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What Is Term Life Insurance?

9 Min Read
RBC Insurance
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Term life insurance provides protection that is cost-effective and easy to understand. As part of a complete and thorough financial plan, term life insurance ensures that your family can rely on your insurance plan’s financial security if something happens to you.

Key takeaways

  • Term life insurance is a type of coverage with a limited term, typically 10 to 40 years.
  • Term life insurance is an affordable and accessible kind of protection that often costs less than a whole life insurance plan and does not usually require a medical exam (depending on your age and the amount you’re applying for).
  • Often, term life insurance plans can be renewed (at a higher premium) for as long as you require coverage, or they can be converted into permanent life insurance.
  • Term life insurance policies do not have a cash value or pay dividends on invested premiums.

What is term life insurance?

Term life insurance offers coverage for a specific amount of time (a “term”), often between 10 and 40 years. It’s available to people between the ages of 18 and 70 years and is an affordable and easy-to-understand kind of insurance plan. With term life insurance, you pay a monthly or annual premium for your chosen term. Should you you pass away during the term, your beneficiary will receive a death benefit payout.

When your term ends, your coverage will be automatically renewed at a higher premium until you cancel the policy. Once you cancel your policy, your beneficiaries are no longer eligible to receive the death benefit. 

Because each individual is unique, term life insurance can be customized to best suit your coverage needs. The cost is based on factors including your age, sex, health, lifestyle, smoking status, the coverage amount, and the length of the term you select. Often, term life insurance will not require you to undergo a medical exam to qualify for a policy, depending on your age and the policy amount you’re applying for.

How does term life insurance work?

Term life insurance works by purchasing a policy for a set term—such as 10, 20, or 30 years— that gives you coverage ranging from $50,000 to $25 million, depending on your needs and your budget. You pay monthly or yearly premiums, and as long as you continue to pay those, your coverage will remain in place during that period. Should you die during your term, a death benefit will be paid out to your named beneficiary/beneficiaries. If no beneficiary/beneficiaries are named on your policy, the death benefit will become part of your estate.

At the end of your term, your policy will be renewed (at a higher cost due to your increase in age), but you may have the option to convert all or part of your term life insurance policy into whole life insurance. It’s wise to speak with a licensed life insurance advisor to understand what policy options best meet your needs.

When does term life insurance coverage end?

Your term life insurance coverage can end:

  • On the date of your death.
  • On the day you submit a request, in writing, to cancel your policy.
  • On the day you stop paying your premiums.

How much does term life insurance cost?

The cost of term life insurance is unique to each individual. Factors such as your age, sex, health and lifestyle, smoking status, chosen term length, and the amount you choose to be insured for all contribute to determining the cost of your policy. You can customize your plan to fit your specific needs. For example, you may choose to be covered until your children reach adulthood, or you might purchase coverage for as long as you plan to be paying off your mortgage. Once you’ve decided on a plan, your monthly or annual payments, depending on your insurer, will remain the same over the course of your term. Upon renewal, payments increase, according to your age, and are then once again guaranteed for the length of the new term.

How is term life insurance different from permanent life insurance?

Term life insurance offers flexible coverage periods that provide protection for specific terms, typically between 10 and 40 years. Permanent life insurance is insurance for when, not if, you die. It covers you for your entire lifetime and pays a death benefit to your beneficiary or beneficiaries at the time of your death. 

Some permanent life insurance policies come with an investment feature that aims to increase your plan’s cash value and an opportunity to earn dividends. Though these policies have a guaranteed cash value component and a chance to earn dividends, the dividends are not guaranteed.

Read our term life insurance versus permanent life insurance article to learn more about the differences between the two.

Advantages and disadvantages of term life insurance

Your unique needs and goals will help determine which type of life insurance is right for you and your loved ones. Term life insurance comes with a list of appealing advantages. However, it’s wise to consider the disadvantages, too.

Advantages of term life insurance

  • It’s affordable: Term life insurance is generally less costly than whole life insurance. This is because your coverage period is tied to a specific, limited time period, and your policy does not include a cash value component.
  • It’s easy to understand: Because there’s no investment component, term life insurance plans are straightforward and simplified.
  • It offers flexibility: Terms can be anything from 10 to 40 years of coverage to provide protection that best suits your needs.
  • It can be convertible: Your term life insurance policy can be converted to a permanent policy without providing updated medical information.
  • Guaranteed renewal: At the end of your policy, your term life insurance is guaranteed to be renewed, as laid out in your policy schedule. The length of the renewal can vary between insurers and policies, and there is usually no requirement for additional medical information.

