For many people, life insurance is a vital safety net that will protect them should the worst happen. It can help to put your mind at rest but if you’ve never had life insurance before, you probably have many questions about how does life insurance work.
Here we’ll give you all the info you need for life insurance Ontario. We’ll not only see what life insurance is but what determines the premiums you pay and the role of an underwriter. Read on to find out all about life insurance policies Ontario.
What is Life Insurance?
In terms of how does life insurance work, it is when you enter into a policy whereby an insurance provider will pay out a predetermined sum of money when the policyholder dies.
The exact details of the arrangement including how much will be paid out will change depending on the details of the policy. You can also get life insurance to cover specific expenses such as a mortgage or a child’s education.
There are many reasons to get life insurance but it’s mainly used to give financial protection for a family in the event of a loss of income following a death. Now we know what life insurance is, let’s look at the different types available.
Types of Life Insurance Policies in Ontario
While there are several optional extras that you can have on your policy, there are two main types of life insurance, which are term life insurance and whole life insurance. Let’s look at the difference between the two.
Term Life Insurance
Term life insurance is where you are covered for a specific time period. For example, you get term life insurance for 10 years. If you die within that 10-year period then the policy will pay out but beyond that 10-year period, you won’t be covered.
The reason that many people get term insurance is that it’s usually cheaper than whole life insurance. The terms can be any time period but usually range between 10 to 30 years and can be renewed when they expire.
There are also other reasons to get term insurance too such as to get coverage for specific life events. Once the term policy expires, then you can always make the switch to whole life insurance or get another term policy.
Whole Life Insurance
As you may have guessed, whole life insurance is going to cover you for the entirety of your life as long as you keep up the payments. Here you never need to worry about the term ending and will always have peace of mind that you are covered.
As time goes on, you’ll often have the option of withdrawing a cash value component which will be reduced from the payout when you die. If you wanted lifelong protection for your family then this will be the best policy for you.
Determining Premiums for Life Insurance Policies
The premium is the amount that you’ll pay for your life insurance, and you’ll often have the option of paying for it monthly or annually. There are several factors that go into that premium so let’s take a closer look at what they are.
Age – Age is going to be the biggest factor when it comes to your life insurance policy. The younger you are, the cheaper your premium is going to be. As we get older, our risk of getting health issues naturally increases.
Medical History – If you have a condition or a history of medical problems then your premium is going to be higher. It’s important to be truthful when going through your application as if you lie then it can invalidate your policy.
Lifestyle – Your lifestyle choices can impact how much you pay. Smoking is the most obvious example of something which can increase your payments but you may also need to pay more if you regularly enjoy high-risk activities.
Coverage Amount – When applying for life insurance, you can choose the payout amount that you want the beneficiaries to receive. The higher the payout you opt for, the more you’ll need to pay.
Policy Type – As we mentioned above, whole life insurance tends to have higher premiums compared to term life insurance. This is because there is an expiry on term insurance and whole life insurance has the cash value component.
The Role of Underwriting
It’s an underwriter’s role to assess the risk of a life insurance policy and determine whether or not to accept an application. An underwriter will look at your medical history, lifestyle choices, and any other relevant factors which may increase your risk.
Simply put, insurance companies want to assess the likelihood that a policyholder will pass away during the policy term, or if a policyholder will pass away before the policy becomes profitable.
Choosing the Right Coverage Amount
Ideally, we’d want our life insurance to cover us for millions of dollars and for our families to all be rich after we pass away. In reality, the higher the coverage you have the more you will pay and therefore a decision needs to be made on what is best for you.
It’s important to decide why you want coverage. For example, if you’re worried about your partner being able to pay for your mortgage when you’re gone then make sure you have enough of a payout in your policy to cover this.
You’ll want to make an assessment of your financial obligations including your mortgage but also any other significant expenses such as living costs, debts and education. Once you do this, you’ll have a much clearer idea of the amount of coverage you’ll need.
Final Thoughts
There is no doubt that life insurance can be crucially important for anyone looking to secure the financial future of their loved ones. For those looking for life insurance in Ontario, you need to consider the type of policy which is best for you and the coverage amount you need.
Hopefully now you feel much more confident about what life insurance is and why it can be important for you. If you’re interested in a life insurance policy or simply have some more questions, then contact Buckler Insurance today to see how we can help.
