7 Best Types of Life Insurance Policies Explained
A comparison of the different types of life insurance policies to help with your buying decision. Which is the best life insurance company? What's the difference between term life and whole life insurance? Is no medical exam life insurance worth it? We'll help explain it for you!
What Is The Best Type of Life Insurance To Buy In Canada?
In general, any type of life insurance that you have in place and your family needs it when you die, is the best life insurance. It could be workplace life insurance, term life, whole life, universal life or no medical exam. Each one will pay. The only one you might not be comfortable that it might not pay is mortgage insurance issued through your lender or bank like the Manulife Mortgage Protection Insurance.
People often ask us:
The best type of life insurance is:
Types of Life Insurance 101
There are two basic types of life insurance that form the basis of different types of life insurance.
Types of Life Insurance - Term Life Insurance
This is the most basic and least expensive types of life insurance. Because the life insurance company knows exactly how long they will cover you for, makes it cheaper than permanent life insurance like universal life. If you are young and healthy and looking for affordable simple life insurance, term life insurance is a good option.
Types of Term Life Insurance
Life insurance companies offer different types of term life insurance and usually the best way to differentiate them is with the length of the term. You should expect that your premiums are level for the term that you choose and will never go up except at renewal time i.e. when your term expires. Here are some common term lengths:
Term Life Expiry & Renewal
When your life insurance term expires you have the option to renew the policy. This means buying the same amount of life insurance at a price based on your age at the time. This can be very expensive.
Who Is Term Life Insurance Best For?
No Medical Exam Term Life Insurance
No medical exam term life insurance is a type of life insurance that requires no medical exam at time of application. No medical exam doesn't mean no questions. There are a few questions to qualify you but there won't be a traditional exam with a nurse visit to collect blood and urine samples.
No medical exam term life insurance doesn't necessarily mean inferior or more expensive life insurance. Many people do not like needles or just don't have time for a full exam even though they're in general good health. Life insurance companies accommodate this to make these types of insurance policies available.
No medical exam life insurance is also for people with bad history or health and may have been declined in the past because of their health. This is a good option for those type of individuals who want to ensure they get coverage without a rigorous examination of their health.
Here are key attributes of types of term life insurance that require no medical exam:
Faster Application Approvals
Because there are less steps and requirements compared to a traditional life insurance exam, your approval is faster and usually 24-48 hours.
Simple Qualifying Questions
A few qualifying questions like your smoking status and general core health.
Price Can Be a Little Higher But Worth It
If you're applying for final expense insurance for example, your cost can be higher. However, for a no medical term life insurance similar to a traditional term life insurance, your prices are a few dollars more, making it worth it for the convenience.
Get No Medical Exam Life Insurance Quotes
How Do I Choose The Best Type of Term Life Insurance?
Working with an experienced life insurance broker like Insurance Alpha is the first step so you don't get confused with the 20+ options. The most you need to do at first is know how much you want and what your budget is. That way we can filter it and advise you on the best term life insurance types.
Term life insurance is probably the best option all-round for all types of individuals and budgets. You can renew it and convert it without showing your health at the time. It's great for young professionals looking to lock in life insurance for later and for young families looking for income replacement and protection.
Work with a life insurance broker who can give you options from various companies. When you work with one company you are limited to the features, terms and conditions of that one company and ultimately their price. You'll be much happier when you get someone experienced to help take away the heavy lifting on your behalf.
Types of Life Insurance - Permanent Life Insurance
Whole Life Insurance & Universal Life Insurance
Permanent life insurance is one of the types of life insurance that covers you for life compared to term life insurance that covers you for a certain period. It is broken down between whole life and universal life.
These types of life insurance coverage give you an investment portion as part of the life insurance policy. This investment portion generates cash value growth that adds to the face or payout amount that gets paid to your beneficiaries when you die.
Permanent Life Insurance Types Features
You can do a lot with permanent life insurance coverage other than protect your family. Here are some main features:
Types of Life Insurance - Whole Life Insurance
If you're looking for level premiums and level cash value growth over time, whole life insurance is the most predictable of the types of life insurance. In terms of cost, whole life tends to be more expensive than universal life insurance.