Disadvantages of term life insurance

  • The policies don’t have a cash value: Because premiums are applied directly to your coverage, there’s no additional cash value for investment or balance to borrow against.
  • Renewing can be costly: Term life insurance is guaranteed to be renewed at the end of your policy term. The renewed premium will increase with your age, and any renewed premium increases will be laid out in your policy schedule.

Who is term life insurance for?

Term life insurance policies are designed to provide temporary coverage that meets the needs of those seeking protection for a defined, limited amount of time. It’s also for people not planning to use their life insurance policy as an investment vehicle. This kind of life insurance is a great choice if:

  • Your spouse or your child depends on you financially.
  • You want to take advantage of a lower rate, while you’re still young and healthy.
  • You have debts that need to be paid off in the event of your death.

How to choose the term life insurance policy that’s best for you

If you’re ready to select a term life insurance policy, make sure you choose an insurance provider that offers:

  • A reputation for stability and trustworthiness.
  • Experienced advisors who are available to schedule a conversation with you and advise you on your specific needs.
  • An online application option for those who don’t have time or aren’t able to visit an insurance provider’s location.

How much term life insurance do I need?

The amount of term life insurance you need depends on your specific circumstances. If you’re trying to calculate the right amount of coverage, consider:

  • Your current financial obligations.
  • The financial needs of your dependents, including support for housing and post-secondary education.
  • Additional life insurance or financial products you may already have (for example, through your employer).

Consulting with a qualified life insurance advisor can help you determine the right coverage.

How do I get a term life insurance quote?

There’s no standard, one-size-fits-all price, since your unique situation will determine the amount of your term life insurance policy quote. You can access RBC Insurance’s online Life Insurance Calculator for an estimate or speak to a qualified advisor to get your personalized quote.

Term life insurance FAQ

Here are answers to some of the most frequently asked questions about term life insurance policies.

Is there a cash value in term life insurance?

With a term life insurance plan, you pay lower premiums that go directly toward your coverage. There is no cash value. Only the higher premiums paid into a participating whole life insurance plan offer a cash value and the additional value that stems from investment dividends.

Can I borrow money from my term life insurance?

Because there is no cash value or investment component tied to term life insurance policies, you cannot borrow against your insurance.

What if I live beyond my term?

Once your initial term ends, you can renew (at a higher premium, due to your increased age) or convert your policy to a permanent life insurance plan. If you live beyond your term without renewing, your beneficiary or beneficiaries will not receive the death benefit payout.

How much does term life insurance cost?

Your unique circumstances (for example, your age, sex, lifestyle, income, coverage amount, and health status) will determine the cost of your plan. Try our Life Insurance Calculator for insight into how much term life insurance coverage you may need and how much your personalized plan will cost.

Do I need a medical exam for term life insurance?

Depending on your term life insurance policy, a medical exam may not be required. Your insurer will have the right to request additional medical information based on the answers you provide in your policy application.

Can I switch my term life insurance policy to a whole life insurance policy?

Some term life insurance policies can be converted into whole life insurance policies, depending on the term life insurance policy you select and your contract with your insurance company. RBC Insurance term life insurance policies do offer this choice. Ask your insurance advisor for guidance if you’re interested in this option.

Your financial situation is unique to you and your family. Connecting with a licensed insurance advisor can help you ask the right questions and develop a personalized plan that will ensure you make the best choice.

*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

Home > Discover & Share > Page 5

Critical Illness Insurance Versus Disability Insurance: What Are the Differences?

10 Min Read
RBC Insurance
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If you were suddenly faced with a serious injury or illness, would you be able to care for and support yourself and your family? That’s the question we all need to answer when considering critical illness insurance and disability insurance.

Having the right coverage can mean a world of difference. It could be the factor that tips the balance between financial stability and all-consuming worry during an already-stressful time.

But what exactly are the differences between critical illness insurance and disability insurance? Is one better than the other, or are both necessary? This quick primer can help you understand the unique benefits of each type of policy and when one or both will best suit your needs.

Key takeaways

  • Critical illness insurance provides a one-time lump-sum benefit if you’re diagnosed with a serious health condition, such as life-threatening cancer, a heart attack, or a stroke.
  • Disability insurance helps with monthly income replacement if you can’t work for a period of time due to injury or illness.
  • Though critical illness insurance and disability insurance may overlap with coverage in some cases, they tend to provide protection for different illnesses and scenarios. They also have distinct exclusions and waiting periods.
  • Depending on your individual situation, one or both types of insurance might provide the best coverage for you and your family.

