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How many of us know about the basics of life insurance? If anyone approached you, would you be able to explain how life insurance works, or the cost of life insurance in detail? Would you be able to explain the procedure you can use when picking the best life insurance policy in Canada?
Life insurance may be one of the most important purchases you make. It is basically the pinnacle of the whole adulting thing. If you think a policy is too expensive, or your employer-offered insurance is enough, think again, analyze and research. The bottom line is, you need enough life insurance
Although it is not a mandatory requirement in Canada like car insurance, you and your loved ones will in one way or another need life insurance when you least expect it. This is especially important if you have dependents who will be largely affected financially should you as the sole provider die. It can be used to pay off debts like mortgages of a home that is to be inherited.
Below is an analysis of everything that entails life insurance policies including their different types, their cost, and who should be investing in them:
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What is life insurance?

Life insurance is an agreement or a legally binding contract between you, the policyholder, and the insurance service provider, the insurer.  Life insurance basically allows you to determine the fate of your loved ones and the distribution of your wealth upon your death. It helps you determine how you want things to run upon your death.

For the insurance company to enforce the life insurance policy, the application must accurately disclose the history and current conditions of the policyholder as well as the high-risk activities.

From the inception of the contract, the policyholder is required to periodically pay insurance premiums that have been agreed upon by the company. This is a small amount of money over time or an advanced lump sum. It is like a saving account throughout the stipulated period. The life insurance will only remain effective if the payments are up to date.


Upon the death of a policyholder, the insurance company guarantees payment to the beneficiary of the insurance policyholder in exchange for the premiums paid by the policyholder during their lifetime.

The lump sum of benefits the beneficiary receives is tax-free and can be used to cater for the funeral, pay any outstanding debts and loans of the deceased policyholder and maintain the lifestyle of the dependents. Alternatively, some policyholders choose to donate their benefits as charity.

If you as the policyholder don’t have dependents, the lump sum could be given to an institution. You have to name them the beneficiary. If you do not name a beneficiary in a life insurance policy in Canada, all the benefits upon death will be paid to your estate and might be subjected to taxes.

How Does Life Insurance Work?

If you are considering investing in life insurance, this is the most crucial part. It helps you understand what you need during the application, what you need to do after a successful application and what to expect in the long run.

Most times, the policyholder and the insured refer to one at the same person. But not all the time. Sometimes a business decides to purchase insurance for a key person in the enterprise like the CEO. In this case, the company is the policyholder while the key person is the insured. The same case applies to when an insured person sells their insurance policy to a third party with the hope of acquiring cash value.

When it comes to life insurance, you have to understand the two main components: death benefits and premiums. If we break this down further, we realize that term insurance incorporates these two while permanent and whole life insurance includes the cash value component.  We will explain the types of life insurance in the next section.


  •         Death Benefit

This is the guaranteed lump sum of money the life insurance service provider pays to the named beneficiary at the demise of the policyholder. A beneficiary can be a child while the policyholder can be the policyholder. Sometimes, the beneficiaries can close relatives or institutions of choice.

The insured and the insurance company work together to determine the estimate of the future needs of the beneficiary. Putting the needs of the policyholder into consideration, the insurance company determines if the proposed interests qualify for coverage based on the underwriting requirements of the company. The requirements are inclusive of age, health and medical history, and high-risk activities.


  •         Premium

Premiums are the money the policyholder pays for insurance. The insurer must pay the death benefit when the insured dies if the policyholder pays the premiums as required, and premiums are determined in part by how likely it is that the insurer will have to pay the policy’s death benefit based on the insured’s life expectancy. Factors that influence life expectancy include the insured’s age, gender, medical history, occupational hazards, and high-risk hobbies.2 Part of the premium also goes toward the insurance company’s operating expenses. Premiums are higher on policies with larger death benefits, individuals who are at higher risk, and permanent policies that accumulate cash value.


