Did you know that there’s been a 40% increase in Canadians and Americans who are shopping for life insurance after the Pandemic hit on January 2020?
Moneylesson.org recent survey also found that in people on average overpay for life insurance by 36% .
What is Life Insurance?
Life insurance is an agreement between you (the policyholder) and an insurance company to provide a tax-free some of money to your loved ones (known as beneficiaries) if you were to pass away. The money they receive is known as a “death benefit”, and is meant to help your family out financially if they lose income they were dependent on. For this service, you pay a monthly premium each month to your life insurance provider. In its simplest form, life insurance is a security blanket for your loved ones. It is there to protect anyone who depends on you financially in the worst-case scenario.
What is the best life insurance?
In our opinion the best life insurance is the one that is in place. Usually people don’t want to think about death, it is a thought that makes us anxious and scared however it is a reality as someone pointed: death and taxes can not be avoid. Life insurance tries to relieve the anxiety of death by providing peace of mind that those who depend on us would be okay once we have to live. We would never be ready to leave though however by having a protection plan in place the anxiety thoughts and responsibilities would be managed when it has to happen.
How Does Life Insurance Work?
While it may sound complicated, the structure of a life insurance policy is pretty simple. You pay premiums each month to an insurance company over an agreed length of time. In return, the insurance company promises to give your loved ones a tax-free lump sum cash payment (the “death benefit”) if you die.
Life insurance benefits are paid out in one full lump sum, which means that your death benefit would be received all at once by the people you select to receive your life insurance payout (als known as your beneficiaries). If your policy provides $500,000 of coverage, your beneficiaries will receive $500,000 all at once, and it’ll be tax-free.
This lump sum gives your family the option to use the money however they want to. Some people use it to pay off a mortgage. Others use it to continue making rent payments. In many cases, the money that the beneficiary receives is used to care for children, fund educational expenses, and cover day-to-day living costs that your income stream was helping fund.
Types of Life Insurance
Thre are two different types of life insurance that people shop for: term and permanent life insurance.
Term life insurance is the simplest and most affordable form of life insurance. It pays out a benefit to your beneficiaries only if you die within a specified timeframe, usually 10, 20, or 30 years. This is the best option for 95% of young families.
The alternative to term life is permanent life insurance, the most common type of this being known as whole life. These permanent policies tend to be much more expensive – hundreds of dollars a month more expensive.
But why are these policies so much more? Permanent life insurance guarantees that your beneficiaries will receive a death benefit. You can die young, old, or somewhere in between, and your insurance company will still pay out.
What Type of Life Insurance Makes Sense for Me?
Deciding between whole life insurance vs. term life insurance is a common struggle for people beginning to look for life insurance.
For the most part, term life insurance tends to be the right choice for most people looking for life insurance, despite the fact that it falls under a “set term” and has an expiry date.
Think of it from the perspective of a young family.. Having life insurance protection for longer than you actually need it for may not seem like such a bad thing – after all, what’s the harm in extra protection for your loved ones.
Not necessarily. Why keep paying for something you don’t need? Term life insurance lets you pay for coverage only during the years when it really matters (when your mortgage is at its highest & you have young kids who need you for financial support). Later in life, you can save that monthly premium and put it towards something else – enjoy your retirement!
Who Needs Life Insurance?
It may seem like it is, but life insurance isn’t a necessary purchase for everybody.
So how do you tell if you need it? It’s pretty simple – if you have somebody who relies on you financially, you’ll want to get a life insurance policy. For example, life insurance is essential if you have a partner, children or ageing parents who depend on you for financial support. It could be the difference in your family being able to keep their house and handle day-to-day expenses, verses dealing with a huge financial burden if something were to happen to you.
But not everyone needs life insurance. Remember, we only recommend it for people who have loved ones who depend on them financially. Who wouldn’t need it?
Anyone who is single with no dependents (i.e., if your death will not have a financial impact on your parents & or other family members)
Anyone who has managed to build up enough savings to provide the safety net on their own (think older parents whose kids are out of the house & who are pretty close to retirement)
Children. Many people consider buying life insurance for their kids, but this isn’t necessary! Chances are, your children aren’t contributing finances to the home right now, and therefore a policy isn’t necessary
How Much Does Life Insurance Cost?
Term life insurance only pays out if you die within a specified timeframe that you and your insurance company would agree on. It’s usually 10, 20, or 30 years.
As you can guess, the probability of you filing a claim within that decided on time period (because you die before you turn 65 or before the end of your term) isn’t that high. As a result, you’re not a high risk to your life insurance provider – this means the prices for term life insurance also aren’t that high either! Win win!
A 20 year, $500,000 term life insurance policy costs around $35/month for someone in their 30s. For a lot of people, that can be enough coverage to keep their families protected if something were to happen to them.