What is life insurance?
If you haven’t yet taken a look at life insurance, as a holistic part of your financial health, it’s time you started. For a financial concept that dates back to around 600 AD, it’s a surprise that more Canadians aren’t utilizing its benefits in their own financial plan. But where did life insurance come from, and why is it such a big deal as part of your financial health?
The Origins
Life insurance was originally invented by the Greeks and Romans and was a way for members of guilds or collectives to exchange their contributions for benefits including proper burial rights, contributions towards funeral expenses and monetary support for survivors. But even the ancients didn’t know how much influence their concept would have.
The first formal life insurance policy was issued by Lloyd’s of London in England, during the 17th century, shortly after astronomer Edmond Haley constructed the first mortality table to provide a link between life insurance premium (the cost per month or annum) and the average life span.
Three Main Types of Life Insurance
Fast forward to today, and life insurance is a booming industry that serves the needs of many through its various companies and products. But what is life insurance, exactly?
In the most basic sense, life insurance can be lumped into three different categories: Term, Whole Life, and Universal Life. Each of these is slightly different, but ultimately covers the same thing; your income in the event you pass.
Term Life Insurance
Term insurance is meant to cover a specific period in your life and is the most basic of the three. It offers a large amount of coverage for a low cost and is usually for periods of 10, 20, or 30 years. Term insurance is most often used when trying to offset the risk of high-cost items like a mortgage. It can also ensure your family is covered financially during a period of time when losing the primary breadwinner would devastate your loved ones. A great example of this is new parents who are tight on cash but want to make sure their children will be able to attend post-secondary school should something happen to one of them.
Whole Life Insurance
Whole life insurance is the next step up from here. While it’s more expensive than term insurance, the coverage is for your life and it does offer a few more features. One of the most notable is the cash surrender value or CSV. The CSV is an amount that grows over time as payments are made, allowing the policy owner to accumulate money beyond just the face amount. Policy owners can use this amount as collateral to pay premiums. A great analogy of a whole life policy is that it’s similar to owning a home versus a term policy which is more like renting a home.
Universal Life Insurance
The last of the three is Universal Life insurance. Like a whole life policy, universal life gives the insured coverage for life and offers an account value beyond the face amount. The difference is that universal life policies are “unbundled”. This essentially means that the policy owner is able to see how that money is allocated and invest the money they contribute to the policy as they wish. This also means that these policies are more complicated and if the investments perform poorly, it can result in a loss.
Each type of life insurance has its pros and cons, and no single type is best. In many cases, different types are combined to suit the needs of the individual and their family. Your life insurance should be tailored to your specific situation but be flexible enough to take into account your goals for your future situation.
What affects my life insurance policy?
So when should you start looking at life insurance? The best time is now! The thing is, life insurance is based off mortality tables (remember Edmond Haley?). So, every year that goes by means it’s another year closer to when your family will need to claim it. Life insurance can be very expensive if you wait until your older.
Beyond age, another factor to consider is your health. When applying for life insurance you’ll generally need to go through some sort of health screening. If you’re young and haven’t faced any major health problems yet now could be the best time.
Lastly, you might want to consider purchasing life insurance if you’ve just faced or are facing a major event in your life. Getting married, having children, purchasing your first home, or creating your financial plan are all great times to look at a policy for yourself and your family.
How we can help make the right choice
Regardless of where you’re at in your life, don’t hesitate to see what’s available for you. Book at a time with one of our advisors, and we’ll be happy to help you out. At Dundas Life, we have a fully digital experience that allows you to look at options with our team from the comfort of your home.