Understanding critical illness insurance

What is it?

Imagine you’re diagnosed with a serious illness, such as life-threatening cancer or experience a heart attack or a stroke. You may require specialized treatments, time off work, accommodations in your home, or help with self-care. These new needs may place a hefty financial burden on you and your family when you’re trying to recover.

While other health insurance policies may cover some of your medical expenses or help with income replacement, critical illness insurance directly pays out a one-time, tax-free lump sum. It’s designed to alleviate the financial stress associated with severe illness. And you can use the benefit however you want, such as paying for medications or treatments not covered by your other insurance, continuing to contribute to your retirement savings while you’re off work, upgrading your house or vehicle to suit your new needs, paying for childcare, or even taking a vacation to recharge. Critical illness insurance acts as a safety net and gives you flexibility during a challenging time.

Types of illnesses covered

The illnesses protected by your critical illness insurance will depend on the insurer and the plan you purchase. Typically, these conditions are commonly covered:

  • Life-threatening cancer
  • Heart attack
  • Stroke
  • Kidney failure
  • Major organ transplant
  • Coronary artery bypass surgery
  • Multiple sclerosis

More comprehensive plans may also provide coverage for conditions such as dementia, including Alzheimer’s disease, Parkinson’s disease, blindness, deafness, and even severe burns, paralysis, and loss of limbs. Before purchasing a policy, make sure you understand which illnesses are covered by the plan and any exclusions or limitations (such as waiting periods or survival periods before you’re eligible to claim your benefit).

Exclusions

Many plans will not pay out a lump sum or refund any premiums if you experience an illness, death, or other loss that results directly or indirectly from one of these situations:

  • Self-inflicted injury, attempted suicide, or suicide.
  • Intentional use of any drug (not prescribed by a doctor), intoxicant, narcotic, or poisonous substance.
  • Participation in a war or a hostile action, insurrection, or civil commotion.
  • Attempt to commit or commission a crime, whether you’re charged or not.
  • Operation of any land, water, or air conveyance that’s operated by any means other than your own muscle (think cars, motorboats, planes) while you’re under the influence of any drug, intoxicant, narcotic, or poisonous substance, including alcohol. For alcohol, the limit begins when the concentration of alcohol in 100 millilitres of blood exceeds 80 milligrams.

Speak with your insurer to confirm the details of your specific policy.

Understanding disability insurance

What is it?

If an illness or injury keeps you from working, disability insurance will typically pay out a monthly benefit to replace a portion of your lost income (often around 60 per cent to 85 per cent). Whether you experience a short-term disability, such as an injury that requires months of leave, or a long-term disability that means you can’t work for years, disability insurance acts like a consistent paycheque to help you cover your living expenses and medical bills.

Types of disabilities covered

As with critical illness insurance, the types of illnesses and disabilities covered will depend on your insurer and the plan you choose. You may receive protection in the following instances.

  • Total disability: When you’re unable to perform the essential duties of your occupation due to an illness or injury.
  • Residual disability: When your illness or disability prevents you from performing some of your essential work duties, resulting in a 20 per cent or more loss in earnings. You will eventually recover.
  • Partial disability: When you can’t perform any of the essential duties of your regular occupation and you experience a 20 per cent or more loss in earnings. You will eventually be able to go back to work.

Exclusions

Much like critical illness insurance, disability insurance will typically not cover any disability that results, whether directly or indirectly, from these situations:

  • An act or accident of war.
  • Normal pregnancy or childbirth (except complications).
  • Any injury or illness that occurs before your policy comes into effect or while your policy is not in force.

Some plans will also have these exclusions:

  • Any self-inflicted injury, whether or not it’s intentional, that occurs while you’re intoxicated.
  • Your use of any drug, unless it’s prescribed or directed by your physician.
  • Any suicide attempt or other intentionally self-inflicted harm.
  • Infections related to AIDS and HIV.
  • Any injury that occurs while you are committing or attempting to commit a crime, even if you’re not charged with that crime.
  • Subjective conditions, such as fibromyalgia and chronic fatigue syndrome.
  • Mental and nervous disorders, such as depression, anxiety, stress, and burnout.

Schedule a chat with your insurer if you’re not clear on the exclusions in your policy (or any policy you’re considering buying).

