Vancouver life insurance is pretty much the same as it is in the rest of the Canada. Canadian life insurance is similar to insurance offered in other western countries, but there are differences. This guide helps understand Canadian life insurance and how it is relevant to you as a new Vancouver resident.
Vancouver Life Insurance: Why You Might Want it As a New Resident
If you have recently moved to or are planning a move there may be reasons why you might want to consider getting Canadian life insurance.
› New home. If you’ve
bought a home in the Vancouver area, you’ve likely taken on a sizeable mortgage. If something should happen to you, life insurance is a way to ensure that your mortgage payments are taken care of without you there to support your family.
› New family. You may be moving to Vancouver with the idea of raising a family in its ideal mix of urban and natural environments. In doing so, you become financially responsible for family members who need your support to live comfortable. To ensure that your family is taken care of financially in the event of your death, you may want to consider getting Canadian life insurance.
› Retirement. A lot of people retire to Vancouver and its easygoing lifestyle. Many permanent Canadian life insurance policies accumulate cash value within the policy without being subject to income tax, making it a tax-effective way to support yourself in retirement and transfer your assets to your heirs at your death.
Term vs. Permanent Canadian Life Insurance
These are the two main types of Canadian life insurance. There are benefits and drawbacks to either one, depending on your own personal needs.
Term Canadian Life Insurance
Term life covers specific time period. Term 10 covers you for 10 years, Term 20 for 20 years, etc, usually up to the age of 85. Most of term insurance is guaranteed renewable and convertible to permanent policy during the coverage period without further medical proof.
› Pros: It’s the least expensive type of insurance during your coverage period.
› Cons: The premium will increase dramatically upon renewal after the coverage period; You’ll have no coverage after 85 years old. The policy has no cash value.
Who it’s Good for: It’s the best choice if you need a lot of coverage at a low cost for a specific period of time to handle things like personal debt, which will be paid off in a certain period of time (mortgage), or financial support for children up to specific age, or your income before retirement at a specific age.
Permanent Life Insurance
This type of life insurance gives you permanent protection. It includes both ‘Universal Life’ and ‘Whole Life’ policies. For both, the premium consists of basic cost of insurance and over-funding, which is invested for future cash value. The return on the investment is tax sheltered.
Whole Life Insurance
› Pros: It provides permanent protection. No renewal or conversion is required. The premium is guaranteed to be the same throughout your life. The cash value accumulated after a number of years can be taken out or borrowed against. You can enjoy tax-free compound growth on your investment.
› Cons: It’s the most expensive type of insurance due to the high overfunding amount required. The payment amount is decided and the schedule doesn’t allow for changes. The insurance company controls the investment choices and returns.
Who it’s Good For: It’s a good choice if you have substantial and stable monthly income and want to take advantage of tax shelter benefit, and don’t want to bother managing the investment. The cash value can be used for retirement funding.
Universal Life Insurance (a.k.a. ‘hybrid policy’)
› Pros: It provides permanent protection. No renewal or conversion is required. You have the option to decide your deposit amount based on your financial situation. It has a flexible payment schedule. You get the option to choose and change your investments. You can enjoy tax-free compound growth on your investment.
› Cons: It’s more expensive than term life insurance and a certain level of investment knowledge is required to make investment decisions.
Who it’s Good for: Anyone who has need for permanent insurance and has investment knowledge. It’s a most popular among business owners as it can be used for business as funding for partnership agreements.
Questions to Ask Before Shopping for Canadian Life Insurance
1. What is the purpose? By figuring this out first, you’ll have a better idea of what type of life insurance policy you need. If your need is temporary, term insurance should be your choice. If there is no specific period of time for which you need the coverage, you may want to consider permanent insurance.
2. How much coverage you need? If the purpose of your life insurance is to cover debt, figuring out how much you currently owe is a good start. If you owe $50,000, for example, you'll need coverage for $50,000. If you’re concerned about children, start by taking your current income and multiplying it by the number of years left for them to be financially independent, say age of 18 or 22. Of course, you should always include final expense (funeral expense), which is about $10,000. As a rule of thumb, the amount should be enough to allow your family financially maintain their current lifestyle.
3. How long do you need coverage? This is easily calculated. For example, if covering the mortgage is your main purpose, you might need term insurance for 25 years, depending how long it will take to pay off the mortgage. If you want to protect your child, then 20 years is a good benchmark. Of course, if it’s for estate purposes, you’ll need permanent insurance.
4. What is your budget? Paying for life insurance is a long-term commitment. You need to look at your monthly cash flow and know exactly how much within your comfortable level you can afford. The premium is decided by the age, gender, heath condition, death benefit amount and policy type. By combining policies with your spouse, you can make it more cost effective.
*Tip: Go to an independent insurance broker to get quotes from the all various providers. They can often get you a better rate or find options that allow you to combine your various insurance needs into a package that saves you money. They are also more aware of the various options offered by all the different providers and can give you the best choices for your own personal situation.
Canadian Life Insurance Options for Expats
Many people are sent to Vancouver by their employers or travel there as independent business people. Such travelers have different life insurance needs from those of a tourist or resident.
When coming to Vancouver from another country, your regular life insurance plan will typically not cover you. If you decide to get Canadian life insurance while you're in Vancouver, you could opt for a shorter term life insurance policy, perhaps a 5 or 10-year term, and if you have end up leaving early, they will usually allow you to cancel your policy and simply pay your premiums for the time you were covered. There are also special expatriate life insurance plans for people in this unique situation. These are usually provided by international insurance companies.