1. Do I even need life insurance?

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The main purpose of life insurance is to ensure your dependents will be OK when you die and your income disappears.

Have young children? Getting life insurance is an excellent idea, particularly if you’re the primary wage earner.

Have a mortgage or other outstanding loans? You do not want to saddle your partner with debt after you’re gone.

But if you’re debt free, mortgage free and the rest of your family is financially independent, they probably won’t need the death benefit.

Or, if you’re a pro saver and already have enough money to provide for your dependents, life insurance might not be worth the extra expense. Just keep in mind, the amount you need might be very, very high.

2. Do I need term or whole life insurance?

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Need life insurance? Great, what kind?

There’s an endless variety out there, but the big decision you need to worry about is choosing between the two main types: term and permanent insurance.

Term life insurance

Term life insurance gives you coverage over a specific period of time, normally between 10 and 30 years. If you pass away during that time, the insurance company will pay your beneficiaries.

Term life insurance is pretty straightforward and very affordable. Plus, with most term policies, your premiums won’t increase while your policy is active.

This option favours people who need coverage for a set period of time — say, until your home is paid off and your kids finish school and move out.

Permanent life insurance

As the name suggests, “perm” insurance provides lifelong coverage.

Your premiums will typically be locked in but will be a lot higher than term insurance. Maybe even 10 times as high. After all, so long as you keep your policy active, you’ll have it until the day you die — which means your insurance company will eventually have to pay out.

There are three main types of permanent life insurance:

Term to 100: This is a permanent policy where the premiums stay the same until you turn 100 years old — then the coverage becomes free of charge.

Whole life insurance: Your premium pays for your insurance coverage plus an investment portfolio. The insurance company manages that portfolio, and you can grow your money over time. You can use that money to pay your premiums, act as collateral in a low-interest loan or simply cash it out by canceling the policy.

Universal life insurance: It’s similar to whole life, but universal insurance offers more freedom with your investments. You can also increase or decrease your premiums and death benefit according to your changing budget and needs.

3. How much coverage do I need?

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Once you’ve settled on the type of policy you want, you can decide how much coverage you need.

You don’t want to waste money by taking on way more coverage than you actually need. Your goal should be to account for your debts (like your mortgage or student loans) and provide for your dependents until they’re able to take care of themselves.

The Government of Canada suggests most people should get coverage worth seven to 10 times their annual salary. It even offers a helpful calculator to help you plan according to your particular situation.

If you’re buying term insurance, you also need to think about the length of your policy. Think about where you are in life. If you have children, you should get coverage that will last past graduation day. If you have a 15-year mortgage, get a policy that goes beyond that.

4. What if I don’t die?

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OK, you can’t exactly cheat death. But if you hold a term life insurance policy, you can at least outlive your insurance.

If you don’t die before your term policy ends, the death benefit from your policy won’t be paid out and you won’t get that money back. That’s fine; you’re not making an investment. You pay the premiums hoping you never need the payout.

If your term life insurance expires, your coverage simply stops. If by that point you’re free of debt and your children are financially independent, you may not need life insurance anymore.

But it’s a good idea to plan ahead now, just in case you still need insurance well in the future.

Most term life policies include a guaranteed renewal or conversion option. That means you can renew your policy or convert it into a permanent policy without taking a new medical exam.

This is a great option to have if you develop health issues that could make getting a new policy challenging. But pay attention to how much the premiums increase and make sure you’re familiar with your policy — sometimes the conversion option expires after a certain age.

Alternatively, you can just purchase a new term life policy. This might be the best option if you’re in good health down the road. You may need to get another medical exam — and you’ll definitely pay more once you’re older — but it would probably be the most affordable route.

5. How can I find the best rates?

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After spending all this time mulling over your policy options, don’t just accept the first quote you see. Canadians who don’t shop around for life insurance end up overpaying by an average of 46%, according to the comparison service PolicyMe.

PolicyMe is a digital life insurance advisor that lets you compare quotes from a bunch of reputable companies, like BMO and Manulife, all at once.

It’s a convenient option; PolicyMe will walk you through the whole process, and if you get stuck, you can schedule a call with a licensed, human adviser, free of charge.

Whether you use a quote comparison service or do the legwork yourself, you want to ensure you’re not overpaying for your protection. After all, that’s money you could be using while you’re still around.

About the Author

Ethan Rotberg

Ethan Rotberg

Reporter

Ethan Rotberg is a staff reporter at MoneyWise, based in Toronto. His background includes nearly 15 years as a writer, editor, designer and communications professional. His work has appeared in the Toronto Star, CPA Canada and Metro, among others.

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