  •         Cash Value

Permanent life insurance has a cash value that serves two purposes; as a savings account and life insurance net cash value. The life insurance net cash value is what the beneficiary inherits upon the demise of the policyholder and after all the life insurance deductions have been done. On the other hand, the savings account is an additional feature that makes life insurance policy more valuable as it can be accessed by the insured when they are still alive. It serves as a living benefit for policyholders from which they may draw funds while they are still alive.

Some life insurance providers have restrictions on the policies subject to how the money is used. And the funds available for removal. The most common arrangement is the acquisition of loans from which interest is charged on the outstanding principal.  While some policies allow partial surrender or withdrawals, it reduces the death benefits that will be received by the beneficiary. It is also important to note that if the loan interest is not paid upon the death of the insurer, the amount will be deducted from the remaining cash value. The cash value can also be used to pay premiums if they are sufficient to cover the payments.

With each regular premium, the investments are categorically divided into two. The cash value portion of your policy accrues tax-deferred interest. How the money earns interest depends on the type of permanent life insurance policy you purchase.

With deferred taxes on the accumulated funds within the policy, the cash value earns a substantial amount of interest that makes its increase stable over time. This leads to increased insurer’s liability which decreases the risks of the service provider. However, the funds are subjected to a standard tax rate once they have been withdrawn and distributed.


How much does life insurance cost?

If you are considering investing in a life insurance policy in Canada, the next concern is about the cost. This is quite understandable because you need to know just how deep you will dive into your pockets for planning purposes. Especially if you have dependents.

While that is the most straightforward question, the answer is hard because it is subjective to a lot of aspects. It is like determining how long you will live. You can’t tell that unless you are a timed machine or robot.

The best way to determine a closer approximation of the cost is by understanding how and what goes into the process. While some factors can be controlled like lifestyle habits, some just can’t and you have to deal with them, like genetic diseases.  But first, let us look at what is covered by life insurance


What is covered by life insurance?

Life insurance covers most of the deaths caused by illness, accident, or natural causes but no deaths related to fraud and criminal activity or intentional murder caused by the beneficiary. However, although life insurance covers deaths caused by accidents, it is advisable to buy accident insurance for a more intense cover.

Generally, once the death has been proved and considered valid as per the contract, the life insurance policy should be able to cover the following:

  •  End-of-life expenses which include funeral and burial costs
  •  It caters the day to day expenses of your dependents to maintain a comfortable lifestyle
  •   Cosigned debts like mortgage, credit cards, and other loans which are effective in making important family decisions upon your death
  • Child care and other dependent expenses like school can help in securing their future
  • Medical expenses or long-term care can be accessed by the policyholder when they are still alive if they are diagnosed with terminal illness through accelerated death benefit rider.


Factors that affect the cost of insurance

Below are some of the things that affect the price of life insurance and how the impacts they have:


Type of policy

There are different kinds of life insurance policies to choose from when purchasing insurance to protect your loved ones when you can’t financially support them. The main types of life insurance are term and permanent life insurance. The coverage amount you need, which is the money received by the beneficiaries upon your death, and the time taken for the coverage amount to be claimed is one of the factors that determine the cost of insurance. Ensure you understand how the different types of insurance work to purchase the most favorable policy.


Age of the policyholder

While purchasing a life insurance policy, the service providers rate the cost as per the age of the applicant. When a policyholder is far from life expectancy, which means younger, the cost of insurance will be affordable and easy to get. Older applicants may find the acquisition of life insurance hard.  If they are lucky enough, the cost of the insurance will be more.

Therefore, it is advisable to invest in life insurance earlier on in life. While the monthly may be affordable and stay leveled over the years, younger people have a better chance of passing physical exams which works towards acquiring lower rates of life insurance.


The health of the policyholder

For every life insurance application to be successful, the applicants have to go through a physical examination and deliver statements from the doctor. Your performance in these exams will help the service providers determine the premium rates. Some of the health aspects that could affect your rates include smoking and a family medical history of serious or terminal illnesses like cancer. If you happen to have pre-existing conditions, the costs will be high.


