Everyone’s heard of whole life insurance and term life insurance. But did you know that there are still more different types of life insurance policies in Canada? With various forms of whole life insurance, term life insurance, universal life insurance, and now term to 100, there’s always more to learn about when it comes to insurance, and it can all be difficult to keep track of!
Because of this, we’ve decided to lay out some of the most common and popular types of insurance you can get in Canada, as well as some of the newer, emerging types. We hope this article makes the different types of life insurance policies in Canada easier for you to understand. So with no further ado, here are the different types of life insurance policies in Canada:
What’s whole life insurance?
You may have heard of this type of insurance being referred to as permanent insurance. They are one and the same. Although this form of insurance typically has a higher premium when compared with other types of insurance, whole life insurance is a type of policy that offers coverage for your entire life. Not only this, but whole life insurance also offers a cash value or investment component along with your policy.
As you pay in to your whole life insurance policy over time, you build up investment value. Then, you can later cash out this investment policy if you need to pay some expenses or supplement your retirement income, for example. With some types of whole life insurance policies, you can even borrow against the policy’s value.
What’s limited pay whole life insurance?
Limited pay whole life insurance is quite similar to standard whole life insurance. However, the main difference is that limited pay whole life insurance has a specified payment term. Typically, this payment term is around 20 to 30 years after which your payments stop but your whole life insurance cover is still guaranteed.
Since these premiums are front-loaded, limited pay whole life insurance policies generally have some of the highest insurance costs.
What’s term life insurance?
With term life insurance, you get insurance coverage for a specific length of time only. This time is called a term. A term’s length could be 10, 20, 25 or even 30 years long. If you die within your term length, a set amount will be paid to your beneficiaries.
Want to choose your personal term length? Thankfully, companies within Canada, like Industrial Alliance or RBC Life Insurance, let you pick your coverage term. These products are referred to as “pick-a-term” products.
Although term life insurance is only temporary, the coverage which you get is quite exhaustive and can cover most of your needs. Term life insurance can cover your children’s education, or your outstanding mortgage, for example. And yet, despite the great coverage, because term life insurance is temporary, it is one of the most affordable insurance options out there – at least for the first term.
What’s universal life insurance?
Though it is otherwise similar to whole life insurance, universal life insurance has the unique feature of a self-directed long term investment. When you have universal life insurance, your insurer will give you advice about where to invest your universal life insurance’s cash value, though you obviously must make all final decisions for yourself. In this way, the cash value of universal life insurance is a great option for you to save for your retirement.
If you enjoy estate planning, or if you are a savvy investor, universal life insurance should greatly appeal to you. However, for other people, the hassle and hands-on time spent actively managing a universal life insurance policy, rather than just setting it up and forgetting about it, can mean that they see universal life insurance as a great disadvantage, being tedious to manage.
What is term life insurance to age 100 or term-to-100 insurance?
A different form of the whole life policy, term to 100 insurance is a policy without any cash-out option. With no option for cashing out, a term to 100 insurance policy can only pay out upon your death, which is what makes this policy a bit cheaper than other forms of insurance.
Though the name suggests that term life insurance to age 100 is a temporary form of insurance coverage, it is actually seen as being permanent. If you do live for 100 years, you can still keep your term to 100 insurance’s coverage without having to pay any more premiums.
What about tax-exempt life insurance?
Did you know that some people qualify to buy life insurance through an Immediate Financing Arrangement? If you buy your life insurance in this way, you will only have to pay the cost of the policy’s interest. Since the insurance policy’s interest is a tax-deductible cost, your money is free to stay in your business investments, or real estate.
This type of insurance makes a good alternative to low yield, low risk, high tax investments like GICs, or bonds.
In the end, you get a no-stress investment that will grow at more than 10% equivalent taxable rate, with tax-free access, that you can then pass along to a charity or your family, also tax-free.
Policies like these best suit people who are business owners and real estate investors with unrealized capital gains.
Read here to find out more about this.
So, that concludes our guide to the different types of life insurance policies in Canada. Sure, there are many types of life insurance Canada only has, that can’t be found anywhere else, and that have specific and unusual rules that can mean you have a steep learning curve ahead of you. But this doesn’t have to be daunting.
So, I hope this has made the various types of life insurance policies in Canada easier for you to understand, and I hope this helps you to feel better informed on the different types of life insurance Canada has when you make decisions about insurance in future.
