What is life insurance and how does it work?

The concept of life insurance brings up questions such as

“What exactly is life insurance?”,

"How does it work?",

“Which type is the best?” and maybe even

“Do I really need it?”.

On this page, you'll find information about the basics of life insurance without any jargon or confusing language.

What is life insurance and how does it work?

A life insurance policy is a contract between you and your insurer. The insurance company agrees to pay a specified amount to the person or people chosen as beneficiaries in the event of the insured person's death. You pay a certain amount of money to the insurer for this coverage. This is known as the premium. When an insured person passes away and an eligible claim is made, a lump-sum tax-free death benefit amount is paid out to the chosen beneficiary. It’s a way to help provide future financial security for the people you care about in the event of your death.

Do you really need life insurance?

There are people in your life who depend on you. Life insurance can be a part of your plan to help provide financial support to loved ones when you pass away. The money they receive can be used however they like. For example, it can be used to replace lost income, fund post-secondary education, or pay for final expenses. A life insurance policy can be a way to help give back to your loved ones.

When is the right time to apply for life insurance?

Once you've determined that you need life insurance, you should consider the following:

  • Life insurance typically costs less when you are younger.
  • As you get older, your health could deteriorate, which would make premiums more expensive.

With these reasons in mind, you may want to think about getting life insurance sooner. Major life events such as getting marriedhaving childrenretirement or buying a home can be reasons to start considering your life insurance needs.

How to get a life insurance policy?

One of the first things to consider when buying life insurance is the amount of coverage you will need. You then choose a product, get a quote, and complete the life insurance application. You could get automatic approval and instant coverage if this is offered by the insurer and you meet the eligibility requirements. Automatic approval means no medical exam is required.

If automatic approval is not available, your application will be assessed by an underwriter, who will determine if a medical exam is required. The purpose of the information requested is to confirm your health and lifestyle status, which is used to make a decision on your application. On approval, a policy is issued, and coverage begins immediately.

What are the factors considered in calculating premiums?

Insurance companies take into consideration a variety of factors when calculating the premium. It's important to understand these factors, which may include your overall health, lifestyle, age, sex and smoking status.

What are some of the different types of life insurance?

Although there are various types of life insurance, in this article we will briefly discuss two categories – temporary and permanent life insurance.

Temporary life insurance:

Temporary life insurance expires and may end before the insured individual passes away. The premiums remain the same for the entire duration of the term you select. At the end of each term, the policy automatically renews at a higher premium to reflect your age at that time. Term 10 and Term 20 are examples of temporary life insurance plans. Temporary insurance can be used for temporary needs such as a mortgage or to replace lost income to support your children if you were to pass away.

Permanent life insurance:

Permanent life insurance does not expire and provides you with coverage for as long as you live and pay your premiums. Some types of permanent life insurance are: Whole Life, Universal Life, Term-100 and Guaranteed Acceptance Life Insurance.

With Whole Life and Universal Life, a portion of your premium can go towards investments to build a cash value. While premiums are higher, you get coverage as well as the potential to build up the cash value.

Whole Life Insurance:

A form of permanent life insurance, Whole Life Insurance provides coverage for as long as you live. It has an investment component managed by the insurer from which the cost of the insurance is paid. The premiums are also fixed.

Universal Life Insurance:

Universal Life Insurance is a type of permanent insurance that offers flexible premium options. The policy has an insurance and investment component. You select the investment account or accounts to pay money into. The cost for the insurance and other expenses required to maintain the policy are taken from the account by the insurer. Any remaining amount can accumulate as investment growth, also known as the cash value. The policy owner can increase or decrease the premium and death benefit within given limits. Depending on the investment account selected, the investment growth is not guaranteed and can increase or decrease. The death benefit can also increase or decrease.

A Universal Life or Whole Life insurance policy can be part of a comprehensive estate plan. The cash value growth within these policies is not taxed. Therefore, these plans could be ideal for those who have significant taxable investment assets, have maximized their RRSP and TFSA limits, and are looking for ways to reduce tax on investment income.

Due to their additional features, Universal Life and Whole Life insurance plans require more funding and management. This means they can cost more than Term Life insurance plans.

Permanent life insurance can be used for lifetime needs such as final expenses or income replacement for a disabled dependent.

See Term 100 and Guaranteed Acceptance Life below.

At TD Insurance, we offer the following four products across both temporary and permanent life insurance:

TD 10-Year Term Life Insurance

TD 10-Year Term Life Insurance plan provides coverage over a 10-year recurring term and can help with shorter term financial obligations. Premiums remain the same for each 10-year term. The policy automatically renews at the end of each term and provides coverage up until the insured person turns 80, at which point the coverage ends. The premium increases on renewal to reflect the age of the insured person at that time. It can be converted, up to age 69, to a permanent TD Term-100 plan. This plan could be right for you if you have short-term financial responsibilities such as a student loan, car loan, have a mortgage in its final 10 years or are preparing for retirement.

TD 20-Year Term Life Insurance

TD 20-Year Term Life Insurance plan provides coverage over a 20-year recurring term and can help provide coverage for longer term financial obligations. Your premiums remain the same for each 20-year term. It automatically renews at the end of each term and provides coverage up until the insured person turns 80, at which point the coverage ends. The premium increases on renewal to reflect the age of the insured person at that time. It can be converted, up to the age of 69, to a permanent TD Term-100 plan. This plan could be right for you if you’re buying a new home, starting a family, have young children or are newlyweds preparing for the future.

TD Term-100 Life Insurance

TD Term-100 Life Insurance plan provides coverage for the insured person for as long as they live, at a premium that doesn’t change. It ensures that the insured person does not outlive their policy. Once the insured person reaches the age of 100, premium payments are no longer required but the coverage continues.

TD Term-100 Life Insurance could be right for you if you want insurance you can't outlive at a cost that is guaranteed not to change.

TD Guaranteed Acceptance Life Insurance

Any Canadian resident aged 50 to 75 is instantly approved for coverage ranging from $5,000 to $25,000 with TD Guaranteed Acceptance Life Insurance. There is no medical exam required. There's also no end date – as long as your policy stays active, you have coverage.

TD Guaranteed Acceptance Life Insurance could be right for those who are not able to qualify for standard life insurance plans usually due to health and/or lifestyle issues. It is financial support for loved ones and can help pay for final expenses such as funeral costs.

How much life insurance coverage do I need?

Life insurance is different for everyone. The amount of coverage you require depends on your family's needs, debts, and other obligations. It's important to understand how much money your loved ones would need if you were to pass away. Consider factors such as lost income, outstanding loans and debts, your children’s education costs, and your family’s lifestyle. The TD Life Insurance Calculator can help you calculate how much TD Term Life Insurance you may need for you and your family.

How to apply for TD Life Insurance

Take your first steps towards applying for TD Life Insurance:

  • Visit TD Life Insurance online
  • Choose the type of coverage you need
  • Enter your province of residence
  • Get your quote in less than 60 seconds

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 regarding your specific situation. The information contained herein, is subject to change without notice.