How gender impacts cost

Men have a longer life expectancy compared to women. Assuming they are of the same age, men are more likely to purchase a life insurance policy at a higher rate as compared to women.


 Occupation and hobbies

People who work in professions that are considered dangerous like pilots, firefighters, and crane operators are more likely to acquire life insurance policies at higher rates. This also applies to those who engage in high-risk hobbies like skydiving, motorcycle racing, and mountain climbing among others. Such people are advised to do intensive research before settling for insurance providers. They should also ensure that the insurer is reputable.


The amount your loved ones would receive

In fact, this should be the first thing you think about when purchasing insurance. If you wish your beneficiaries to get a larger lump sum of benefits, then the life insurance policy will cost more. A larger policy will ensure your beneficiaries receive more benefits although the cost of protecting it will be more. However, the insurer may limit the premiums based on your income.


Do I need life insurance?

When it comes to life insurance applications, the better question should be based on the people in your life? Should you die tomorrow, will they be able to clear all the personal and business-related debts? Will they be able to manage a comfortable lifestyle without your income?

The acquisition of life insurance is a bold financial responsibility that lets you secure assets and financial support through investments. It’s a way of diversifying income-generating investments to avoid subjecting your loved ones to a lot of financial compromise upon your death.

This is to say that unless you are wealthy, healthy, young, debt-free, and single with no children and no prospects of changing that in the future, then you need life insurance. After all, life insurance focuses on making life easy for the people you love when you can no longer support them. Here are some examples of people who may need life insurance:


  • Parents with minor children to avoid hardships caused by lack of finances. A life insurance policy can provide the children with financial support until they are old enough to support themselves.
  • Parents with special-needs adult children because they require lifelong care. The life insurance service providers can help find and fund special needs trusts that can care for the children long after you are dead. Or until they can find someone to take care of them.
  • Whether married or not, adults who own property together need life insurance to avoid compromise upon the death of one partner. This is to ensure that should one partner die, the other one can effectively afford loan payments, upkeep, and taxes on the property.
  • Elderly parents can invest in life insurance to somehow reimburse their adult children for the sacrifice they have committed while taking care of them in their old age.
  • While young people may not need life insurance, those whose parents have loan debts may need life insurance to help them clear the debts should they die.
  • Ideally, insurance is not for the young and the healthy as many people perceive. But young people can invest in life insurance early in life to be able to qualify for low premium rates while increasing chances of policy application acceptance.
  • Life insurance is also for wealthy individuals and families with potential estate tax debts. The insurance will help them secure their estate while by providing taxation cover.
  • Life insurance is also a good option for those who feel that burial and funeral expenses will cause a huge financial strain on their loved ones.
  • Businesses invest in life insurance for the key employees because the death of such employees, for example, the CEO, could result in financial challenges.
  • Married pensioners as life insurance will help them maximize their pension earnings.



How much life insurance do I need?

The amount of life insurance you need is not just something you wake up and decide. It requires proper analysis of your current financial situation and the future needs of your beneficiaries. The whole point is to satisfy the need you are purchasing the life insurance policy for without sacrificing your present. This will help you determine the amount you can comfortably invest in per premium and the overall benefits your beneficiaries should get.

The best approach is to create a budget that captures current financial needs, possible future needs, current liabilities and debts, and the costs of funeral and burial.

While at it, you may want to consider the number of children and their ages and physical abilities, types of businesses, and investors you are working with. Don’t forget the ability of your partner to afford burial and funeral expenses as well as maintaining the lifestyle of the family in absence of your financial support. Now, try and determine the situation in ten or 20 years. That is how much insurance you need. It is that simple and hard.

