Choosing a life insurance can be confusing as there are numerous options available.
What is “Life Insurance”?
Life insurance is a financial product that can significantly contribute to the financial security of your loved ones. In others words, it pays out a sum of money when the insured person dies. The money goes to the individuals designated as beneficiaries in the insurance contract.
Why consult an insurance broker?
An insurance broker can help assess your needs and help you choose the most appropriate coverage. He or she can also help you if you already have a life insurance policy and are thinking of replacing it. A licensed insurance broker will provide you with a comparison and explain to you the advantages and disadvantages of replacement coverage.
Make sure that the insurance broker you choose to place your trust in is certified. How to find out? You can call the Autorité des Marchés Financiers (AMF) Information Center at 1-877-525-0337 or consult the Register of Firms and Individuals Authorized to Practise on their website.
Here are some tips on how to select the proper life insurance:
Step 1: Define your objectives
The life insurance product for you is available. It’s worth taking the time to find it. Defining your objective in purchasing life insurance will help you determine the type and amount of coverage you need.
Example: In the event of your passing, it may be important to you that your funeral expenses be covered and/or your loved ones are able to maintain the standard of living to which they’re accustomed. You may also want to leave an inheritance or make a donation upon your death.
Regardless of your goals, it’s imperative that they be clearly identified before you begin looking for life insurance.
Step 2: Learn what type of insurance is available and what best suits your objectives.
There are several types of life insurance:
Term Life Insurance: This type of coverage provides protection for a limited amount of time, usually around 10, 20 or 30 years, depending on the policy you choose. Several options exist within this type of coverage, such as guaranteed renewal and/or conversion privilege. The guaranteed renewal allows you to renew your policy when it expires, regardless of health changes. However, the price will increase with age. Meanwhile, the conversion privilege makes it possible to convert term insurance into permanent insurance if you choose to do so.
Permanent Life Insurance: This type of coverage covers you for the duration of your life. The premium, the surrender value (if any), and the amount paid in the event of death is guaranteed. The surrender value is the cash amount offered to the policy holder by their insurance company upon cancellation of their contract. Some permanent insurance policies are paid for a defined period of time. After the payment period ends, the policy holder remains insured without having to pay more premiums.
Note: Term Life Insurance initially costs far less than permanent life insurance, but if you live a long life, the insurance cost of permanent life insurance is much less than Term Insurance over time.
Universal Life Insurance: This type of insurance combines life insurance with an investment savings component. It allows you to choose the premium you want to pay, subject to a minimum and a maximum. You can use this insurance, for example, to add to your investments for your retirement, or in case of death, the investment and returns generated by the policy are payable to the estate in addition to the life insurance portion and are not taxable to the estate.