Key differences between critical illness insurance and disability insurance

Before you can decide whether to purchase critical illness insurance, disability insurance, or both, it’s important to understand how each type of coverage works and the ways each can provide you with financial stability during a health crisis. This chart can help you understand the primary differences between critical illness insurance and disability insurance.

Critical illness insuranceDisability insurance    
Triggering eventYou can make a claim if you’re diagnosed with one of the conditions or illnesses listed in your policy.You can make a claim for benefits if you cannot complete some or all of the tasks required for your job due to injury or illness.
Waiting periodYou will often need to live beyond the survival period (a.k.a. a set amount of time beyond your diagnosis, usually 30 days) before you are eligible for benefits.You will have to wait the elimination period (a set number of days after you receive your diagnosis) before you begin getting payments.
Nature of benefitsYou’ll receive a one-time lump sum, which, depending on your plan, can range from $10,000 to $3 million.Designed to replace a portion of your lost income while you cannot work, this benefit is often paid out each month and lasts for as long as you remain disabled or until the end of your benefit period.
Duration of benefitsIn most cases, your policy will end once you receive your one-time lump-sum payment. However, some insurance providers have riders that cover a second critical illness and payment.You will receive ongoing payments for the duration of your disability, from a few months to many years, up to the limit defined in your policy. Some plans will pay for a disability that lasts until retirement age, while others have a benefit period of two, five, or 10 years.
Use of payoutYou can use the lump-sum benefit however you want: to pay medical bills, upgrade your home, contribute to your RRSPs, try alternative treatments, or take a vacation to unwind.These benefits are designed to cover living expenses while you cannot earn your regular income. While you can use the payments however you want, the amount you receive at one time is smaller and best for maintaining financial stability during a period of low or no income.
Who can applyAnyoneEmployed and self-employed people
Age eligibilityCoverage often ends between the ages of 65 and 75 years; although, some providers offer permanent insurance.Coverage often ends between the ages of 55 and 69 years.
PremiumsYour premiums are based on the number of illnesses covered, the lump-sum payout amount you choose, your age, how long the coverage will be in place, and your overall health status.Your premiums will depend on the disability types covered, your monthly benefit amount, how long you will be eligible to receive benefits, and your occupation.
TaxabilityTax-freeIt’s tax-free income if you paid for it, and it’s taxable income if your employee paid for insurance for you.

How to best choose between critical illness insurance and disability insurance

Whether disability insurance or critical illness insurance will be right for you will depend on several factors, such as your occupation, financial situation, health risks, and more.

  • Financial needs and responsibilities: Take a look at your financial obligations, from mortgage payments to support of dependants. Critical illness insurance can help with large immediate expenses. Disability insurance is designed to provide ongoing income.
  • Health risks: Critical illnesses are common.Each year, around 247,000 Canadians will be diagnosed with cancer, and 108,000 will experience a stroke. Critical illness insurance could be an invaluable safety net if you’re affected by one of these conditions one day. If you have a job that increases your risk of injury or certain illnesses, then disability insurance may be the option for you.
  • Employment situation: Anyone is eligible for critical illness insurance; whereas, you must be employed or self-employed to purchase disability insurance. If you work for a company or organization, make sure you’re familiar with your employee benefits. For example, you may have comprehensive disability coverage, but no critical illness insurance. In that case, you might want to purchase your own critical illness policy.
  • Budget: In an ideal world, we’d all have premium disability and critical illness insurance coverage. In the real world, these plans cost money. It’s important to balance your coverage needs with the premiums that you can afford.
  • Dependants and family responsibilities: You may have a wide variety of people (children, aging parents, or family members with disabilities) and pets relying on your income. Critical illness insurance can provide flexibility with a larger payout if you’re diagnosed with a serious condition, while disability insurance can help to cover your day-to-day expenses.

Is it better to combine both types of insurance?

Even though both are types of health insurance, critical illness insurance provides different benefits than disability insurance. Critical illness insurance is designed to immediately alleviate financial strain if you’re diagnosed with a serious illness or condition. Disability insurance covers a broad range of illness and injuries that can affect your ability to work and helps with day-to-day expenses. You may want to combine both types of insurance if you’re looking for well-rounded coverage that protects you in many circumstances. Speak with an insurance advisor to help you make the decision that best suits your lifestyle. They can help you balance your current and long-term needs, consider your risks and budget, and help you choose the right policies to protect you and your family in all scenarios.

