As of September 2018, Canadians invested funds totaling $1.52 trillion. Households account for a third of investors with mutual funds.
The future looks pretty awesome for them, right? So... How about you?
If you haven't thought about investing yet since you're still young, it's time to reconsider.
For one, because you need at least three-quarters of a mil to live in comfort as a retiree. Second, because investments can protect you from sudden emergency expenses. Third, they provide financial security for your loved ones in case you pass away.
This is where permanent life insurance comes into play.
You read that right! Life insurance can also be a good investment medium, so long as you're careful in choosing one.
Don't worry. We're here to help you figure out the hows behind getting this type of insurance, so read on!
Permanent Life Insurance: More than Your Usual Life Insurance
Of the many types of life insurance, it's likely you're most familiar with the term kind. After all, it's the most common, with 25% of Canadians owning one.
There's no doubt that term life insurance is a good option since it's cheap and easy to understand. You only need to choose a term (length of time you want to insure yourself) and a death benefit amount.
So long as you keep paying your monthly premiums, you're insured. That means your insurer will payout in case of your death.
Term insurance doesn't have an investment component though. That's also the reason why it's the least expensive of all your life insurance options.
This savings or investment (sometimes both) component is what sets apart permanent life. With this type of insurance, you get to enjoy peace of mind knowing you're insured. At the same time, you're also securing your financial future with the wealth it builds over time.
Of course, there's also the length of time involved in owning the policy. As the name already implies, permanent insurance is, well, permanent. You're insured for as long as you live (and pay your premiums), even if you live up to the ripe old age of 100!
How it Works
As mentioned above, permanent life policies build up wealth over time.
In most cases, it's through a savings account. Some are also through using the funds to build an investment portfolio. You'll also find providers of life insurance in Canada with plans to make use of both strategies.
Life insurance with a cash value component means you'll have access to actual funds. You need to wait for several years, though, since it takes time to build a big enough savings amount. Once there's enough cash value, you can already withdraw money against your policy.
How you use it is up to you. You can even use your policy for home buying! Or, if you're planning to take out a secured loan, your policy can serve as collateral.
Be sure to keep your spending in check though. Every withdrawal you make reduces the amount of payout benefit. If you'll use your policy as collateral, make sure you repay the loan on time to avoid defaulting.
The Two Types of Permanent Life Policy You Can Get in Canada
There are two main types of permanent life insurance in Canada. There's the whole life and universal life.
Both provide lifelong insurance, death benefits, and a wealth-building component. But they also have certain differences that you should know of.
A whole life policy is your more straightforward option. First, because your premiums won't change along with your age. These policies also often come with a guaranteed minimum amount of cash value.
Universal life is more flexible than whole life. For starters, you have more say on what you want for your investment account.
This means you can increase (or decrease) the amount of death benefit the policy will payout. You can also choose specific investment media to include in your account. Your insurer may even let you choose how you'll receive your returns on investment.
The Biggest Question: How Much Insurance Should You Get?
Keep in mind that a permanent life policy costs more than a term policy. That said, it's wise you take time in figuring out how much permanent insurance to get.
To help you come up with an estimate, consider the following factors:
Your Current Debts
Let's say you're still paying your student debt, has an existing car loan, and you hold a mortgage.
In Canada, student debt averages $26,800 per person. Existing car loans average a little over $20,400. As for the mortgage, let's say you still owe $150,000.
That means your life insurance should have a death benefit not lower than $197,200. That way, your loved ones wouldn't have to use such a huge amount to repay your debts.
Your current income is also a good way to calculate how much insurance you should get. That'll help you figure out how much your loved ones need to maintain living standards in case you pass away. An easy way to compute this is to multiply your yearly income by six to 10 times.
So, if you make $30,000 a year, your policy should have at least $180,000 to $300,000. If you have outstanding loans, include them in your calculation. This can help ease the burden of your passing on your beneficiaries.
Get a Permanent Life Policy to Better Secure Your Family's Future
Permanent life insurance is one of your least complex investment options. Since it's much like a savings account, it comes with lower risks, which can be good for your peace of mind. The most important thing is, it provides your family with financial protection.
So, get started on exploring universal or whole life insurance in Canada now! The younger you are, the lower premiums you can secure. Send us a quote request now and we'll be more than happy to help you locate the best offers in the market.