1. If anyone relies on you financially… You need life insurance

If you are a spouse or the parent of dependent children it is virtually mandatory to have life insurance. You may also require life insurance if you have an ex-spouse, life partener, a child of dependent parents, sibling of a dependent adult, an employee, employer or a business partner.

On the other hand, if you are comfortable retired or financially independent and no one would suffer financially if you were to pass away, then you probably don’t require life insurance. Although, you may consider using life insurance a valuable strategic financial tool.

2. Life insurance is a contract (called a policy)

Life insurance policies are a contract between a life insurance company and someone (or something, like a trust) who has a financial interest in the life of someone else. The insurance company pools the premiums which policyholders pay (typically on a monthly or annual basis) and pays out claims (the death benefit) in the event of a death.

In simple terms, the way the insurance company generates a profit is calculated as the difference between premiums taken in and the death claims paid out.

3. Life insurance does not apply a monetary value to someone’s life

Rather, life insurance helps compensate for the inevitable financial consequences that accompany the loss of someone’s life. It helps those left behind cover costs such as final expenses, mortgage debt, other outstanding debt, planned educational expenses and lost income.

Most importantly, after an unexpected death, life insurance can help soften the financial burden at a time when surviving family members are dealing with the loss of a loved one. It also provides peace of mind for the policy holder and their family. This is why life insurance is vital for the income earner of a single-income household and still very important for a stay-at-home spouse.

4. There are four primary roles in a life insurance policy

The four roles in a life insurance policy are,

Insurer – the insurance company responsible for paying out claims in the case of a death

Owner – responsible for the premium payments to the insurance company (insurer)

Insured – the person whose life the policy is based upon

Beneficiary – the person, trust or other entity who is due to receive the life insurance claim/death benefit in the case of the insured’s passing

For example, John and Mary are a married couple with two young children. They each have a term life insurance policy for $1,000,000 to cover their mortgage debt and to provide the surviving spouse with additional income to help raise their two children and replace lost income.

For John’s policy, he is the owner and the insured while his wife is the beneficiary. The insurer is the insurance company whom he has his policy with.

For Mary’s policy, she is the owner and the insured while her husband is the beneficiary. The insurer is the insurance company whom she has her policy with.

5. There are two very different types of life insurance which you should be aware of- Term & Permanent

Term life insurance is the most common, simplest, least expensive and most widely applicable life insurance product available. With a term life insurance policy, a life insurance company bases the policy premium on the probability that the insured will die within a stated term (this is typically 10, 20 or 30 years). The premiums are guaranteed to stay the same for the length of the term. After the length of the term (10, 20 or 30 years) the policy becomes very costly to maintain or you decide to cancel it. This can be frustrating as a you paid for many years without making a claim, but in a way it is good news as you beat the insurance company and are still alive today.

Permanent life insurance is similar to term in the way that it is priced in regards to the probability of you living or dying, but it can include a savings mechanism. This is often referred to as “cash value” or a “side account” and is designed to help the policy exist into perpetuity. Whole life is the original permanent life insurance product which uses an investment component which is geared towards fixed income (bonds, cash, term deposits, etc.). Universal life is designed to be a more affordable permanent life insurance solution with added flexibility.

Permanent insurance plans are much more complex and expensive than term life insurance plans. Permanent plans play a special role in financial planning as there are financial dilemma’s which relate to business planning and high-net-worth estate planning where permanent insurance policies can be the solution to these issues. They are only appropriate for a small number of people and still dependent on numerous other factors to work the way that they are intended.

If you are in need of life insurance, please contact us to ensure that you have the most appropriate product offered by the right insurance company for the best possible cost. We can help ensure that you accomplish this.

West Coast Life Insurance
Email – simon@westcoast-lifeinsurance.ca
Phone – 778-484-2683