Term, whole life and universal life — explained plainly, shopped across every major Canadian carrier, and sized to what your family or business actually needs.
Nearly every life insurance decision starts here, and the honest answer is that most people need term — but not everyone.
Coverage for a fixed period, usually 10, 20 or 30 years. If you die within the term, the death benefit is paid tax-free. If you outlive it, the coverage ends. It is inexpensive because most policies never pay a claim.
Suits: temporary obligations — a mortgage, the years until children finish school, income replacement during peak earning years. If you need a large amount of coverage on a limited budget, term is how you get it.
Permanent coverage with guaranteed premiums and a guaranteed cash value that grows over time. Participating policies may also pay dividends. It costs substantially more than term for the same death benefit, because it is designed to pay out eventually.
Suits: permanent needs — estate tax liabilities, leaving a guaranteed legacy, funding a buy-sell agreement, or building tax-advantaged value inside a corporation.
Permanent coverage with an investment component you direct, and flexible premiums within limits. More control and more upside than whole life, and correspondingly more responsibility — the policy needs monitoring, because underperformance can require higher premiums later.
Suits: people who want permanent coverage plus a tax-advantaged investment vehicle, and who will actually review the policy periodically.
A common and sensible structure: a large term policy covering the temporary need — mortgage, kids, income replacement — layered with a smaller permanent policy for the obligations that never go away. You get adequate coverage now without overpaying for permanence you do not need on the whole amount.
Rules of thumb like "ten times income" are a starting point, not an answer. A more useful approach is to add up what the money actually has to do:
Group life through an employer is worth counting, but it is worth remembering that it disappears when the job does — usually at exactly the moment you would find it hardest to replace.
If you own a business, life insurance often does more than one job. It can fund a buy-sell agreement so a surviving partner can buy out an estate, cover the tax liability on the value of your shares so your family is not forced to sell, or protect the company against the loss of a key person. Those structures interact with each other and with your corporate tax situation, so they are worth designing together rather than piecemeal.
Add up your outstanding debt, the income your dependants would need replaced and for how many years, expected education costs, and the tax liability that will be triggered on death — then subtract existing coverage and liquid savings. The result is usually a larger number than people expect, particularly for business owners whose shares carry a deemed disposition on death.
No, in the same way that home insurance is not wasted if your house does not burn down. Term insurance buys certainty during the years when your family is most financially exposed. The low premium is precisely because most policies do not pay out — that is what makes large amounts of coverage affordable during the years you need them.
Life insurance death benefits are received tax-free by the named beneficiary in Canada. Where tax does arise is elsewhere in the estate — RRSPs and RRIFs are generally deemed fully withdrawn on death, non-registered investments trigger capital gains, and private company shares are subject to a deemed disposition. Life insurance is often the most efficient way to fund that bill.
In most cases yes, though the premium may be rated or certain conditions excluded. Underwriting varies considerably between carriers — one insurer may decline a condition another will accept at standard rates. This is one of the clearest arguments for using an independent advisor who can place the application with the carrier most likely to view your situation favourably.
It depends on what the policy is for. Corporate-owned insurance is often more tax-efficient when the need is business-related — funding a buy-sell, protecting against a key person loss, or covering the tax on share value — partly because premiums are paid with corporate dollars and the death benefit can credit the Capital Dividend Account. Personal ownership usually makes more sense for personal obligations. This is a decision worth making with your accountant in the room.
Most people are either significantly underinsured or paying for a structure that does not suit their situation.
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