Types of Life Insurance Plans Explained
Life insurance may not be top of mind for most people, but it can be an important part of planning for the financial future of your family. Life insurance can help financially protect your loved ones — easing the burden of expenses if you were to pass away. You pay a premium to your insurer periodically, and when you pass away, your beneficiaries receive a tax-free lump sum payout that can be used however they want, whether to pay off debts, pay mortgage or rent, or for childcare costs. The payout can also be allocated to a business or to leave behind a legacy for a cherished cause or charity.
What are the different types of life insurance that companies offer in Canada?
Life insurance policies can be divided into two main categories: Term and Permanent.
- A term life policy expires once the life insured person reaches a certain age, and
- A permanent policy lasts the insured person's entire lifetime.
Let’s go into a little more detail.
Understanding Term Life Insurance
A term life insurance policy expires when the life insured attains the age specified in the plan. The premium stays the same and is guaranteed not to increase for the length of each term. At the end of each term, the policy automatically renews, and the premiums increase to reflect the customer’s age at that time. Additionally, term-life policies do not build cash value and will not pay a benefit if the policyholder dies when the policy has expired.
Some key features of term life insurance are:
- It is often more affordable and simpler than other types of permanent life insurance.
- Your rates are locked-in and are guaranteed not to increase for the length of each policy term.
What happens at the time of renewal?
You as the customer have the choice at renewal to either let the policy automatically renew to apply for a new policy, or to convert to a permanent life insurance policy the insurance company may offer.
What is Permanent Life Insurance?
As the name suggests, permanent life insurance does not expire. It is typically designed for lifelong protection, so your beneficiaries will receive a death benefit whenever you pass away, as long as your premiums are paid.
Permanent life insurance policies tend to have higher premiums than term policies because they do not expire, and the policy may have cash values. Some permanent life insurance products can build tax-sheltered “cash value” within the policy. Cash value is an amount accumulated by investing a portion of your premium payments in funds within the policy. Fund allocations are determined by you or your insurer, depending on the policy type. Permanent plans with cash value are often used as part of an estate planning and wealth preservation strategy.
Whole Life and Universal Life Insurance are types of permanent insurance plans with cash value.
Universal Life Insurance
Universal Life offers you a flexible premium option. You may have the option to increase or decrease your premium payment amount or skip premium payments altogether. If there is enough cash value to fund your policy, you may choose to change your payment amounts or your payment schedule.
Although this flexibility can be beneficial, it means the policy must be closely monitored to ensure proper funding. Your policy could lapse if there is not enough cash value to support the policy. Also, there may be a tax liability if the cash value exceeds legislated guidelines. If the maximum amount allowed within a policy is exceeded, the excess amount is moved to an account outside the policy called a side account. When managing a universal life policy, you should consider your objectives for setting it up in the first place, whether that may be for wealth transfer, covering a final tax liability, or leaving a legacy.
Each month, the cost of insurance is deducted from the policy’s cash value — the remaining amount stays in the policy’s investment account. This cash value provides tax-sheltered growth, but its value is not usually guaranteed and can fluctuate along with the market. The policyholder may have the option to borrow against or withdraw the cash value. There are, however, risks to consider, so before making any changes, the policyholder should consult with a life insurance licensed advisor. For example, withdrawing cash value from a policy could result in it lapsing or terminating.
If the policy coverage is terminated or surrendered at the request of the policyholder, the policyholder is paid any cash surrender value, which is calculated as the cash value less any applicable surrender charges.
Whole Life Insurance
Whole Life Insurance does not expire, and you are covered for as long as you live if the required premiums are paid. Your premiums are fixed and never change. Your death benefit and cash value are generally guaranteed and do not decrease. As a result, whole life policies require little administration by the policyholder.
A whole life insurance policy can also build cash value. You may be able to withdraw or borrow against this cash value if needed.
A whole life policy can be participating or non-participating. A participating life insurance policy enables the policyholder to benefit from the insurance company’s profits in the form of dividends. Dividends can be used to purchase additional paid-up insurance coverage, build cash value, reduce premiums, deposit to accumulate interest, or be paid out in cash.
Non-participating life insurance does not pay out dividends or bonuses based on the insurance company’s financial performance. Instead, they may award guaranteed amounts that accrue as cash value. Like any investment that gathers regular interest, this can add up over your lifetime.
Whole Life Insurance is often more expensive than other kinds of insurance policies, but for people who value guarantees, need lifetime coverage, or who are purchasing insurance as part of estate planning, it could be appropriate for their needs.
Wondering what is the best type of life insurance for yourself?
When shopping for life insurance, a strategy is to consider your loved ones' financial needs if you should pass away. Everyone has different needs when it comes to life insurance, but important factors to consider are:
- The amount of coverage you need
- How long you need coverage for?
- Why do you need coverage?
