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What is life insurance?

Life insurance is important, but it's also complex. So, many of us don't understand it. What exactly is life insurance?

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What is term life insurance

What is life insurance (in simple words)

Life insurance is a contract between you and an insurance company where the provider, in exchange for premiums (monthly or annual payments), will pay a lump sum (death benefit) to your designated beneficiaries (any who relies on you financially) after you die. Those depends can use the money to pay funeral expenses, debts, mortgage, education, or simply replace your income to use as they see fit. 

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Getting the right amount of coverage

If you're looking at buying life insurance, there's a good chance you're feeling a little overwhelmed by the process, and all the choices available. I felt the same way when I first got coverage! The good news is that there are some good 'rules of thumb' that I've learned in my time working in the life insurance industry. Read through them and it should make securing the right amount of coverage a slightly easier process for you.

A few rules of thumb

There's a general rule that five to seven times your annual income should be sufficient for your beneficiaries. However, to be sure, you should take a financial needs analysis. Essentially, this will look at your existing debts, current the financial needs of your survivors—including ongoing assistance, not just at the time of death. There are many specific factors to consider:

  • What is remaining on your mortgage?
  • What other loans and outstanding credit do you have?
  • What expenses will have to be taken care of, like burial and uninsured medical costs?
  • What percentage of your income will your beneficiaries need?
  • For how many years will your survivors need financial support?
  • Do you need to include specific funds, like an emergency fund, a child-care fund, or an education fund?
  • What other assets—stocks, real estate, savings—do you have that could be deducted from the amount you need?

It’s also common for your life insurance needs to shift throughout your life, as you have children and expenses change. A financial needs analysis will keep you on track and should occur every few years to make sure you insurance matches your needs. We have an dedicated article on this topic on our blog, if you'd like to learn more: How much life insurance do I need?

How to buy life insurance

You can buy life insurance in a few different ways:

  • Direct underwriters, who work for specific insurance companies.
  • Insurance agents, who are independent but only sell the products of one insurance company.
  • Insurance brokers, who sell the products of multiple insurance companies.
  • Some forms of life insurance are available online.

Because life insurance is such a complicated product, the best approach is to get a wide range of quotes from a wide range of life insurance companies. We can help you compare life insurance quotes in just minutes, and put you in touch with an agent if you need to speak to one. Get started today - with no obligation - to get the best deal for you and your family.

 


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Frequently asked questions

Life insurance: common questions

What is the purpose of life insurance?

When should I get life insurance?

What are the types of life insurance?

What is term life insurance?

What is permanent life insurance?

What is guaranteed life insurance?

What factors influence life insurance premiums

Can you be denied life insurance coverage?

What is employee paid life insurance?

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If you got this far, you know one thing - life insurance is complex! To get the right policy, you need to do a lot of comparison work. Get multiple quotes today to save yourself time and effort.

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Author Bio

Matt Hands, Business Director of Insurance

Matt started his professional career at CARPROOF where he honed his marketing and analytical skills for over 3 years. Matt then took his wealth of experience to Ratehub.ca’s Toronto offices, working with insurance providers, agents, and brokers to grow and expand the Insurance business unit. He is a thought leader in the community and a valuable insurance resource to respected publications like the Globe & Mail, Toronto Star, Huffington Post, Yahoo News, and 680 news radio in Toronto.

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