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Making sense of the different types of life insurance is the first step in getting the coverage you and your family need.
This article originally appeared on Discover & Learn on June 19, 2019.
A recent survey from the Financial Services Commission of Ontario (FSCO) found that only 47% of 25- to 34-year-olds in Ontario have life insurance, and almost half of those (48.6%) say they don’t fully understand their policy.1
If your loved ones depend on you financially, you need life insurance. It can give them the financial security they need by providing them with a tax-free payment in the event of your death that they can use for things like:
- Covering your funeral expenses
- Helping them stay in the family home
- Taking care of childcare expenses or household bills
Which Type Of Coverage Is Right For Me?
Life insurance coverage falls into two broad categories: term and permanent.
Term life insurance provides coverage for a specific period of time and is renewable after the term is up.
Permanent life insurance is designed to provide lifelong coverage. It can be either whole life or universal life insurance.
This may sound confusing, but understanding life insurance doesn’t have to be. Regardless of the different types, all forms of life insurance provide protection against financial loss resulting from death. The chart below explains the different types of life insurance to help you make an educated purchasing decision.
| Term Life | Permanent Whole Life | Permanent Universal Life | |
|---|---|---|---|
| What’s the age of eligibility? | 18-702 | 0-853 | 0-853 |
| What’s this coverage ideal for? | Offers an easy and convenient way to help protect your family’s financial future for the short term | Great if you want lifetime coverage to help protect your family’s financial future for the long term | Ideal if you have an interest in investments and want the security of lifetime coverage with the opportunity to save money in a tax-advantaged policy |
| How long will I be covered for? | A set number of years (referred to as a term) – usually 10 to 40 years – with the option to renew at the end of the term | Your entire life | You’ll have a unique combination of life insurance and investment options to choose from for your entire life |
| Will the payment to my beneficiary(ies) be tax-free? | Yes4 | Yes4 | Yes4 |
| Will I need a medical exam? | May not be required | Typically required | Typically required |
| Will my payments increase? | Your payments are guaranteed not to change for the entire term; payments will increase at renewal but will then be guaranteed for the entire renewal period | No, your payments are guaranteed not to change for life | You can choose from various terms and payment options |
| Is the policy cancellable at any time? | Yes | Yes (you may receive the savings component of your policy if you cancel it before it’s matured) | Yes (you may receive the savings component of your policy if you cancel it before it’s matured) |
| Is there a money-back cancellation period? | No; however if you cancel, you will only pay for the time when you were covered | No; however if you cancel, you will only pay for the time when you were covered | No |
1) https://www.investmentexecutive.com/news/products/millennials-struggling-to-grasp-insurance/
2) You may apply for term life insurance if you are age 18 to age 70 for terms from 10 to 15 years. For terms over 15 years, the maximum issue age is 85 less the selected term. For example, for a Term 25 policy, the maximum issue age is 60 (85 – 25).
3) There are different options available to you. Please contact us for more information.
4) Note that probate fees are applicable if you have not designated a beneficiary and the proceeds of your policy become part of your estate.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.