When thinking about the amount of coverage you may need, consider all the financial needs and obligations that would arise for your loved ones if you were to pass away. Then evaluate the type of coverage that best suits your needs, like short-term coverage for short-term needs (i.e., mortgage debt, student loans, etc.) and long-term coverage for long-term needs (transfer of wealth, funeral expenses, etc.). To determine the right amount of coverage you may require, factor in things like lost income, outstanding loans and debts, children’s education costs, your family’s lifestyle, and your existing coverage. Now that we have covered various types of life insurance products companies offer in Canada, we can dive into the range of life insurance products offered through TD Insurance.
At TD Insurance we offer both term and certain permanent life insurance policies. Let's take a look.
TD Term Life Insurance
TD Insurance offers two types of term life insurance policies: 10-Year Term and 20-Year Term Life.
TD 10-Year Term Life Insurance
TD 10-Year Term Life Insurance provides coverage that can be useful for shorter-term financial obligations like student or car loans, or a short-term mortgage. The policy automatically renews at the end of each 10-year term with no questionnaire or medical exam required. In order to qualify, you must be between the ages of 18 years old and 6 months after your 70th birthday. Coverage ends at age 80, but the policy can be converted to Term 100, a type of permanent insurance, up to 6 months after your 70th birthday.
TD 20-Year Term Life Insurance
TD 20-Year Term Life Insurance is our most popular choice. You may want to consider this type of coverage if you are buying a new home, starting a family or have young children.
In order to qualify, you must be between the ages of 18 years old and 6 months after your 60th birthday. The policy automatically renews at the end of each 20-year term. There is no questionnaire or medical exam required at renewal, and coverage ends at age 80. This policy is also convertible up to 6 months after your 70th birthday to the Term 100 plan.
Types of permanent life insurance offered by TD Insurance
TD Term 100 and TD Guaranteed Acceptance Life Insurance are types of permanent life insurance plans that do not have a cash value.
TD Term 100 Lifetime Coverage
TD Term 100 is designed for someone who wants coverage that doesn’t expire at a cost guaranteed not to increase. It provides lifetime coverage with premium payments that stop at age 100. It is suitable for those who want to cover end-of-life expenses or leave behind a legacy. In order to apply for this coverage, you must be between the ages of 18 years old and 6 months after your 70th birthday.
TD Guaranteed Acceptance Life Insurance
You can purchase life insurance that can help alleviate the anxiety around end-of-life costs related to your funeral, wake, burial fees, cremation costs, and grave-digging charges. This kind of coverage can help your loved ones financially when you pass away.
TD Guaranteed Acceptance Life Insurance is an example of a policy that can help pay for end-of-life expenses. This policy requires no health questions or medical exam, and coverage is guaranteed once you satisfy age and residency requirements (you must be a Canadian resident between the ages of 50–75).
To apply for TD Guaranteed Acceptance Life Insurance, you must be aged 50 to 75 and a Canadian resident.
Which TD Insurance life insurance product should I consider?
Again, the type of life insurance you choose depends on your circumstances and what you want to achieve with your coverage.
The TD Life Insurance Calculator can help you calculate how much life insurance coverage you may need.
How do I get life insurance with TD Insurance?
At TD Insurance, we aim to help you find the right life insurance for your unique circumstances and needs. If you are looking to apply for term life insurance, you could be instantly approved for up to $1,000,000 of coverage if you are 50 and under, with no medical exam required1. Take your first steps:
- Visit TD Insurance online
- Choose the type of term insurance you need
- Get your quote
- When you are ready to apply, answer a few questions online and then continue to apply
- You could also save on your premiums if you apply online, or you are a TD customer or a graduate of an eligible Canadian post-secondary institution or a member of an eligible professional association2 (more details on the premium discount can be found here).
If you want to apply for the TD Guaranteed Acceptance Life Insurance start here with a quote.
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1 Instant approval is subject to the responses you provide to certain health and lifestyle questions in your application. Applicant must be 50 years old or under.
Discount is available to eligible applicants who apply for a new TD 10-Year or 20-Year Term Life Insurance policy. Offers cannot be combined with any other offer and is subject to change or may be withdrawn at any time.
For Quebec: In order to be eligible for the buy online discount for a new TD 10-Year or 20-Year Term Life Insurance policy, you must meet eligibility requirements to buy term life insurance online and complete your purchase of this insurance online. Note: You may not always be given the option to buy online. This may occur, for example, if your application requires underwriting or you are replacing an existing life insurance policy.
TD Term Life Insurance and TD Guaranteed Acceptance Life Insurance are individual life insurance plans underwritten by TD Life Insurance Company. See Insurance Policy for coverage details, including limitations and exclusions.
The content on this page is for general information purposes only and does not constitute legal, financial or insurance advice. Speak to a life licensed professional advisor about your specific situation. The information contained herein is subject to change without notice.