Make sure your income continues even when you can’t
The Basics :
There are 5 basic types of personal insurance, and each serves a different purpose.
1. Life insurance
Pays a tax-free, lump-sum amount directly to your named beneficiaries upon your death. Ensures your named beneficiaries can pay off your debts, replace your income, maintain their standard of living and cover your children’ education needs, should you no longer be there for them.
2. Disability insurance
Provides a monthly payment that replaces part of your lost income if you’re unable to work because of illness or injury. Allows you to maintain your standard of living if you are disabled and unable to work for a period of time or until age 65.
3. Critical illness insurance
Pays a lump-sum amount on the first diagnosis of a serious medical condition (cancer, stroke, heart attack and more) covered by your policy. Allows you to cover additional costs associated with an illness, or use the payment for any other purpose during or after recovery. This essential coverage is needed to alleviate the devastating financial impact a serious illness will have on your family savings, lifestyle and your ability to retire comfortably. Unfortunately, the statistics on the high probability of a critical illness occurrence during our life-time point without a doubt to the need for this protection.
4. Long-term care insurance
Provides cash payments if you require care in your home or in a private or government facility. Allows you to cover some or all of the costs of long-term care instead of using your (retirement) savings
5. Health insurance
Covers a portion of health care costs not covered by your provincial health insurance. Gives you and your family affordable access to the health care you may need – at home or out-of-country
Term or Permanent Insurance?
There are two basic life insurance options: Term and Permanent. Term lasts for a specific, pre-set period, after which it has to be renewed. Permanent lasts your entire lifetime. Depending on your needs, you may want the affordability of term life which is most often used for temporary, short-term needs like a mortgage. Or, you may prefer the lifelong protection, potential access to cash value and the Estate/Tax Planning options that most permanent life insurance products offer.
Consider some of these key differences to decide which is right for you.
- Length of coverage: Term life insurance is like “renting Insurance” for a certain length of time only. It provides coverage for, typically 10, 20 or 30 years, with the availability of various terms in between, and it is designed for flexibility. On the opposite, Permanent insurance, which includes whole life and universal life, could be likened to “owning your insurance”, and is designed for lifelong financial protection, as long as the policy is in force.
- Cost of premium. Initially, term life premiums are generally lower than permanent life. However, term life premiums typically increase upon each renewal, as you grow older and with potentially more health concerns, while permanent life premiums stay the same. Permanent insurance plans premiums can be paid up over periods of 10, 15 or 20 years (called 10Pay, 15Pay and 20Pay) or over your life-time (until you reach age 100, hence the name T-100).
- Cash value. With most types of permanent insurance, there is a savings component known as cash value. The longer you pay into your policy, the more its cash value grows. You can choose to cash in or borrow against your permanent life policy and use the funds as needed. Term insurance does not accumulate cash value because it doesn’t have a savings component.
- Convertible policies. If you have a term insurance policy, you can convert it to a permanent policy. Permanent policies are not convertible to Term policies.
- Death benefits. All life insurance products pay a death benefit upon the insured person’s death if the contract and term have not expired and are still in good standing
Which one is best for you?
If your main concern is affordability, term life insurance starts with the lowest monthly premium and is most suited when you have higher financial responsibilities but lower cash flow, typically early in your career with a Family to raise and a mortgage to pay.
If you’re looking for the best overall solution for you and your family, the decision of term versus permanent doesn’t have to be an “either/or” situation. Often, the best choice is a combination of both types of insurance. The key is finding a solution that matches your duration and insurance needs.
Disability insurance replaces lost income, so you need to be employed to buy it. If you are diagnosed with a covered critical illness, you need to survive your illness for a specified time (typically 30 days) to receive a payment from a critical illness insurance.