Cash Value Growth
Any gains you make will not be taxed if and unless you make withdrawals. You also have the option to cancel the policy and you will receive what is called "cash surrender value" or cash back, a number you'll know ahead of time in your policy contract.
Tax Shelter On Growth
The cash value gain within your whole life policy grows tax deferred like it would in an RRSP. You will be taxed, however when you withdraw from the policy much like you would with an RRSP. However, unlike an RRSP where you are required by law to make withdrawals at age 71, with a whole life policy, if you don't make withdrawals, your gains can grow tax-free exponentially.
Term Life vs Whole Life Insurance
Whole life is much more expensive than term life. Term life is appropriate if you don't need lifetime coverage or investment growth, if you can invest separately in a Tax Free Savings Account (TFSA).
Buy whole life insurance if you have growing assets or a business you wouldn't want sold at your death. Complex estate planning is also a good reason. Buying term life vs whole comes down to how much time you need life insurance and your budget.
Whole Life Insurance Quotes
Some life insurance companies will provide dividends as one of the types of whole life insurance policies. These dividends are essentially a share of the profits of the life insurance company and have ranged between 5-7% annually over the last 20 years.
When looking for dividend paying whole life insurance look for "participating whole life". A life insurance broker can help you choose between types of life insurance companies that provide dividends such as Equitable Life Insurance Company.
Types of Life Insurance - Universal Life Insurance
Universal life, as one of the main types of life insurance, is the most flexible life insurance policy you can buy. Universal life is more expensive than term life insurance but cheaper than whole life insurance. It is flexible in that you choose the amount of premium you want to pay and over the life of the policy you can choose to pay more or less as long as you pay the minimum required to maintain the life insurance portion. The other portion is the investment accumulation fund. Here you can invest much like you would in an RRSP or TFSA, choosing from investment funds and GIC's.
The nice thing about universal life is that you have access to your cash value accumulation account anytime. Unlike whole life which takes time to accumulate cash values, universal life can build up right away whereby you can "overfund" the accumulation fund as opposed to whole life which is fixed. So, like whole life insurance, the you can withdraw cash from the accumulation fund for any reason such as income for retirement, buying a home, investing or general expenses. This is what makes it the most flexible types of life insurance.
Universal Life Pros:
Universal Life Cons:
If you're looking for lifetime coverage but with more flexibility and cheaper than whole life insurance, universal life is one of the best types of life insurance. Your investments grow tax-free and when you make withdrawals, it's tax on your pre-tax dollars so less tax burden than whole life. Just make sure to speak with a life insurance broker to set it up properly.
Types of Life Insurance - No Medical Exam Life Insurance
A no medical exam life insurance policy is one of the most popular types of life insurance. It can come in either term life insurance or permanent life insurance. The permanent type of no medical exam life insurance is typically for those seeking a small amount of life insurance to cover their end of life and burial expenses. Amounts vary from as small as $5,000 to as much as $50,000.
Like the name suggests, these types of life insurance policies require no medical exam and generally ask simple health questions to determine that you're insurable. Popular no medical exam life insurance companies include Canada Protection Plan and Specialty Life Insurance. They offer a wide array of plans for individuals who may have medical conditions or may have been declined for any reason in the past. It is common to cover people with or have had a history of diabetes, heart disease, sleep apnea, high blood pressure and cancers.
Note: even though we do recommend no medical exam life insurance as a great option that at times doesn't cost much more than traditional exam life insurance, we suggest you speak to a life insurance broker first to see if you can qualify for a traditional exam policy. This could potentially help you with lower premium rates today and in the long run.
Final Expense Life Insurance
This is one of those types of life insurance you see advertised regularly on television commercials targeting senior citizens. It is commonly know as "burial insurance" because it's meant to cover end of life expenses like funerals, cremation and settling of your estate.
The typical age to apply for final expense life insurance is 50-85. There are many programs available to help seniors qualify and get a policy that is not only affordable but provides them peace of mind for their family's sake.
