Life insurance, home insurance, car insurance,   pet insurance — it’s a lot to think about. But all these products are designed to protect you and your family by insulating you from the financial problems resulting from unforeseen events such as illness, death, job loss, disability, accidents and theft.

Life Insurance is an insurance policy that pays a death benefit to beneficiaries or the owner of the policy, if the insured dies. It is important that the beneficiaries designated in the life insurance policy  receive death benefit tax free. In return for this protection, the owner of the policy pays premiums to the insurance company.

Every day most people face a risk to lose their income as result of getting sick or injured and risk of premature death. The risk insured with Life Insurance is the direct or indirect loss of money (capital or income) that may occur as the result of someone's death. Aid to the families of those who dies prematurely may be sometime provided by relatives, friends, orphanages, poorhouse, etc. Unfortunately, such help is often unavailable or inadequate to implement what was planning, for example: the children would get appropriate education, the family would not lose the home, the debts would be paid out, and so on.

Whether or not you need to buy Life Insurance depends on how much you have in the way of assets, how much debt you have, and whether or not your family could make ends meet without your income.

When you buy life insurance contract, you’re not insuring your life, you’re insuring the economic value of your life. And for those who are the family breadwinners it may be not indifferent how their families will live if something happens with them and the families lose their income. Since death benefit goes to the beneficiary tax free, wealthy people may use Life insurance to transfer their estate to the heirs with minimum tax expenses.

Life insurance policy may be issued for the applicants who are from 0 to 85 years old at the moment of application for the policy.

You can choose a contract from the Canada's top insurance companies: Manulife Financial, AIG Life of Canada, Equitable Life of Canada, RBC Insurance, Standard Life, Industrial Alliance, Canada Life and others.

 ◊  Term Life Insurance

Under this form of life insurance, the insurance company promises to pay the death benefit if the insured dies within the the period specified in the policy.  It’s pure protection with no cash value: when the policy expires or if you cancel, you get nothing  - no cash back, no more life insurance protection.

Term Life Insurance offers cost-effective way to cover short-term needs: provide an ongoing income to maintain the family's current lifestyle, pay off mortgage or debts and provide money for children's education, smooth transition by providing temporary financial support to supplement the family income, when one spouse dies.

Insurance companies issue Term Life Insurance policies with different terms but the most common policies are Т10 и Т20. This means that premiums are guaranteed low during first 10 or 20 years (T10 and T20 respectively). For example,  when buying T10, the insured pay minimum premiums, which are guaranteed for 10 years. Then the policy will continue to be in force, but the premiums will grow up to the next guaranteed level, since the insured is older and statistically more likely to die (Illustration). So, the premiums are renewed each 10 (or 20) years, and this contract is called renewable. Term Life Insurance policies usually expire when the insured turns 75-80 years (depending on insurance company).

Usually, Term Life Insurance contracts may be converted to Permanent Life Insurance contracts without any additional medical evidence. This option is available until the insured turns 65-70 years old (depending on the plan and company). Such policies are called convertible.

 ◊  Permanent (Whole) Life Insurance

This form of life insurance is able to provide protection for the entire life of the insured, rather than just for limited period of time. This means that premiums paid for this insurance may be considered as investment, which sooner or later will go to the designated beneficiaries (without tax, by the way).

As distinct from Term Life Insurance, in most instances, permanent policies are designed with a level premium payment for the lifetime of the policy, providing lifelong protection at a predictable cost. (Illustration).

Permanent (Whole) Life Insurance policy may  build up Cash Surrender Value (CSV), which makes this policy an attractive investment tool. Should a policyowner decide to terminate a permanent policy, the insurance company is released its future obligations under the contract and it will return to the policyowner the policy's cash surrender value. By that, the owner gets back a part or entire amount of premiums paid to the company. CSV, or at least a high percentage of it, is available to the policyowner as a loan during the lifetime of the policy. CSVs are guaranteed and stated in the policy, and generally increase from year.

The policyowner can stop premium payments and maintain a reduced death benefit for the life of the insured. A new policy with the reduced death benefit is considered paid in full and requires no more premiums payment. Such a policy is called paid-up and remains in force until the insured person dies. As with the CSV, the paid-up insurance is guaranteed by the contract.

Participating Whole Life Insurance is a whole life insurance plan that provides you with permanent lifetime insurance protection and enable you to accumulate a cash reserve to use as a savings plan, for financial emergency, to supplement your children’s education fund, or to have additional funds for retirement and so on. The word “Participating” means that you are eligible to participate in the surplus of the insurance company through dividends. Generally, dividends increase with the numbers of years the policy exits.

 ◊  Universal Life Insurance

Universal Life has often been compared to “a bag of money”, to which life insurance has been attached. The insurance and the investment elements of the policy have a symbiotic relationship: the investments pay for the insurance coverage, and existence of the insurance elements permits the investment growth to accrue within a tax-deferred environment. The investment in the policy may be withdrawn and provide additional income or the value of your investment may be added to the death benefit and will go to the assigned beneficiary without tax.

The chart below shows how monthly premiums change during existence of o be paid for different kinds of insurance: T10, T20 and permanent life insurance (female, 35 years old, non-smoker, death benefit - $200,000).

For a relatively small premium charge, the insurance company will take responsibility for the risk of loss. The insurer uses  premiums  received from large number of customers to pay claims of a relatively small numbers of people. Premiums depend on the insured's sex, coverage, smoker/non-smoker, insurance plan and insured's age, which reflects unfavorable statistics for older people. 

We live and plan for our future considering it to be bright. Surely, it will be wonderful. But risks exist, and it is a good idea to protect our loved ones - this is a part of planning for their future.

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