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There are two types of Life Insurance.

• Term. Also sometimes referred to as Terminating Insurance
• Permanent. This is protection for the rest of your life.

Within each are various configurations and styles. Depending on what you are trying to protect one or both at the same time may be your best choice.

Term: This is the most economical form of Life Insurance. Generally, you can get a high benefit amount at a lower, initial cost. There are various Term lengths available. The most popular are 10-Year and 20-Year. Depending on which you choose for the next 10 or 20 years your cost per month will not increase. When you get to the end of that 10- or 20-year period you have the option to renew for a new Term period without having to go through a new medical examination. This is very important if your health has changed to the point that you may never again be eligible for coverage.

The biggest challenge is the renewal cost at the end of the Term period. In many cases it is three to four times more per month, for the same benefit amount, then you were paying just a month ago.

Here is an example: (based on 2023 quotes)

45-year-old female. Non-smoker $500,000 benefit amount. 10-year Term plan. Cost per month $29.25.

45-year-old male. Non-smoker $500,000 benefit amount. 10-year Term plan. Cost per month $45.21.

10 years from now the same coverage would be $93.98 per month for the female and $124.11 per month for the male.

Then, each following year, it will continue to increase. At a certain point in the future, typically at age 80, the Term plan will automatically cancel. At about the time when your family may really need this money.

This begs the question, why should I have this type of coverage. People will use Term policies if they have a large amount of debt to protect such as a mortgage or a loan. They want to make sure that if they die, their family is not obligated to continue to pay or to pay this money back. Term is typically used for short-term situations and planning.

Permanent: This is how you make insurance work for you. Within Permanent Insurance are, typically, two types. Whole Life or Universal Life. Each can provide coverage for the rest of your life. There are pluses and minuses to both. Cost is much higher than Term plans.

The reason is that there is an investment component associated. Using very broad strokes, with Whole Life, a portion of your cost is used, by the insurance company, to invest. Each year the insurance company pays a dividend that increases the Cash Value (money that you can borrow against in the future if you wish that typically starts to accumulate in year one) and increases the overall death benefit amount.

With Universal Life, you have the option to choose which investments (within the insurance companies funds) you wish to have your money placed. Depending on how the funds fair, the cash value and death benefit may or may not increase each year.

With Universal Life you have the option to put more money into the investment account over and above your monthly cost. With Whole Life it is a fixed amount each month. Universal Life provides flexibility. Whole Life provides stability.

One the best ways to decide is to determine if you need to rent your protection (Term) or need to own your protection (Permanent). Fortunately, you can have both at the same time.

You are unique. Your situation and needs are sometimes totally different even from those closest to you. This is merely a guide and suggestion.

Depending on your yearly gross income (before taxes) a suggested benefit amount should be about 10 times that amount. For example. If you make $100,000 per year an appropriate benefit amount should be $1 Million.

The reason for this is you will want to replace 10 years of your income. 10 years that your family will not have that money coming in to pay bills, mortgage, education for children, or retirement needs for your surviving spouse and/or children.

Based purely on cost, most people will opt for Term coverage. Especially if there are children at home, they know that in the future that they may not need as much protection.

One of the most popular choices is to have a smaller Permanent benefit amount with a higher Term amount. This way, you have the full coverage you need plus you are building your cash value that you can use in the future. (please see ‘cash value’ in the above question)

Can you have a higher benefit amount? Yes. Should you have a higher benefit amount? That is totally up to you to decide.

As with Life insurance there are various types of coverages available. Term and Permanent. Within these are additional options such as a Return of Premium at expiry and/or Return of Premium upon death.

A Return of Premium on expiry means that at a certain point in the future, typically either age 65 or 75, if you have not submitted a claim for Critical Illness, the insurance company will refund all the money you’ve paid. Effectively, if you get sick the insurance company gives you a large, lump-sum amount of money. If you don’t get a Critical condition, the insurance company will give you all your money back.

A Return of Premium upon death means that should you die, and it is not caused by a Critical condition, the insurance company will return all the premiums you’ve paid into the plan.

Your situation and needs are totally different even from those closest to you. This is merely a guide and suggestion.

Depending on your yearly gross income (before taxes) a suggested benefit amount should be about 18 months of that amount. For example. If you make $100,000 per year an appropriate benefit amount should be $150,000.

The reason for this suggestion is based around the statistics in Ontario. On average, if someone has a Critical condition such as Cancer, Heart Attack, or Stroke, the average time that they are off work is about 18 months. You’ll want protection that can help replace your income (and help pay for those unexpected additional expenses) while you recover.

Can you have a higher benefit amount? Yes. Should you have a higher benefit amount? That, it totally up to you.

The biggest difference between the two is control of the money. With mortgage insurance should you die, yes, the mortgage is paid off however your spouse and family does not receive any of that money. Money that they will need to continue to meet the ongoing bills, education requirements, or to live the life that you’ve created for them. Effectively you are paying to protect someone else’s money like a bank or another financial institution.

With Life Insurance should you die the money comes to your spouse and/or family. What they do with the money is totally up to them. If they wish to pay off the remainder of the mortgage they can. If they want to set some aside for future use (education, retirement needs etc.) they can. They wholly control what happens to the money.

One of the growing trends is to provide Pooled Benefits (Life and AD&D), Long Term Disability (180-day elimination, 5-year benefit period), Critical Illness, Extended Health Care, Employee Assistance program and a large enough Health Care Spending Account to allow the employee to pick what is most important for them and their family. For example. Extra dental work. Laser Eye surgery. Fertility treatments. Physician fees/charges for medical services.

HERE ARE THE TRADITIONAL OPTIONS:

Most Group Plans come with one, universal component.

Pooled Benefits. These include Life Insurance and Accidental Death and Dismemberment (AD&D). These are smaller benefit amounts to protect the employee should something happen. The cost for this is typically based on the amount requested and the average age of the employees. As the term suggest, it is a blend of these factors that determines the pricing. Typically, it is a flat benefit amount of $25,000 for both Life and AD&D however you may also have a percentage of income (1 times, 2 times etc.).

You can then add:

Short Term Disability. Long Term Disability. Critical Illness protection.

• Short- and Long-Term disability costs are based on several factors. Salary. Occupation class. Age of employee.

• Critical Illness, like Life and AD&D are based on the benefit amount requested.

Extended Health Care.

• Prescription Drugs.

• Physiotherapy and/or Massage Therapy, Chiropractor, Osteopath, Naturopath, etc.

• Vision care

• Medical services and equipment

• Travel coverage

Dental.

• Filings. Extractions. Exams. X-rays. Root Canals. Etc.

Employee Assistance Program. Also referred to as EAP or EFAP (employee and family assistance program).

• Typically, an EAP grants employees’ access to a set number of sessions (usually less than six) with a therapist, and the employee would not accrue any co-pay, deductible, or other out-of-pocket costs for the service.

Health Care Spending Account. Also referred to as HSA.

• Many plan members use this benefit to top up what their standard benefits cover to pay for outstanding amounts, deductibles or dispensing fees.

• To cover expenses after the employee exceeds the maximum coverage amount provided by their standard benefits plan.

• Cover medical expenses that aren’t covered under a provincial plan or standard insurance plan.