if you pass at 95.
This type of life insurance policy can be a continuation of a term life insurance policy. As we mentioned above, if you want to continue your life insurance after the original term is up, you may have the option to create a new term or convert it to whole life insurance.
One major difference is that a whole life insurance policy isn't just a lump sum that is paid out to your family in the event of your death. Instead, it is an asset that accrues during the policy. For most people, it takes at least 12 years to build up a significant cash value for your loved ones upon your death.
In order to have a whole life insurance policy, you may need a medical examination for the company to determine if you're eligible. In some cases, you can skip the medical exam, but the premiums for your policy will be much higher than if you did pass the exam.
Where Do I Stand with Term Life vs Whole Life Insurance?
Choosing term life vs whole life insurance depends on a variety of factors. The first thing to consider, of course, would be your age and your current dependents. If you have young children still relying on you, a term life insurance is more appropriate. You can always convert it to whole life insurance in the future.
If you have questions or concerns about life insurance, don't hesitate to contact us. We can help you decide which type of life insurance is most appropriate for you and your current situation. You can also get a quote if you're ready to compare prices.