*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

Home > Discover & Share > Page 5

What Is Critical Illness Insurance?

11 Min Read
RBC Insurance
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Life-altering medical conditions can also have major financial implications, often requiring time off work and payments for childcare, medications, alternative treatments, and even home modifications.

That’s where critical illness insurance comes in. It can provide a benefit, so if you’re ever diagnosed with a serious illness, you don’t have to dip into your RRSPs or take on debt just to keep life on track.

Read on to learn how to choose the best critical illness insurance in Canada that works for you.

Key takeaways

  • Critical illness coverage is a type of insurance that pays a benefit if you’re diagnosed with a serious illness or condition, such as life-threatening cancer, a heart attack, or a stroke.
  • The benefit is a tax-free lump sum that you can use to fill gaps in your provincial health insurance, modify your home, cover daily expenses, or even continue to pay into your retirement savings.
  • This type of insurance has pros, including financial protection, income replacement, and flexibility.
  • There are also contract conditions to consider, such as no coverage for pre-existing conditions and potential overlap with other types of insurance you’ve purchased.
  • This insurance can be especially beneficial for primary breadwinners, caregivers, self-employed people, and business owners.

What is critical illness insurance, and why do I need it?

Critical illness insurance, sometimes called “critical care insurance” or “critical illness coverage,” is a type of coverage that pays out a tax-free lump sum if you’re diagnosed with a serious medical condition or illness. It’s designed to help Canadians or individuals living in Canada pay for all the additional costs (such as medications, home care, travel, accommodations, and childcare) and loss of income that can occur with certain types of life-threatening cancers, strokes, heart attacks, and more.

How does critical illness insurance work?

Are you interested in critical illness insurance? Here’s how to secure the right plan and, in the event of a serious illness, make a claim.

  1. Choose a policy and coverage amount: First, you’ll need to choose the policy and coverage level that work for you. Typically, you can add a rider to another policy, such as life insurance, or buy a stand-alone policy. RBC Insurance, for example, has two stand-alone policies covering a different range of illnesses: Critical Illness Recovery Plan and Critical Illness Insurance Plan (a more basic type of coverage). You’ll then need to determine how much coverage (or the payout size) you want to receive in the event of a critical illness. The more coverage you want, the higher the premiums you’ll have to pay. Working with a licensed insurance advisor can help you get the right level of coverage for your unique situation.
  1. Set your premium and pay it: You’ll need to pay a premium each month, quarter, or year (depending on the policy) in exchange for insurance coverage. The premium will depend on factors such as: the policy you choose, the coverage amount you want, your age, your overall health level, and your smoking status. Your premium may be fixed (meaning, it won’t change) or variable, depending on your policy.
  1. File a claim: If you’re diagnosed with one of the illnesses covered in your policy, you’ll need to ensure that you meet all of the policy’s criteria for the survival period (number of days you’ve had the illness before the benefit will be paid out) and the severity. There may also be a waiting period after you purchase the insurance when you cannot make any claims. When you submit a claim to your provider, you’ll need medical documentation that proves the diagnosis and you may even require additional medical exams.
  1. Receive the payout: If your claim is approved, your insurer will provide you with a lump-sum payout. It will be an amount that has been predetermined by your coverage level and is not tied to the actual cost of your lost wages or treatment. You can use the payout any way you want.

What is not covered by critical illness insurance?

All policies will have exemptions. Typically, critical illness insurance will not cover illness, injury, or death in these situations:

  • Self-inflicted injury, attempted suicide, or suicide.
  • Intentional use of any drug, intoxicant, narcotic, or poisonous substance.
  • Participation in a war or a hostile action (insurrection, civil commotion, etc.).
  • Attempt to commit or actual commission of a crime, whether charged or not.
  • Operating any land, water, or air conveyance (a.k.a. car, boat, or plane) that requires more than muscular power while under the influence of any drug, intoxicant, narcotic, or poisonous substance. For alcohol, the limit is 80 milligrams of alcohol per 100 millilitres of blood.

It’s best to check with your insurer for specific exclusions, since policies vary.

What are the advantages of critical illness insurance?

