Life insurance basics

Life insuranceLife Insurance Insurance that pays cash to your family or other beneficiary after your death. This can give them income and help pay your funeral and other final costs.+ read full definition can help ensure your family maintains their standard of living if you die. It can also help pay off debts or cover final expenses such as funeral costs.

To get life insurance, you buy a policy. This is a legal contractContract A binding written or verbal agreement that can be enforced by law.+ read full definition that sets out:

• how much money the insurance companyInsurance company A company that sells insurance products. Some companies sell only life insurance. Some sell only property insurance. Others sell all types of insurance.+ read full definition will pay to your loved ones if you die,
• how much money you will pay each month to get the insurance, and
• how long the insurance will cover you (for a set termTerm The period of time that a contract covers. Also, the period of time that an investment pays a set rate of interest.+ read full definition or for life).

Calculate your life insurance needs

Most insurance companies have calculators on their websites.

4 other uses for life insurance

1. Cover estate taxes – when the death benefitDeath benefit Money that your life insurance or savings and pension plan(s) pays to your estate or beneficiary after your death. Example: If you contributed to the Canada Pension Plan, money may go to your estate, spouse or common-law partner and children.+ read full definition is payable to your estateEstate The total sum of money and property you leave behind when you die.+ read full definition.
2. Save for retirement – by using permanent insurance policies that let you build savings as well as provide insurance protection.
3. Donate to charity – by making a charity a beneficiaryBeneficiary The person(s), institution, trustee or estate you choose to give money, property or other benefits when you die. You may name beneficiaries in your will, insurance policy, retirement plan, annuity, trust or other contracts.+ read full definition, or the owner and beneficiary, of your insurance policyInsurance policy A written contract for insurance. It describes how long you are covered, what you are covered for, any part that you have to pay (the deductible) and what you will pay for the insurance (your premium).+ read full definition.
4. Protect your interest in a business – by providing money to buy out a deceased business partner’s stake in the business.

3 key points

1. Provides financial protection for your family
2. Payments are taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition free
3. Can be used for other financial planning goals