Life Insurance / What Is Life Insurance
What Is Life Insurance? A Simple Guide
Life insurance is a promise from an insurance company to pay your family a tax-free amount of money if you pass away. Here is how it works, what it costs and how much you might need.
You pay a monthly or yearly premium. In return, the insurer pays the death benefit to the people you name, your beneficiaries. They can use it for anything: the mortgage, daily bills, childcare, education or final expenses.
Key terms explained
Premium
The amount you pay, monthly or yearly, to keep the policy in force.
Death benefit
The tax-free amount paid to your beneficiaries.
Beneficiary
The person or people who receive the money. You can name more than one.
Term
The length of time a term policy covers you, such as 10, 20 or 30 years.
Cash value
The savings part of a permanent policy that grows over time.
Rider
An add-on, such as critical illness or child coverage, that adds protection.
Term or permanent?
Term life
- Coverage for a set period
- Lowest cost for large amounts
- Ideal while you have a mortgage and young children
Permanent life
- Coverage for your whole life
- Builds cash value
- Ideal for estate taxes and leaving a legacy
Compare term life and permanent life insurance in more detail.
How much life insurance do you need?
Add up your debts
Your mortgage, car loans, lines of credit and credit cards.
Replace your income
Several years of your income for your family’s living costs.
Plan for the future
Your children’s education and any final expenses.
Subtract what you have
Savings and any coverage through work, which often ends when you leave your job.
What affects the price?
- Your age: the younger you are, the less you pay
- Your health and family medical history
- Smoking or vaping
- The amount of coverage and the length of the term
- Your job and hobbies
Frequently asked questions
Can I get life insurance without a medical exam?
Yes. Many insurers offer no-medical or simplified plans, usually up to a certain amount. Plans with a medical exam often cost less for the same coverage.
Is coverage through work enough?
Group coverage is often only one or two times your salary and usually ends when you leave your job. Most families need more.
Is the life insurance payment taxable?
In Canada, the death benefit paid to a named beneficiary is generally tax-free.
When should I buy life insurance?
The best time is when someone depends on your income, and the earlier the better, because premiums are lower when you are young and healthy.
Talk to Devendra Kumar, Financial Planner (CLU, CHS)
DK Insurance & Investment Inc. serves families across the GTA from offices in Vaughan, Mississauga and Brampton. Call or text +1-647-761-0517 for a free, no-obligation conversation.