  • Financial protection: Treatments and time spent resting (not working) can be expensive. By using the lump-sum payout for your daily expenses, you can protect your savings and avoid drawing from your RRSPs and/or going into debt.
  • Income replacement: If you’re unable to work during your treatment and recovery, the lump sum can replace lost income. For business owners or those who are self-employed, it can even be used to maintain operations, cover business expenses, or hire help.
  • Coverage moves with you: If you have critical illness insurance through your employer and you lose your job or switch employers,you lose that coverage. Purchasing a policy separate from your employer ensures you have critical illness coverage regardless of your employer or employment status.
  • Flexibility: Unlike regular health insurance, which usually pays directly to health-care providers, critical illness insurance pays a sum directly to you. You can use the payout however you want: for medication copayments, to take time off work to recover, for therapies not covered by health insurance, or even a vacation for you and your family during recovery.
  • Coverage for multiple conditions: Thanks to advancements in modern medicine, you have a high chance of surviving a serious illness. The bad news? Your finances could be hit hard while you recover. Luckily, critical illness insurance covers many conditions that could affect you during your lifetime.
  • Peace of mind: In the event that you do experience a critical illness, you won’t need to worry about finances and will be able to focus on your most important task: getting better. Plus, budgeting for annual premiums, which are typically fixed for a term, is a lot less stressful than falling ill and suddenly needing to come up with a huge sum of money without insurance. 

What are the contract conditions to be aware of with critical illness insurance?

  • Lack of coverage for pre-existing health conditions: Typically, any illness you’ve already been diagnosed with before applying for insurance is not eligible for coverage. In some cases, you might not be eligible for critical illness insurance at all, or there may be a waiting period before coverage can begin.
  • Survival period requirement: Some policies have a “survival period” clause, which means you must survive your illness for a certain number of days before receiving a payout. RBC Insurance’s minimum survival period for most covered conditions is 30 days; although, some covered conditions require a longer period before benefits are payable.
  • Limited covered illnesses: Your policy will only cover you for a specified list of illnesses. The longer the list of covered conditions, the more you’ll pay in premiums. You won’t receive a payout if you’re diagnosed with an illness that’s not on the list.

Who should consider critical illness insurance?

There are certain people who will benefit the most from purchasing critical illness insurance.

  • Primary breadwinners: Your family relies on you to cover the big expenses, such as mortgage payments, school fees, credit card bills, and more. Critical illness insurance can give you financial stability even if you aren’t able to work for a period of time due to illness, reducing stress for you and your dependants.
  • Self-employed individuals and business owners: A payout from critical illness insurance can provide crucial financial support during a health crisis. It may even help to cover business expenses, hire temporary staff, and keep things running in your absence. 
  • Caregivers with dependants: In addition to everything else you do, you’re a caregiver. And if you get sick, you might not be able to provide care to your children, aging parents, or family members with disabilities. Critical illness insurance can help you pay for substitute caregivers and other related costs if you need time off for treatment and rest.
  • People with high-stress occupations or lifestyles: Whether you work in a hazardous environment or have a high-stress job, you may be at a greater risk for certain illnesses and conditions. Even if a career change isn’t in the cards, you can help guard against financial strain from future health issues with insurance. (Note: Some occupations are excluded from coverage. Be sure to clarify with your provider.)

Frequently asked questions

How do I choose the right critical illness insurance policy?

You’ll need to take a look at your unique situation and weigh these factors.

  • Covered illnesses: Are you at risk for certain health conditions, and are they covered?
  • Coverage amount: What lump-sum payout will be enough to cover your expenses?
  • Premium costs: How much can you afford to pay in premiums each year, considering they might increase over time?
  • Exclusions and limitations: Do you understand the potential exclusions or conditions that could affect your eligibility for a payout?
  • Length of coverage: How long do you need coverage? Do you need to consider adding a rider (if your provider allows) to extend the length of your coverage?
  • Insurer reputation: Does the insurer you want to use have a good reputation, financial stability, and a clear and reasonable claims-approval process?

What illnesses are typically covered by critical illness insurance?

Some policies are extensive, while others are limited. Here are some commonly covered illnesses:

  • Cancer (life-threatening)
  • Heart attack
  • Stroke
  • Kidney failure
  • Major organ transplant
  • Multiple sclerosis
  • Coronary artery bypass surgery
  • Dementia, including Alzheimer’s disease

If the disease or illness is not explicitly listed in your policy, you won’t receive any coverage for it.

How is critical illness insurance different from health insurance?

Critical illness insurance is a type of health insurance, but it’s different from health and dental insurance. Health and dental insurance typically cover medical costs directly related to treatment, such as hospitalization, surgery, medication, rehab, and medical equipment. The insurance payout directly goes to the health-care provider or reimburses the insured for their out-of-pocket expenses.

