Understanding life insurance - and why it's important

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Life insurance is a critical component of financial planning that helps ensure your family’s financial stability in the event of an untimely death. While often overlooked in financial portfolios, life insurance helps offer a safety net that can help cover housing, education, and retirement expenses, along with any outstanding debts. However, while life insurance is important for people at all life stages, there are several different types of insurance to consider based on your personal circumstances and goals.

The different types of life insurance

Term life insurance: the most straightforward and affordable types of life insurance, term insurance provides coverage for a specific period, typically 5, 10, 15 or 20 years. If the policyholder passes away during the term, the beneficiaries receive a lump-sum payment. However, once the term ends, the coverage expires unless the policy is renewed.

Permanent life insurance: unlike term life insurance, permanent life insurance provides lifelong coverage as long as premiums are paid. It also builds cash value over time, which can be borrowed against or withdrawn. This type of insurance is typically more expensive, but it offers long-term benefits, and doesn’t face potential fluctuations or change of value like other financial investments. It also has the potential to leave a financial legacy for your loved ones.

In addition to term and permanent life insurance, you might want to consider disability or critical illness insurance. Disability insurance, sometimes also called paycheque protection insurance, provides income replacement if you are unable to work due to illness or injury, and critical illness insurance offers a lump-sum payment if you are diagnosed with a serious illness, such as cancer, heart attack or stroke. Both options are particularly valuable for those who rely on a single income or who want to help ensure financial stability in case of an unexpected event.

What’s the right time to get life insurance?

It might sound counterintuitive, but the best time to purchase life insurance is when you are young and healthy. Premiums are lower when you’re younger and healthier, and securing a policy early locks in affordable rates for the future.

Aside from a specific age, it’s good to consider life insurance (or review your existing life insurance) during significant life events like getting married, having kids, or buying a home. Since these moments all come with increased financial responsibility, it’s important to protect your loved ones from hardships in case of an unexpected accident.

And as you get closer to retirement, it’s another key time to review your life insurance needs. You’ve probably paid off significant debts like your mortgage, and perhaps your kids have moved out and might even be done college or university, but you still want to help provide some peace of mind to your spouse or dependants. This is also a good time to consider disability or critical illness insurance for extra protection as you age.

Why life insurance matters

Beyond being a financial product, life insurance is a way to help protect you and your loved ones. It’s a small expense that can help provide great financial support to family in the event of an untimely death. The policy can help give your family financial means to maintain their standard of living, cover funeral expenses, pay off any outstanding debts, and even help contribute to long-term financial goals such as your children’s education or your spouse’s retirement.

For retirees, life insurance can help cover final expenses and leave a legacy for the next generation. Even if your pension or savings are substantial, life insurance can help act as a financial buffer, helping provide your loved ones with the necessary resources to navigate the challenges that may arise after your passing.

Ultimately, all types of life insurance are designed to help offer security and peace of mind, helping ensure that your family is protected no matter what life brings. Whether you’re just starting out, building a family, or preparing for retirement, there is a life insurance policy that fits your needs. Take the time to explore your options and help secure the financial future of those you care about most.

To learn more about the different life insurance options available to you, book an online appointment with a CAA Protect advisor, or speak with a CAA agent at 1-800-709-5809.