What Types of Life Insurance are There?

Broadly speaking there are two types of Life Insurance: Term Life Insurance and Permanent Life Insurance.

Permanent Life Insurance

Permanent Life insurance can be broken down further into two sub-categories that you may be more familiar with – known as Universal Life, and Whole Life.

These are life insurance products that are designed to offer insurance protection that never expires (i.e., they are ‘permanent’) so long as the premiums are paid, and the insured person remains alive.

Upon the death of the insured person, the life insurance benefit is paid to the insured person’s chosen beneficiary(s).

Due to their permanence, these products are generally used as tax and estate planning tools, and in some cases investment/wealth accumulation vehicles. These products tend to be more appropriate for those who have a foreseeable (and permanent) tax liability at end-of-life, or alternatively have maximized their RRSP’s and TFSA’s and are seeking additional mediums for tax-sheltered asset growth, and/or wealth transfer. For these reasons, permanent insurance policies can be viewed as type of asset class in your portfolio.

Because Permanent Life insurance policies are guaranteed to pay a benefit (at some unknown point in the future), the insurance companies will charge an accordingly higher premium relative to their Term Insurance counterparts.

Term Life Insurance

Term Life insurance products by contrast are designed such that they will offer insurance protection for a specific duration or ‘term’.

The duration of the term can be virtually any length. However, each insurance company in Canada will differ slightly in which term lengths they offer. Most commonly, Term Life insurance is offered in term lengths of 10, 20, or 30 years for example.

The length of term one chooses depends on you and your family’s unique circumstances. For these reasons it is always best that you speak with an authorized advisor who can assist you in evaluating your insurance needs and selecting the appropriate term (duration).

For example, if you expect your children to have completed post-secondary education and be independent approximately 20-years from today, then perhaps a 20-year Term Life policy would be appropriate for addressing that particular risk.

Upon the death of the insured person, the life insurance benefit is paid to the insured person’s chosen beneficiary(s).

Term Life insurance policies will always terminate upon reaching a specific age - often this is age range is between 65 to 85. Therefore, statistically speaking, Term Life policies will typically terminate/expire prior to your life expectancy.

This begs the question; if the policy is likely to expire before I do, why then would I buy Term Life insurance? The answer to that question is simply because if you were to die prematurely, the impact on your family would be catastrophic, and Term Life insurance is the most cost-effective way to manage that risk.

Due to their more temporary nature, Term Life insurance products are generally used for shorter-term planning and to cover more acute/temporary needs. These products tend to be more appropriate for those who have debt or want to ensure a certain minimum lifestyle for their family, and do not have sufficient income for a Permanent Life insurance policy to be a financially sustainable solution.

Because Term Life insurance policies have the potential to expire before life expectancy, the insurance companies will charge an accordingly lower premium (at least initially) relative to their permanent insurance counterparts, allowing you to purchase more coverage in the short term than you may otherwise be able to afford.

With that background as a foundation, we can proceed to look more closely at the Manulife Engineers Canada Life Insurance Plan.

More about Manulife Term Life Insurance