Purchasing life insurance is not hard. Unfortunately, it can sometimes be overwhelming and confusing with all the terms and fancy names that insurance companies use. Below is a basic breakdown of the two fundamental types of life insurance. Hopefully this will provide you with more clarity on the subject.
There are two main types of life insurance: term life insurance and permanent insurance. Within these categories there many variations and options. Each type of life insurance provides a specific type of protection that satisfies different needs. It is even possible to mix them both to get the best of both worlds.
- Term Life Insurance is most often purchased and used to fulfill a short to mid-term or temporary need. For example, to cover off your debt and lost income if you were to pass away in the immediate to near future. This coverage is especially great for young people who want to protect their mortgage or a loan. Term insurance is also the cheapest form of insurance due to the fact that it only pays the benefit upon death within the stated term/period of time and it expires when the term is over (although it can be renewed or converted to permanent coverage).
- Permanent Insurance is life insurance that does not expire. This means your coverage is in place for life and is guaranteed to pay out at some point in the future, as long as your premiums are paid. Permanent insurance protects your family against after death expenses. For example, the capital gains on a second property/vacation home or the tax event in an RRSP. Due to the simple fact that permanent insurance will pay out at some point, it is more expensive than term life insurance.
When considering which type of life insurance is most suitable for yourself, one of the main things you must consider is what your immediate and future needs are. Speak to a life insurance advisor to help you find the appropriate solution and options for you and your situation.