Life Insurance 101
Oct 16, 2019 • 5 min read
Life insurance is part of any financial plan but buying life insurance can be a confusing experience. Luckily, we’ve come up with some answers to your most pressing questions about life insurance!
At its simplest form, life insurance is a security blanket for your loved ones. Today, your income likely helps to pay for all the things your family needs in life. Life insurance can allow you to continue paying for those same things after death! It is there to protect your beneficiaries from an immense financial burden if anything were to happen to you.
How does life insurance work?
The structure is pretty simple. You pay a monthly premium each month to your insurance company over an agreed length of time. In return, your insurance company promises to give your loved ones a tax-free lump sum cash payment (the “death benefit”) if you die.
The amount of insurance you buy is one of the most important considerations to make when picking out a policy because you want it to be high enough to help maintain your family’s lifestyle when you’re gone. Some people use it to pay off a mortgage. Others use it to continue making rent payments. And in many cases, people use life insurance to care for children, fund educational expenses and cover day-to-day living costs.
Who needs life insurance?
If you have a partner, children or aging parents who depend on you for financial support – life insurance is essential. It could be the difference in your family being able to keep their house and pay their day-to-day expenses versus dealing with a huge financial burden if something were to happen to you.
When is the best time to get life insurance?
The best time to get life insurance is when someone depends on you. For most people, this is when they get married or when they start having kids.
We know what you’re thinking: “But I just got a mortgage and having kids isn’t cheap! How am I supposed to afford life insurance?”
The younger you are, the more affordable your life insurance will be. In most cases, it’s smart to lock in a low monthly rate when you’re young because it’ll stay at that price for the entire term of your policy.
What types of life insurance exist?
There are two main types of life insurance: term and permanent.
Term life insurance is the simplest and most affordable form of life insurance. It pays out a benefit to your beneficiaries only if you die within a specified timeframe, usually 10, 20, or 30 years.
Other types of life insurance, such as permanent and other cash value life insurance policies last your whole life instead of just a term. They are much more expensive – we're talking hundreds of dollars a month more expensive.
For most families, term is the way to go. Term life insurance lets you pay for coverage only during the years when it really matters (when your mortgage is at its highest and you have young kids).
What does life insurance cover me for?
Life insurance protects your family in the event that you pass away. All causes of death are included (health or non-health related). The only exception is suicide during the first two years that you hold the policy. Given the risk of anti-selection when it comes to suicide (for example, someone buying life insurance right before taking their own life), insurance companies exclude death benefit claims as a result of a suicide during the first two years.
How much does life insurance cost?
A 20-year, $500,000 term life insurance policy costs around $35/month for someone in their 30s. For a lot of people, that can be enough coverage to keep their families protected.
Your personalized life insurance rate will depend on a few different things including your age, smoking status, health status and lifestyle. All of these factors will go into your final price. If a major health issue is identified in your application, your life insurance price could increase. Typically, younger people won’t see a change from what they were originally quoted.
How do I get started?
The first step is to get a quote. The good news is that this is easy! You can get a recommendation on the right policy for you using PolicyMe’s life insurance checkup with just a few pieces of personal information, like your age, gender, and basic financial information. In just 5 minutes, you can build your customized plan and see how much it will cost.
With PolicyMe, you can compare prices from Canada’s most trusted life insurance companies for free. If you’re unsure of which insurance carrier you should go with, be sure to check out PolicyMe’s reviews of the best life insurance in Canada.
What happens after I get a quote?
Getting a quote is easy and only takes a few minutes.
The actual application is a little more in-depth. Most life insurance carriers will still want to hear from you by scheduling a phone interview. The purpose of the phone interview is to collect some additional information on your hobbies and lifestyle.
If something does come up during the medical interview (like a recent health diagnosis or a dangerous hobby), it's possible that your final price will be a bit higher than what you were first quoted.
This part of the process is called ‘underwriting’. Someone, behind the scenes, called an underwriter (who works for your insurance carrier) will review your application to give you a final quote. This part can take anywhere from a few days to a few weeks.
Great, how do I get started?
At PolicyMe, we’re here to help with this. In just 5 minutes, you can build your customized plan and see how much it will cost.
Take a free 5-minute life insurance checkup with PolicyMe today!
PolicyMe is an online platform that helps Canadians purchase life insurance at the lowest rates available. PolicyMe is on a mission to simplify life insurance, offering customized and automated advice for Canadians.