Final Expense Highlights
Common Final Expenses
How To Get The Best Rates For All Types of Life Insurance
Determine what your objectives and needs are. This starts with knowing the amount you need or want. Using our life insurance calculator can give you a good baseline of what to think about and what to include towards your payout amount. Once you figure out what amount you need or want, decode what your budget is going to be such that it doesn't cause strain and make you consider cancelling your policy down the road. Working with a financial advisor to put everything together is also beneficial.
Use our quote form to compare and filter the best rates and companies for you. Then seek advice from a life insurance broker like Insurance Alpha based on your health, budget or even the convenience of doing a no medical exam life insurance application. After that, the life insurance application process shouldn't take that long.
Other Popular Types of Life Insurance
Mortgage Life Insurance
Mortgage Life Insurance is not to be confused with mortgage insurance which is offered by your lender or bank specifically to cover the risk that you might die before your mortgage is paid off. For mortgage insurance you generally answer two questions and qualify on the spot.
It is usually for the amount of your mortgage. Mortgage Life Insurance, commonly known as mortgage protection insurance, is a type of term life insurance specifically used to protect you against risk for your mortgage and can be offered by a life insurance company. It's important to note that what may seem like advantages or pros with your lender or bank mortgage insurance may actually turn out to work against you in the long run.
Difference Between Mortgage Insurance and Mortgage Life Insurance
Main difference between mortgage insurance and mortgage life insurance is that mortgage insurance is offered through your bank directly and mortgage life insurance (mortgage protection insurance) is offered through a life insurance company. Banks due to the law that sys they can't sell life insurance, can't sell life insurance directly in a bank branch.
Mortgage insurance from your bank might seem like a good deal because it's easy to get and convenient especially when you are happy at the signing of your mortgage. However, that joy doesn't last long once you realize that it isn't truly life insurance because you aren't guaranteed to be covered at time of claim. It's also more expensive and your family have no control of the funds at your death.
The better one is mortgage life insurance (mortgage protection insurance) because it is a type of term life insurance
For an average mortgage loan amount, mortgage insurance costs $77 whilst term life insurance costs $33 a month. In our opinion, for the price, value and guarantees, you are better off buying term life insurance or mortgage life insurance.
Employee Group Life Insurance
Group life insurance is one of those types of life insurance covered through your workplace. It typically comes off your payroll and is a relatively inexpensive way to get life insurance in a convenient way. It is cheap because the risk is spread out across the "group" or all the employees on the company benefits plan. Group life insurance is a type of term life insurance. The maximum amount you can get is usually based on the size of the group, your employee classification or more often a multiple of your salary.
Workplace group life insurance is an attractive option for life insurance. It's convenient, cheap and can give you a large enough amount depending on your needs.
However, it's not the most flexible types of life insurance mainly because your company owns it and like a company car, when you leave or change jobs, you can't take it with you. In any event it's a good benefit to have. We recommend that you supplement it with your own private personal life insurance which you'll have regardless of whether you change jobs or quit.
Employee group life insurance fAQ
It works just like a term life insurance plan. It works when you are part of the group benefits plan and work for the company. When you leave you lose coverage. However, when you leave you may have 30 days to transfer it to a personal policy.
You can typically find it in your group benefits booklet. It may change as you get promoted and your employee classification changes. A good rule of thumb is a multiple of your income that is determined by your company.
Yes, it is usually based on you salary and the multiple which is your "overall maximum". However, in most cases there is what is called a non-evidence maximum which is the maximum the group insurer will allow to be paid out without proving good health. Above that you would need to prove good health.
The best way is to buy supplemental life insurance through a life insurance broker like Insurance Alpha. This will be above and beyond what you have such that if you leave the company you will have coverage?
No you won't. You can buy as much life insurance you want and can afford. Private life insurance is meant to supplement your workplace life insurance as it is likely not enough or you may leave that employer eventually and want to make sure you have life insurance.
You can buy term life insurance, whole life insurance, universal life insurance, no medical exam life insurance and final expense insurance.