Critical illness insurance is a cash benefit paid directly to you. You can use it toward medical expenses, to take time off work to recover, to pay your mortgage, or to hire a babysitter to look after your kids when you need a nap. How you use the payout is entirely at your discretion.

How is critical illness insurance different from life insurance?

Life insurance and critical illness insurance are two different things. Critical illness insurance pays out when you’re diagnosed with a serious illness and need financial support. Life insurance only pays out a benefit to your estate or listed beneficiary/beneficiaries if/when you pass away.

Can my premiums increase over time?

They might. Renewable policies adjust the premium based on your age or health status. That said, some policies have fixed premiums (meaning, they don’t increase) for a certain period or even for the policy’s duration.

Is critical illness insurance expensive?

The cost depends on many factors, from the policy you choose and the level of coverage you need to personal information, such as age, assigned sex at birth, health status, and whether or not you smoke. Generally speaking, you’ll pay less for critical illness insurance if you’re young, healthy, and nicotine-free.

No one wants to imagine being diagnosed with a serious illness. But if you’re a primary breadwinner, parent, business owner, or someone with responsibilities, it’s the “worst-case- scenario” thinking that’s worth doing. Many Canadians will experience (life-threatening) cancer, a heart attack, a stroke, organ failure, or dementia at some point in their lives. If you’re one of them, will you have a plan? Book an appointment with your insurance advisor now to discuss your options.

*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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What Is a Life Insurance Beneficiary?

8 Min Read
RBC Insurance
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Choosing life insurance beneficiaries is more than just a step in financial planning — it’s shaping your legacy. Read on for help with navigating the choices, whether it’s for family, friends, trusts, or charities. Dive in to how to split your legacy among multiple beneficiaries, understand the roles of primary and contingent beneficiaries, and know the difference between revocable and irrevocable options. You’ll also learn why naming a beneficiary is so important, and what could happen if you don’t.

Take on your legacy planning with confidence, whether you’re just starting out or you’re updating your estate plan.

Key takeaways

  • A life insurance beneficiary is a person and/or entity named to receive benefits after the policyholder’s death.

  • Options for beneficiaries on life insurance are broad, including individuals, trusts, charities, and businesses.

  • Understanding the difference between primary, contingent, revocable, and irrevocable beneficiaries is crucial.

  • Proper beneficiary designation ensures efficient asset transfer, tax benefits, and the avoidance of probate.

What is a life insurance beneficiary?

A life insurance beneficiary is the individual and/or organization you designate to receive the payout from your life insurance policy after you pass away. It’s a key component in your broader estate planning, ensuring the fruits of your hard work and savings are passed on in a way that reflects your personal wishes and priorities.

When you choose a beneficiary on your life insurance, you’re essentially deciding who will benefit from the financial safety net you’ve put in place. This can be a family member, a close friend, a trust, or even a charitable organization whose cause you support. The beneficiary you choose is a reflection of your relationships, commitments, and values. It’s about ensuring that, in your absence, your financial legacy is entrusted to the right hands, whether that’s providing for your family’s future, supporting a friend’s well-being, or contributing to a cause close to your heart.

Who can be a beneficiary on life insurance?

Choosing a life insurance beneficiary is a flexible decision. A beneficiary can be:

Family members

Commonly chosen, they can include your spouse, children, siblings, or other relatives.

Friends

Suitable for those with whom you have a close bond, or who may depend on you financially.

Trusts for minors

Ideal for managing assets for minors until they reach legal adulthood.

Charities

A way to leave a philanthropic legacy.

Businesses

Useful for business owners for succession planning or ongoing business support.

Can you have more than one life insurance beneficiary?

Absolutely! You can designate multiple beneficiaries of your life insurance policy. This allows you to spread the benefits across several people and/or organizations, ensuring that each receives a portion of the payout. You have the flexibility to specify exactly how much of the policy proceeds each beneficiary should receive, tailoring the distribution to match your wishes and their needs.

What are the different types of life insurance beneficiaries?

Life insurance policies typically have two types of beneficiaries: primary and contingent.

Primary beneficiary

This is the first person, people, or entity designated to receive your death benefit. They are typically those you want to primarily protect or support in the event of your death.

Contingent beneficiary

The designated contingent beneficiary receives the death benefit in the event the primary beneficiary can’t, often due to the primary beneficiary’s death before or at the same time as the policyholder’s, or if the primary beneficiary cannot be located, or refuses the death benefit.

