Term vs Whole Life Insurance Canada

April 26, 2022

The topic of life insurance is an important one. While you live and breathe you’ll do anything to support and protect your family. If you’re not here the money created by a life policy may be critical to their success.

No one wants to think about what will happen to your loved ones after you’re gone. But it is a noble discussion to have and a reality that you’re better off preparing for than avoiding.

Consider the financial impact. Will your family be able to pay the mortgage or rent? How will they cover day-to-day costs like groceries, bills, debt payments, children’s activities & sports, etc.? If you’re not convinced that your family will be financially safe if something were to happen to you, it’s time to investigate life insurance policies.

Benefit of life insurance

Getting life insurance is one of the best ways to protect your family from financial hardship. This simple & affordable action will give you and your loved one’s peace of mind knowing that they will be able to meet their financial obligations if something happens to you. Your family won’t need to deal with a financial crisis and during an emotional and stressful time, if you have life insurance coverage in force.

Death benefit for beneficiaries

One of the biggest reasons people invest in life insurance is to ensure their beneficiaries receive a benefit payment. This money can be paid to one beneficiary or multiple individuals. It can even be left to a charity of your choice. Your beneficiaries are able to use the proceeds of a life insurance benefit however they need to, including to cover funeral expenses for you. If you’ve left the money to your spouse, they can use it to cover household expenses when you’re gone, such as bills, debt payments and the mortgage. Your children can use the money to pay for college or to buy a home of their own. Offering this security to your loved ones is one of the most thoughtful things you can do.

Types of life insurance

There are two main types of insurance, term and permanent or whole life insurance policies. While the principle behind both are the same in that they will pay out a death benefit to your beneficiaries when you pass away, the way they work differs.

What is term life insurance?

Term life insurance is an insurance policy that has a set expiry date. For example, you can buy term life insurance for 10 years, 20 years or even 30 years. Some policies may even set a specific age for your policy. For example, your policy could be in effect until you are 65 years old. After that time or term has passed, your coverage may end or renew with much higher premiums.

Term insurance is considered the most affordable and straightforward type of insurance policy available. If you pass away before your term is up, your beneficiaries will get a lump sum of money. When your term life insurance is close to expiring, you’ll have a few choices. You can let it lapse and go without an insurance policy. You can choose to extend your coverage, but your premiums will be higher. Another option is to convert your term life insurance over to a whole life insurance policy.

Pros of term life insurance

Simple. A term life insurance policy is simple and easy to understand. So long as you continue to pay your premiums, your beneficiaries will get a death benefit when you pass away.

Affordable. Most term life insurance policies are the most affordable forms of life insurance available, making them an attractive option for those on a budget.

No medical. Another benefit of many term life insurance policies is that you won’t have to undergo a medical exam. There will be a series of questions that you’ll need to answer, and your coverage and premiums will be based on your answers.
Flexible. A term policy can be cancelled at any time without penalty fees.

Cons of term life insurance

Limited time. The biggest drawback to term life insurance is that it expires. In other words, your coverage will end at a specific time. However, most life insurance companies will allow you to renew your policy. Unfortunately, as you get older, the cost of life insurance increases. So, you’ll pay more in premiums after you renew your term life insurance.

When is term life insurance the best option?

The best type of insurance for you depends on your current needs and lifestyle. A term life insurance policy is best for those who:

How much term life insurance should I buy?

Many people considering term life insurance wonder how much they should buy. The answer to the question depends on how much you anticipate your family will need. Many experts recommend buying life insurance coverage that equates to 10 or 15 years of your annual income. Unfortunately, that is not always the amount of life insurance that you’ll need to buy. Rather, a few calculations can help you find a number that is closer to what your loved ones will need.

Calculating how much life insurance you need

To figure this number out, take your annual income amount and multiply the number of years that you’ll need protection. Then add in all your debts, like your mortgage, credit cards, etc. Next, you’ll need to add in your family’s future needs, such as children’s education costs, funeral costs, etc. Take that number and subtract all of your assets, like your savings and investments. That final number indicates how much life insurance your family will need when you pass away. Here’s an example: If your annual income is $60,000 and you will need 10 years of protection, and your mortgage is $450,000, the calculation will look like this:

$60,000 x 10 + $450,000 = $1,050,000

It’s a good idea to buy life insurance for both you and your spouse. This ensures that whenever one of you passes away, your family will still be able to meet their expenses without the added burden of financial struggle.

What is permanent life insurance?

Permanent or whole life insurance is a form of insurance coverage that does not expire. A whole life insurance policy will cover you for your entire life. It ensures that your beneficiaries will receive a benefit from your life insurance company whenever you pass away.

Pros of whole life insurance

Guaranteed premiums. You will be offered guaranteed premiums when you buy a whole life insurance policy. This means that your monthly premiums will stay the same for the duration of your life insurance coverage.

Guaranteed death benefit. Just as with your premiums, the benefit of your whole life insurance will stay the same throughout your coverage.
Long-term coverage. A whole or permanent policy will last your entire life unless you cancel it. This can give you peace of mind that your life insurance won’t run out, and your beneficiaries will be provided for when you pass away.

Cash value. You can get life-long insurance coverage along with a savings account to ensure a strong financial future.

Dividends. Some whole life insurance policies also come with the option to earn dividends. You have several options when you receive these dividends, including taking them as cash, reinvesting them into your life insurance, or even using them to pay your premiums.

Cons of whole life insurance

Expensive. Whole life insurance costs more than term life insurance policies initially and the coverage will never end. Insurance companies need to be able to pay the death benefit to those they insure, which is why policies that are more likely to pay out will come with a higher cost.
Complicated. Permanent life insurance policies are more complex than term life insurance. The opportunity for investing and savings alongside an insurance policy means it is a more complex product.

Inflexible. This type of life insurance is not as easy to cancel. You’ll likely have to pay a high fee if you decide to cancel your coverage.
With a whole life insurance policy, you won’t have much control over how the insurance company invests your cash value. The rate of return is usually less volatile than other investments but over the long term compare very well.

When is whole life insurance the best option?

Whole life insurance policies are best suited for those who:

What is the difference between term life insurance and whole life insurance?

While term life insurance and whole life insurance both provide you coverage and a death benefit for your beneficiaries, there are a number of notable differences between the policies.

Term life insurance

Whole life insurance

Why choose Shelter Bay Insurance?

At Shelter Bay, we know that buying life insurance is a big decision. Our team of insurance agents is dedicated to helping you find the best coverage for your life situation. We’re life insurance brokers, which means we don’t work for any specific company. That means when we offer you advice, you can trust that we’re not just trying to sell you a policy for our own gain.

We have built relationships with many different insurance companies and understand the various insurance products they offer. This means we have several options that could be right for you. All of our agents have their families, too, and we understand how much you want to protect and provide for your loved ones. When you’re ready to buy a life insurance policy, let the team at Shelter Bay help you find the best coverage.

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