It is advisable to analyze and reevaluate your policy every year or after a major life-changing event like marriage, divorce or the birth of a child, or a significant purchase of an estate. This will ensure the coverage is altered where possible to keep up with the new life events and needs as they occur.

As long as it is affordable, there is nothing like too much life insurance. While everyone desires to leave a legacy of multi-million dollar life insurance to their loved ones, to some, this can only remain a wish. You should also remember to keep your regular payments of premiums updated to avoid canceled investments.


Life Insurance Riders

While the primary focus of life insurance is to offer financial cover to your loved ones and dependents in case you pass away, there are ways you can customize your policy to include additional features. These additional features are what we call life insurance riders. They offer extra coverage or sometimes ways you can access the funds from the saving benefits while you are still alive.

There are various types of life insurance riders and their availability depends on the insurer. The policyholder will typically pay an additional premium for each rider or a fee to exercise the rider, though some policies include certain riders in their base premium. Below are the most common life insurance riders:

  • The accidental death benefit rider can be used to provide additional life insurance coverage if the policyholder’s death is a result of an accident.
  • The waiver of premium rider ensures the policyholder is not subjected to premium payments if the insured is rendered incapable of working.
  • The disability income rider ensures you are entitled to a monthly income in the vent that you as the policyholder are unable to work for some time due to illness or injury.
  • The accelerated death benefit rider gives the insured the freedom to collect a portion or all of their death benefits if they are diagnosed with a terminal illness
  • The long-term care rider is a type of accelerated death benefit that allows the insured to cater for nursing homes, assisted living, or in-home care should they require such services.
  • A guaranteed insurability rider ensures that the policyholder can purchase other insurance policies later in life without going through the regular medical review.
  •         Term Conversion Rider allows the policyholder to convert term life insurance policy to permanent policy. This can be useful if your health.

Less Common Life Insurance Riders

  • Child Life Insurance Riders are not necessary but most policyholders purchase it because they have an added benefit when it comes to covering burial expenses. They are quite affordable because the coverage consists of a very little amount and the children have a low chance of dying.
  • Guaranteed Insurability Rider, which can only be allocated to permanent life insurance policyholders, allows you to increase your insurance coverage without going through a full application process again. This makes it perfect for the insureds with increased financial obligations over time with rates being subjected to age.
  •   Spouse Life Insurance Rider specifically targets the spouse. It gives the policyholder an affordable chance to add substantial but limited funds of insurance to cover the spouse

Are Life Insurance Riders Worth It?

The costs of any rider that is added to your life insurance policy are listed separately. This way, you can keep up with incurred costs at any given point. Generally, if there are low chances of a claim, the cost is quite low. If you want to determine how worth a rider is, you should weigh its cost alongside the financial risks. That is the total costs of the rider as compared to the benefits if they are used.

If you have a hard time understanding how they work or what goes where it is advisable to consider seeking help from a financial advisor or life insurance service provider.


How can I drop or add Insurance Riders?

If you are considering including any riders on your life insurance, it is advisable to purchase them together with the base life insurance policy. This is to save you from the trouble of going through the underwriting process all over again which will need another medical exam.

Most insurance companies have made the process of dropping a rider quite simple. It can be as simple as filling out a form to authorize the process.


How do I get the quotes for disability insurance?

Our transparency and the need to help our customers on sport has made finding life insurance policy quotes simple and instantly. Most compliant insurance service providers have made insurance quotations as easy as a click away.

You can use our online forms or reach out to us via email, and phone number. The quotations can be adjusted as per your financial situation and insurance needs.


Which is the best disability insurance company in Canada?

The best life insurance companies are those that are experienced, have the knowledge and understanding of the insurance industry. Different companies offer different policies that range from the individual, group, and customized amount of benefits and premiums as per the needs.

While Canada has several trusted insurance companies, Policyhub stands out as the best choice for most Canadians. This is because of their industrial connection with a wide range of investment and insurance companies as well as well-trained and experienced staff that will guide you throughout every step of your coverage.

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