What are the different types of life insurance plans?

May 27, 2022

We all love to have choices when it comes to making a purchase. And life insurance is no different. Luckily there are a variety of life insurance policies that you have to pick from. While none of them are perfect, undoubtedly, you’ll be able to find one that fits your needs.

Having insurance is an investment in your loved ones. It is an extra level of protection you can provide them in case something happens to you. When you buy an insurance policy, it gives you peace of mind. You’ll be able to know that your family will be taken care of when you pass away. It is part of any good financial plan. And your beneficiaries will rest easy knowing they won’t face financial hardship in the future.

Benefits of life insurance

There are several benefits to having insurance as part of your financial plan. While these vary depending on the policy you choose, here are some of the most important advantages of life insurance.

Protect your loved ones

Without a doubt, leaving some money behind for your loved ones is one of the top reasons people purchase life insurance. Even if you can’t afford to buy a lot of coverage, ensuring your beneficiaries are looked after and receive the death benefit when you pass away can make a big difference to your family and provide you with peace of mind.

Investment income

Some insurance can also be an investment vehicle for you to save for your future. Moreover, the cash value that builds up in your insurance policy is protected from taxes while in the policy. There are ways to access the money from a whole life policy during your retirement.

Pay for your funeral

The benefit that is paid out by your life insurance company can cover the costs of your funeral. Maybe even a rock & roll funeral with a band? This is an added level of protection & perspective you can provide for your family. You’ll ensure they don’t have to be burdened with expensive funeral costs during an emotional and stressful time.

Help your favourite charity

A life insurance benefit isn’t just for your beneficiaries. You may decide to direct some or part of the insurance money to your favourite cause. A legacy gift can help a charity, churse or organization dear to your heart - continue to do the work they do.

Life insurance policy types

In Canada, there are several types of life insurance plans available. Many insurance companies want to provide various options to fit different lifestyles and insurance needs. However, that can make it challenging to decide on the best plan for you. Let’s consider the different types of life insurance policies available. In Canada, there are several types of life insurance plans available. Many insurance companies want to provide various options to fit different lifestyles and insurance needs. However, that can make it challenging to decide on the best plan for you. Let’s consider the different types of life insurance policies available.

Permanent life insurance

A permanent life insurance policy is one that will last your entire life. In other words, it does not expire in the way that term life insurance does. Regardless of when you pass away, your beneficiaries will receive the death benefit from your insurance company.

Along with lifelong insurance coverage, permanent life insurance plans also offer an investment/savings component. This can be a great vehicle to save for your retirement. However, it also means that permanent life insurance premiums will be higher than other types of insurance.

Each time you pay your premiums, part of it goes towards paying for the insurance. The other part goes towards your cash-value account. As this money accumulates over the years, you’ll be able to take advantage of it to help you pay for your retirement or other expenses. There are a few different ways you can tap into the cash value of your insurance. The two most common ways are surrendering the policy and taking the cash out or using your insurance as collateral for a loan.

Under the category of permanent life insurance, there are some different options for you to consider. These include:

Universal life insurance

Universal life insurance is a type of permanent life insurance plan allows you to enjoy the security of life insurance and also use it as an investment vehicle. With universal life insurance, you’re in charge of the investment component of your policy. Your universal life insurance provider will provide you with some investing options but the choice of where to place your money is up to you.

As your investment grows, you will be saving for your future. Some people purchase a universal life insurance policy as an estate planning strategy. To get the most out of universal life insurance you’ll need to be a savvy investor as it requires a lot more hands-on time and energy to manage your investment so you get good returns.

Whole life insurance

Whole life insurance is an additional permanent type of policy. It is similar to universal life insurance except there isn’t as much hands-on involvement when it comes to making investment decisions.

Participating whole life insurance is a policy where policy owners participate in the profits of the insurance company. This money comes from your insurance company’s performance and profits. It is often paid out each year to the policyholder. If you hold a participating life insurance plan, your premiums are pooled with other participating policyholders. Your insurance company will then invest that money.

Earnings from these investments are used by the company to pay out death benefits and cover other costs. If there is any extra, participating policyholders will be paid a portion of the dividend. However, it’s important to note that you’re not guaranteed to receive dividends at any time.
Nonparticipating whole life insurance plans are policies that pay dividends based on an amount designated by the insurance company. It can be a much simpler permanent life insurance policy. You pay your premiums, and your beneficiaries will get paid the benefit when you pass away. Nonparticipating whole life insurance policies also accumulate cash value. You can access this money by surrendering the policy or using your insurance as loan collateral.

