Steps
- Understand why people purchase life insurance coverage. People do this to protect debts (perhaps a mortgage), family costs or school fees (in the event of a parent passing away), to protect a business (against the loss of a vital partner), or as part of their overall estate planning. Virtually everyone in society with any family, assets or responsibilities needs some life insurance coverage.
- Learn the two basic types of insurance: term and permanent.
- Term insurance is temporary and only lasts for a predetermined predetermined 'term' at the outset. This may be for a short period of time for a specific purpose or potentially twenty or thirty years. If you pass away a few days after coverage has ended, there will be no payout.
- Permanent insurance will cost more up front, but is intended to last a lifetime ensuring that someone receives a benefit from the policy. There are different types of permanent insurance, whole life, universal life and variable universal life.
- Consult a professional advisor. They are knowledgeable in the different products available, and can help you determine what type of coverage you need for your particular situation. You might want to consider a broker, someone who works with a range of companies, rather than an advisor who deals with just one company. Brokers are independent and have a much broader market perspective.
Tips
- In Canada, the death benefit payout from a life insurance policy is tax-free<ref>http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/nttxd-eng.html</ref>, whereas if the money were to flow through an estate it would be taxable. This makes a life insurance policy a valuable way to pass on an inheirance.
Warnings
- Many people take the lowest cost option and purchase the bare minimum of cover. Look to be fully covered rather than just partially so.
Sources and Citations
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