Everything you need to know when buying life insurance
4 Minute Read
So, you're almost ready to sign the deal on your life insurance policy. This decision marks a significant step toward securing your future, and it's vital to ensure you're fully informed when buying life insurance.
Here are your commonly asked questions about buying life insurance answered.
What types of life insurance are available?
There are four different types of life insurance plans.
Term life insurance policies allow you to select a policy for a specific time, depending on your needs. With CAA Protect’s Term Life Insurance, you can choose how long you want your policy to last. Whether you prefer a term of five years or up to 100 years, there's always a policy that fits your needs.
There are three different types of permanent life insurance, each lasting your entire life as long as premiums are paid.
CAA Protect’s Permanent Life Insurance provides lifelong coverage with a death benefit for beneficiaries upon your passing, along with cash accumulation and potential policy loans. Cash accumulation means your policy gains value over time. You can also borrow money from this value if you need to, giving you extra monetary support.
Permanent life insurance serves as a tool for long-term planning, including retirement savings, funeral expenses, and family monetary security.
Whole life insurance, a type of permanent coverage endorsed by the Government of Canada, guarantees lifelong protection with fixed premiums that do not rise as you age. It also typically includes a guaranteed minimum cash value and allows for withdrawals during your lifetime.
According to the Government of Canada, universal life insurance integrates an investment account to accumulate wealth for beneficiaries, similar to whole life insurance but with distinct differences. The investment's death benefit and cash value can fluctuate based on investment types and performance.
What plan would best suit my needs?
When buying life insurance, you must consider your goals, budget, and coverage length. For example, suppose you are only looking for coverage while raising your kids. In that case, you may want to think about getting term life insurance, as you can only have it until your children grow up. Or, if you are looking for a plan where you can invest your money, you should look into universal life insurance plans.
Understanding these factors can help you determine the best plan to meet your needs and goals.
How much coverage should I get?
You will want to think about a few factors when purchasing life insurance.
The first thing you will want to determine is how much debt you have. If you have significant debt, ensuring your life insurance coverage is sufficient to cover those obligations is crucial.
Secondly, evaluate how much your beneficiary will receive, ensuring it aligns with your intentions for their financial security. Factors include their current lifestyle, future goals, and any specific needs they may have, such as ongoing care or support for dependents.
Taking these factors into account will assist you in determining how much coverage you need.
There is a simple life insurance calculator that can help you determine how much coverage you may need based on your annual income. To determine this number, you will take your annual income and multiply it by seven. For example, if you make $50,000 annually, you will take that and multiply it by seven to get $350,000. You will want your policy to cover around $350,000. This number can change, but it is a good starting point.
The money from your life insurance payout will pay off any debt you may have had, cover funeral expenses and help your family with economic security.
Does my health and lifestyle affect the policies available and their costs?
Yes. Your current health and lifestyle matter regarding the type of policy available to you.
Insurance companies assess these factors to gauge the level of risk you present. Factors such as pre-existing medical conditions, smoking habits and your age can affect the policies you qualify for and the premiums you'll pay.
For people in good health, there are typically more policy options available at lower rates, highlighting the importance of maintaining a healthy lifestyle for favourable insurance outcomes.
Age is another critical factor; younger and healthier individuals typically enjoy lower premiums and a more comprehensive range of policy choices. However, as you age, premiums tend to rise due to increased age-related risks.
Knowing how your health, lifestyle choices, and age affect your life insurance options and costs is key to making smart decisions. By prioritizing early evaluation of insurance options, you can aim for more affordable coverage that aligns with your goals as you age.
Are there options to borrow from or withdraw against the policy, and what are the implications?
Yes, you can borrow or withdraw cash from the policy with whole life insurance and universal life insurance.
If you decide to borrow from your policy, you can take a loan against the cash value of your life insurance policy. The cash value serves as collateral, and you are typically not required to repay the loan, but it will gain interest on it.
However, your policy's death benefit will be reduced if you do not repay the loan. Managing any loans against your policy is essential to avoid diminishing the coverage intended for your beneficiaries.
You can also withdraw funds from your policy's cash value. Withdrawing funds reduces your policy's cash value and death benefit.
Considering the implications carefully and weighing their impact on your insurance coverage before withdrawing is important.
Borrowing against or withdrawing from your whole life or universal life insurance policy can provide economic flexibility. Still, it's crucial to understand the potential impacts on your policy's cash value and death benefit.
Protect your family now
Remember, choosing the right life insurance is crucial for your peace of mind and financial security. Whether you are just starting out or retiring soon, CAA has a life insurance plan that will fit your needs.
Book an appointment today to speak with a CAA Protect advisor or call 1-800-709-5809.
Have a health and dental insurance question? To speak to a professional who can guide you to the right coverage from the right insurer at the right price call us at: 1-800-709-5809 Or email us at info@caaprotect.ca
