Are you considering getting a life insurance policy to protect yourself, your loved ones or your assets? You’re not alone. Every day, more and more Canadians are thinking more about the future and the possibility of a life insurance claim. But where do you start? At isure, we understand that the basics of life insurance can be confusing. Differentiating among the various types of life insurance policies and choosing the right one can be challenging. Finding the right coverage can also be a hassle. Luckily for you, isure has everything you need to know! These are some of the most commonly asked questions regarding life insurance in Canada.
Is Life Insurance Recommended in Canada? (Complete Guide)
Typically, life insurance is used to pay off a large debt, such as a mortgage on a home, that you want to leave to your beneficiaries. But technically, you do not need life insurance. It’s not required by law in Canada, unlike car insurance.
Overall, it is recommended to acquire life insurance to provide financial protection to families in the event of an unexpected loss of a loved one. Beneficiaries, such as a child or spouse, will find peace of mind when paying outstanding debts or day-to-day expenses. This can be beneficial, especially during the grieving process. Though not mandatory, it is a key component of responsible financial planning.
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How Much Life Insurance Do You Need in Canada?
Overall, the life insurance you will need in Canada will depend heavily on your financial situation. Additionally, you will need to consider your beneficiaries’ needs and goals. Experts recommend purchasing life insurance coverage equal to 7 to 10 times your annual salary to protect your family. A common approach for figuring out how much life insurance is necessary for you is to use what is called the “DIME” formula, which is as follows:
- D – Debt: Consider all types of debt, including mortgages, car loans, credit cards, and student loans.
- I – Income Replacement: A good rule of thumb is multiplying your annual income by the number of years you and your family would need support. This usually lasts 5 to 10 years or until your youngest child becomes independent.
- M – Mortgage: Consider the full balance of your mortgage, and if you want it paid off.
- E – Education: Consider the cost of your children’s post-secondary education.
How Long After Death Do You Have To Collect Life Insurance?
Life insurance companies pay out the proceeds to your family after you have died, and the beneficiary of your policy files a claim. A beneficiary is the person, persons or organization you name to receive the payout (death benefit) when you pass away.
They should be able to collect the life insurance payout within 30 to 60 days after submitting the completed claim forms and the supporting documents.
What Is The Best Type of Policy?
Several types of life insurance policies are available to cater to each individual’s unique needs and circumstances. These include the following:
- Term life insurance
- Whole life insurance
- Universal life insurance
- Mortgage life insurance
- Group life insurance
As mentioned above, contacting your insurance broker is the best way to determine which policy is right for you.
Can Life Insurance in Canada Be Denied?
Insurers deny the death benefit on life insurance claims for reasons of policy delinquency (non-payment), material misrepresentation (inaccurate information on your policy), contestable (questionable) circumstances and documentation failure. As with any insurance policy, staying on top of it is crucial to avoiding claims denials. The last thing you want is a denied claim during a grieving period, a time which is difficult for anyone.
Is Life Insurance Taxable in Canada?
No, life insurance is technically not taxable. The good news is that most of the money received from a life insurance policy is not taxable. However, some fees accrue tax that will come out of the money left for them. These fees include probate, estate planning, and other fees. Most life insurance payouts are not taxable for named beneficiaries. Some taxes or fees may apply if the payout goes to your estate or includes investment gains.
When Should I Get Life Insurance?
While many believe timing is related to your health, the real sign that you may need life insurance is who you’re leaving behind. Deciding to get life insurance is about leaving a financial legacy for your loved ones. Do you have dependents whose lives would be significantly impacted if something were to happen to you? This would include a spouse, children, or an elderly person. If yes, then it’s time to get coverage.
How Do I Know How Much Coverage I Need?
The amount of life insurance you need depends on many things, like your income, outstanding debt (like your mortgage), your assets (including savings), the number of dependents and more. Consulting with an insurance broker is recommended to determine the amount of life insurance you may need.
Why Should I Shop For Life Insurance Online?
You can obtain life insurance from the bank or lender that provided your mortgage, but it’s worth shopping around for the best rates. That’s where I, isure, step in. We shop the market for the best life insurance rates to compare products and coverage.
Do I Need a Policy If I Already Have Mortgage Insurance From My Bank?
Mortgage insurance is for your mortgage; life insurance is for protecting more than just your mortgage. If you’re unable to pay for your mortgage, the lender is protected with mortgage insurance. But that doesn’t help replace the income you missed. Additionally, it doesn’t help your loved ones maintain the lifestyle they once had when you’re gone. The two types of insurance aren’t interchangeable, and it’s good to know that.
How Does Life Insurance Work If You Don’t Die Before The End Of The Policy?
If your policy expires and you have not made any payments, everything you paid into it is gone forever, unless you have a whole or permanent policy. However, term life insurance policies do have an end date. Most life insurance companies offer the option to convert your policy to a permanent one before expiry, which is a good option if you want access to some cash.
Can I Cancel My Policy Early?
You have more options if you cancel a permanent life insurance policy. There are some permanent policies whose features will pay out an amount, known as the ‘cash value’, if a policy is cancelled early. Additionally, if extra amounts are paid into your investment portion of a permanent policy, some or all of that investment would be paid to the policy owner when the policy is cancelled.
What If I Am Self-Employed Or My Coverage At Work Isn’t Enough?
If you are self-employed or your group benefits from your employer are no longer enough to serve your needs, you have options. Whether you pay for your policy or your employer does, ensure it includes both short- and long-term disability coverage. If you didn’t ask about it when signing your employment contract, it’s not too late to ask the HR department. Critical illness is another type of coverage to consider. It offers you a single payment if you are diagnosed with a condition or disease, such as cancer.
No two people are the same; therefore, their insurance coverage needs differ. Take stock of your situation and assess the amount of coverage you may need. Check out the different types of life insurance available to you. Please contact one of our isure representatives to help you choose a policy that provides ample financial security for the people you love.
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