Review of the Types of Life Insurance Available in Canada

Understand the different types of life insurance to choose from

If you’re in the market to buy insurance in Canada you should really understand the four basic types of life insurance available. This article will give you a brief and clear understanding of the four major types of life insurance you might buy, the differences between policies, and the advantages of each.

You should keep in mind that the type of life insurance you buy today should solve your immediate risk needs (how much financial risk are you and your family exposed to) and be flexible enough to adapt to your changing needs in the future. This article won’t answer all your questions, but it will be a good overview, and you can always dig through our Canada website to find out more about the different types of life insurance.

Term Life Insurance

Term life insurance is the most basic form of life insurance in Canada. It is also the most affordable. With term life insurance you are “renting” your risk protection for a certain number of years (the term of the policy). The price is determined by the likelihood that you might die within that term. The term number of years on policies is usually 10 or 20 years, but you can also buy policies with a 30 year term. The longer the term you buy today, the more expensive the policy will be.

At the end of the term (say after 10 years on a Term 10 policy) your policy will automatically renew. That is, your policy will become more expensive and you will have the choice to keep the policy or not. The new premium at renewal is very high, and much more expensive than buying a longer term insurance contract today. If you bought a Term 10 policy, and kept it for 20 years, paying the higher premium for the last 10 years, you will probably pay more than twice the cost than if you just bought a Term 20 policy today. So, when buying Term Life Insurance, buy the term you need today and it will save you money.

Term life insurance is best used for protecting for short term needs, like paying down a mortgage or the financial cost of raising children. Your temporary or short term financial risks are most affordably covered with Term life insurance.

Term 100 Life Insurance

Term 100 life insurance is different than normal term life insurance. Term 100 is actually a permanent life insurance policy because it will be with you for the rest of your life, and will pay out a death benefit. Most Term 100 policies in Canada have no cash value attached to them (some do have a cash value component to them but are more like whole life insurance). The premium or price for Term 100 life insurance is level for the rest of your life – so the price you pay today will be the price you pay forever, no matter how long or short you live.

The advantages of Term 100 life insurance are that it is cheaper than most traditional permanent life insurance policies. You don’t have to spend as much money on premiums, which allows you to invest into other products like RRSPs and TFSAs. If you are looking for something permanent, simple, affordable and which doesn’t act like an investment policy, check out Term 100.

Universal Life Insurance

Universal life insurance is the most flexible and most complex type of life insurance in Canada. It offers you many choices to design a policy that will perform for you just the way you want it to. You can choose either increasing premiums or level premiums for life (like a Term 100 cost inside your universal life policy). You can invest additional money into the policy fund, up to a prescribed maximum, and get tax sheltered growth. You can also choose the types of investments you would like to have inside your policy fund, much like designing a mutual fund portfolio.

The advantage with universal life insurance is that it has the potential to perform very well, if market returns are strong. There is also risk that losses in the investment markets (which your policy fund is attached to) will lose you money and you might have to pay more premiums later in life. If markets perform well over the long term you would see a large tax sheltered profit inside your universal life insurance policy. It therefore acts as both risk protection and a long term investment plan.

Whole Life Insurance

Whole life insurance is the oldest and most traditional type of life insurance policy across Canada. Whole life gives you a set and guaranteed premium for the rest of your life, or you can quick pay the policy in 10, 15 or 20 years. There is a guaranteed cash value inside the plan so you know it will always have equity for your premium dollars invested. Whole life insurance also pays dividends (like profit sharing), so you will have a higher cash value than the minimum guarantee, and you could even have a growing amount of life insurance.

Whole life insurance offers people in Canada a strong, stable and proven long term performance investment policy with guarantees.  The cost for whole life insurance is higher, but you know you will never lose money, will always have equity and you will never pay more: simple, straightforward and guaranteed with the longest history of strong investment performance in Canada.

Life Guard Insurance can help you chose the type of life insurance that is right for you

Contact us, and we will connect you with a professional life insurance broker in Canada who can show you the different types of life insurance, and help you design a plan to meet your needs and your budget.

The article was written by +Mitch Reynolds. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about the 4 main types of life insurance in Canada would be very much appreciated.

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1. Types of Life Insurance: Term vs. Permanent Life Insurance