Why Life Insurance is a Must-Have in Your Financial Plan

What is Life Insurance?

Life insurance is a contract between you and an insurance company where you pay regular premiums in exchange for a tax-free payout to your beneficiaries when you pass away. This payout, known as the death benefit, can be used for any purpose, such as replacing lost income, covering funeral expenses, or paying off debts.

Types of Life Insurance

There are three main types of life insurance in Canada:

1. Term Life Insurance

Term life insurance provides coverage for a set period, typically 10, 20, or 30 years. If you pass away during the term, your beneficiaries receive a lump sum payout. If the term expires and you’re still alive, coverage ends unless you renew the policy.

Pros:

• More affordable than permanent life insurance.

• Simple and easy to understand.

• Provides temporary coverage for debts and income replacement.

Cons:

• No cash value accumulation.

• Premiums increase upon renewal.

2. Permanent Life Insurance

Permanent life insurance offers lifelong coverage and includes a cash value component that grows over time. There are two main types: whole life insurance and universal life insurance.

Pros:

• Coverage lasts a lifetime.

• Can build cash value, which can be borrowed against.

• Premiums remain level.

Cons:

• Higher premiums than term insurance.

• More complex policies with varying investment options.

3. Participating Life Insurance

A type of permanent life insurance that allows policyholders to receive dividends based on the insurer’s profits. These dividends can be used to increase coverage, lower premiums, or withdraw as cash.

Who Needs Life Insurance?
Life insurance is beneficial for many individuals, including:

• Parents who want to ensure their children’s financial security.

• Homeowners with mortgages to pay off.

• Business owners who need succession planning.

• Anyone with dependents who rely on their income.

How Much Life Insurance Do You Need?

A general rule of thumb is to have coverage worth 7-10 times your annual income. However, it depends on your financial obligations, such as:

• Outstanding debts (mortgage, loans, credit cards).

• Future expenses (education costs for children, retirement).

• Income replacement needs.

The Bottom Line

Life insurance isn’t just an expense—it’s an investment in your family’s future. Whether you opt for term or permanent coverage, having the right plan in place ensures financial stability for those who matter most.