Limited pay whole life insurance is a permanent policy that has a different payment plan than other insurance. Insurance companies that offer limited pay whole life insurance allow customers to pay premiums for a short time. It could be 20 or 30 years. After that, like a term to 100 policy, you’re covered until you pass away and you don’t have to pay any more premiums. This can be an advantage after you retire as you won’t have to pay insurance premiums when your income is not as high. However, the downside is you’ll be paying higher premiums from the start.

Term life insurance

Term life insurance is the second type of insurance that many Canadians know. With term life insurance policies, you’re buying coverage for a specific amount of time. This could be for 10 or 20 years. If you pass away within that term, your beneficiaries will receive the death benefit. That money can be used to cover any costs your loved ones face when you’re gone. It could include mortgage payments, college costs, debt repayment, etc.

A term life insurance policy is a good fit for those who only need insurance for a short time. It could be to protect your loved ones from financial difficulty if something happens to you. Those who have children and a spouse benefit the most from term life insurance. The policy offers peace of mind during a time in your life when your expenses are high and savings are low.

This type of insurance can be attractive because of its lower premiums when compared to permanent life insurance. However, once the policy expires, so does your coverage.

Convertible term life insurance
When the term is up, you can talk to your insurance company about converting to a permanent life insurance plan. This is called a convertible term life insurance policy. Your contract will indicate when and how you can convert your term life insurance plan into a permanent one. But be aware that if you do opt to convert to permanent life insurance, your premiums will increase.

Term to 100 life insurance

Despite the word term in this type of insurance, it is not the same as a term life insurance policy. These policies are a form of whole life insurance that requires you to pay premiums until you reach 100 years of age. However, you do not have the advantage of building up cash value. This means your premiums are lower than other permanent life insurance plans.

If you turn 100, you no longer have to pay premiums, but you’ll still be covered until your death. Whenever you pass away, your beneficiaries will receive the death benefit to help them with expenses.

Some people purchase term to 100 life insurance for their families to use for funeral expenses.

Mortgage life insurance

Your home is one of the biggest purchases you make. Mortgage life insurance protects your home and your family. If you pass away, the insurance company will pay off your mortgage. The money will go directly to your lender, not your family. However, mortgage life insurance using an individual life insurance policy that you own yourself is a good option for those who are financially astute. There are both medical and non medical exam optons for qualifying.

Group life insurance

Some employers offer life insurance plans for employees. This is known as group life insurance. The cost of premiums is determined by the group rather than the individual. Your employer may offer basic coverage as part of your employment benefits. Extra coverage can be purchased by each employee, depending on their needs. However, the drawback to group life insurance is that if you leave your job, you’ll lose your coverage.

Other types of life insurance

While life insurance can’t cover every situation, insurance companies provide a variety of options to suit most people. Some other types of insurance policies that are not as common include:
Survivor/joint insurance policies

Joint life insurance is designed for two people, usually a husband and wife. In these plans, beneficiaries receive the death benefit after both parties have passed away. It can be less expensive to buy joint insurance over two individual life insurance policies. Moreover, if one of the individuals has health issues, having survivor insurance can overcome qualification hurdles.

Joint life insurance policies work for situations where the spouse left behind won’t need the death benefit. Rather, the death benefit will be paid out to beneficiaries after both parties are gone. As with other insurance policies, it can help your heirs avoid heavy taxes or joint insurance can also be a way to pass along some money to your favourite charity.

Funeral insurance

Funeral insurance is usually sold as a small policy that is only meant to cover funeral or final expenses. Unlike other life insurance policies, you won’t be turned down for funeral insurance and you won’t have to take a medical exam to qualify for coverage.

These policies can benefit anyone, but they provide a level of protection for those who don’t have much savings or other life insurance and don’t want to be a burden to their loved ones. However, one drawback is that the premiums can be high when you buy this coverage through a funeral home instead of a broker. You should also read your policy carefully as some insurance companies won’t pay the benefit if you die within a couple of years of getting the policy.

Finding the best life insurance for you

With all the options available, it can be challenging to find the best life insurance for you. And the answer isn’t always easy. The right type of life insurance can be different for each person and situation. You’ll need to consider how much coverage you want for your family and what you can swing with your budget.

You can also talk with our Shelter Bay brokers. We’re not affiliated with any particular insurance provider. Instead, we have access to several different life insurance options. So, we’ll be able to find you the right policy that fits your circumstances.

Why Shelter Bay?

At Shelter Bay, we aim to help you find the right life insurance coverage for your circumstances. We don’t work for the big insurance companies, so our focus isn’t on their bottom line. It’s on you and getting the best insurance coverage for you.

Our team has over 200 years of collective experience in the Canadian insurance industry. We know the market. And we know life insurance.
Let us help you find the best type of life insurance for your peace of mind.

Request A Quote

Request A Quote

Request A Quote

Request A Quote