Life insurance can be difficult for many people to talk about, however it’s important to protect what matters to you most—your loved ones.
Below are a few frequently asked questions about life insurance to help you get started.
What is life insurance?
Life insurance provides financial support to the loved ones who depend on you after you die. It’s a contract between you and your insurer to provide a tax-free, lump sum financial payout (known as a “death benefit”) to your designated beneficiaries. This is especially important for those who rely on you financially, such as a spouse or children, to ensure they’re protected once you’re no longer there to support them.
What can a death benefit be used for?
Your designated beneficiary, or beneficiaries, can use the money from your life insurance policy’s death benefit to pay for:
● Everyday expenses to maintain their standard of living, including food, utilities, transportation, etc.
● Care for your children or dependents, including childcare, education, etc.
● Your funeral costs or estate fees
● Your outstanding debts, including mortgage payments, lines of credit, credit card bills, business loans, etc.
● Charitable gifts
If you don’t wish to name a beneficiary, you can choose to leave the money to your estate or to a trust.
What are the main types of life insurance in Canada?
There are two main types of life insurance in Canada: term life insurance and permanent life insurance.
Term life insurance
Term life insurance provides coverage for a specified amount of time agreed upon between you and your insurer in your life insurance policy. The length of coverage can extend over a set number of years (e.g. 10 or 20 years) or until you reach a certain age (e.g. 65 years old).
If your death occurs within the term indicated in your life insurance policy, your beneficiaries will receive the death benefit payment. Once the term ends, your coverage ends, and your beneficiaries will not receive any payment.
Permanent life insurance
Permanent life insurance, sometimes known as “whole life insurance”, provides coverage throughout your entire lifetime. No matter when your death occurs, your beneficiaries will receive payment.
How much life insurance do I need?
Determining how much life insurance coverage you need is more about the coverage your loved ones would need after you pass away. You most likely already have a group life insurance policy that provides valuable protection for your family, but it may not be enough to provide the financial security you need when your plan terminates or if you’re already retired.
Look at your average annual expenses, in addition to any outstanding debts and funeral expenses your loved ones would need to pay after you die. This will give you a sense of how much money your beneficiaries would need to live comfortably once they no longer have your income to support them.
Other factors to keep in mind include any legacy gifts you’d like to leave behind for your loved ones or charitable contributions you’d like to make.
OTIP offers four life policies with flexible coverage limits and term lengths. Find the plan that’s right for you and get a fast online quote!