How Does Life Insurance Work?

There are two general types of life insurance: term life and permanent (or whole) life.

Term life insurance is for a set length of time: often 10, 20, or 25 years. At the end of that time, the policyholder will have to buy a new policy if they want to remain insured. These policies are generally best for people with greater financial responsibilities during the period the policy is in effect. For example, they may want more coverage while their children still live at home than when they’ve moved out and are supporting themselves. Some term policies can be converted into whole life policies, a feature to ask about when shopping for insurance.

Permanent (or whole) life insurance are usually designed to last for the policyholder’s life, as long as the premiums are paid. These policies may also include a savings or investment component separate from the policy’s face value. Permanent life policies tend to be more expensive than term life policies.

These products are similar, but the process of getting insured differs.

Traditional life insurance (also known as fully underwritten life insurance or medically underwritten insurance) requires a medical exam. During the exam, you usually provide a fluid sample, fill out a detailed questionnaire, and have blood drawn for testing. You may also have additional tests like an electrocardiogram. The results of the exam are used to help determine what your premiums will be. Because it takes time to arrange for the exam and get the results, the insurance typically doesn’t come into effect for one to three months. This type of insurance is often best for people with no serious health conditions or lifestyle factors, who don’t need insurance immediately, and who don’t mind undergoing a physical.

No-medical life insurance usually only requires a short questionnaire. There’s typically no medical exam involved, no needles, fluid samples, or tests, and no doctor’s visit. Since the process is faster, your coverage starts much more quickly, usually in one to four weeks. Canada Protection Plan is a leader in no-medical life insurance; if you think this type of insurance is right for you, see the wide range of plans we have available.

It’s easy to get overwhelmed with the choices and decisions in front of you when you’re shopping for life insurance. Breaking it down into steps makes it more manageable.

1. Decide what type and how much life insurance you need. This should usually be based on your family’s expenses and how much it would cost to keep them safe and secure if you pass away. Some factors to consider include: Do you have children who will need tuition for higher education? Do you have a large mortgage? Will you only need enough to cover your final expenses? You also need to evaluate the role of your life insurance in your overall financial planning. For example, do you have mortgage protection insurance? If so, you may not need to include the value of your mortgage in your calculations. Sitting down with your family or an insurance advisor can help you figure this out. Remember that you can usually get additional insurance if your needs change.
2. Compare plans. Getting quotes will help you compare policies on both price and features. Again, an insurance advisor can guide you through this process.
3. Purchase a plan and designate a beneficiary. Clarifying the purpose of getting insurance will help you choose your beneficiary.
4. Ensure that your beneficiary knows how to make a claim against your policy when the time comes. Advise them where you keep your important papers and whom to contact when you pass away.