Why Insurance is Important In Canada | Benefits of Health Insurance in Canada

Hey guys! This is Thomas, your Trusted Advisor here! Today I’ll be going over how life insurance works in Canada. I know it’s not the most exciting topic out there, but I promise it’s more relevant to you and your family’s financial health than you think. So stay tuned until the end of this video to find out why!

I’ll cover the basic terminology in life insurance, the different types available in Canada, how they really work, and how to choose the best one for you. Let’s keep it short and simple, so let’s get started!

Why do we need life insurance?

So, why do we need life insurance? That might be the first question on your mind. I know no one wakes up thinking, “Oh yeah, I need to get one!” But that doesn’t mean you can ignore it! Life insurance plays a huge role in risk management. Think of it as a gift for your loved ones if you pass away unexpectedly. It helps cover funeral costs, outstanding debts, taxes, or eases financial burdens for your family, friends, or siblings.

In life insurance, you make regular payments during your life, and in exchange, the insurance company guarantees a predetermined sum of money to your loved ones after your passing. That’s why it’s formally called a death benefit.

Key Terms in Life Insurance

Now, let’s go over some basic terminology you’ll come across in life insurance.

A policy is your agreement with the insurance company, making you the policyholder. If you’re well-off, you can also buy policies for your loved ones. The payments you make regularly to maintain your policy are called premiums, paid monthly, quarterly, semi-annually, or annually. The person who receives your death benefit is called the beneficiary. It can be one person or divided among several, including charities or trusts for pets.  In Canada, beneficiaries do not have to report life insurance payouts as taxable income.

Types of Life Insurance

Now, onto the types of life insurance. There are two major types: Term and Permanent.

Term Life Insurance:

Term life insurance covers you for a specific period, like 10 to 30 years. For example, with a 20-year term, your beneficiaries get paid if you pass away within that period. Premiums generally stay the same during the term. Costs depend on your health and age.  A $100,000 policy might cost about the price of a large pizza monthly. Premiums are higher due to increased risk.

Term is ideal if you need coverage for a set period, like until your mortgage is paid or kids move out. Many term policies can be converted to permanent ones later without a medical exam.

Interested in short-term coverage? Canada Life offers an exclusive promotion: your first 4 months of premiums are free! Check the link below for details!

Permanent Life Insurance:

If you need coverage beyond your term, consider Permanent Life Insurance. It provides lifelong coverage with locked-in premiums, generally higher initially. Unlike term insurance, it guarantees a payout whenever you pass, unless you’re a vampire!

In Canada, Permanent Life Insurance comes in two forms: Whole Life and Universal Life. Whole Life combines insurance with an investment portfolio managed by the company for low-risk, moderate growth. Dividends can reduce premiums or boost the death benefit, and investments are tax-sheltered.

Universal Life offers flexibility like an investment account with life insurance. You choose how much to invest and manage premiums according to your budget, utilizing tax shelter benefits.

Wondering how much coverage you need? Generally, aim for 7 to 10 times your annual salary. If you’re unsure, keep insurance premiums under 10% of your income.

If this sounds confusing, drop a comment or contact me directly for more details. Kids are heading back to school—don’t neglect your financial planning! This is James, your go-to for all things money. See you next soon! Bye guys!

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