The main difference between the two is their order of priority. The primary beneficiary is the initial recipient, while the contingent beneficiary is an alternate, ensuring your wishes are respected even if the primary beneficiary is unable to receive the benefits.

A contingent beneficiary is sometimes referred to as a “secondary beneficiary.”

What’s the difference between a revocable and an irrevocable beneficiary?

You’ll encounter another important decision when you set up a life insurance policy: choosing between a revocable and an irrevocable beneficiary.

Revocable beneficiary

This option offers flexibility, allowing you to change your beneficiary without their knowledge or consent. It’s most commonly used if you anticipate changes in your relationships or circumstances.

Irrevocable beneficiary

Once chosen, this beneficiary cannot be changed without their agreement (you also can’t make other changes to your policy, such as withdraw money or take out a policy loan without their consent). It’s a more permanent decision, providing guaranteed financial protection for the beneficiary. This is commonly used in marital breakdowns, blended families, and business situations.

If a minor is being considered as an irrevocable beneficiary, it should be noted that neither the minor nor their parent/guardian or even the trustee are able to provide consent to a change of beneficiary. It is usually not possible for the beneficiary designation to be changed if a minor has been designated as an irrevocable beneficiary.

Note for residents of Quebec: In Quebec, a spouse named as a beneficiary is automatically considered irrevocable, unless otherwise stated or in the case of divorce, adding a unique consideration for policyholders in this province.

Why name a life insurance beneficiary?

Choosing a beneficiary on life insurance is essential for several practical reasons.

Direct allocation

The money from your life insurance policy goes directly to the people and/or organizations you’ve chosen, exactly as you planned. This happens outside of your estate, without the time and costs associated with probate. (Probate is the legal process of the courts formally accepting a will.)

Faster access to money

Your beneficiaries usually get the money more quickly, since it doesn’t get tied up in the settling of your estate.

Avoiding legal hassles and costs

Skipping the long and often expensive legal process of probate means potentially saving on fees and time.

Keeping things private

Your financial details stay out of the public eye by not going through probate.

Making life easier for beneficiaries

The whole process becomes simpler for those receiving the money, helping them during a difficult time without added stress.

What happens if there is no beneficiary on a life insurance policy?

In the absence of a named beneficiary on a life insurance policy, the death benefit becomes part of the deceased person’s estate. This shift means the payout is subject to the probate process. Probate is the legal process to prove and gain court approval that the will is the last will and testament of the deceased individual.

Probate can be a lengthy and public process, potentially involving legal fees, if the estate is greater than $50,000, and delays in distributing the assets. Without a designated beneficiary, the streamlined transfer of life insurance benefits is lost, and the proceeds become entangled in the broader estate settlement process.

And because of estate administrative tax, your leftover assets may be much less than if you had named a beneficiary.

How to choose a life insurance beneficiary

Selecting a life insurance beneficiary is a deeply personal and significant choice, reflecting your relationships and your priorities. Consider the following when deciding who should be listed as your beneficiary or beneficiaries.

Financial dependence

Is there anyone who relies on you financially? This could be a spouse, children, aging parents, a friend, or anyone else who depends on your income.

Family considerations

If you’re married, have children or grandchildren, think about how the benefits can support their future.

Charitable intentions

You might want to leave a legacy through charities, organizations, or academic institutions that are important to you.

Business relationships

If you have a business partner, consider how your absence might impact your business and whether they should be a beneficiary.

Remember: There are no set rules for naming a life insurance beneficiary. It’s entirely your decision who receives the payout from your life insurance policy. Your choice should align with your personal circumstances, future goals, and the legacy you wish to leave.

Speak with an Insurance Advisor today to help you navigate these choices with confidence and clarity. They can offer expert guidance on life insurance options and help tailor a plan that fits your unique needs and goals. Don’t hesitate to reach out and start the conversation about how you can effectively pass on your legacy to your loved ones and/or other priorities in your life.

*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

Home > Discover & Share > Page 5

Dividend Scale and Participating Whole Life Insurance

6 Min Read
RBC Insurance
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If you’re early in your research on the different types of life insurance, getting a grasp on the basic concepts of participating whole life insurance is a good place to start. From premiums to the dividend scale interest rate, here’s a primer on policy basics, components, and how growth potential is calculated.

Key takeaways

  • Participating whole life insurance policies pool your premiums, along with those from other policyholders, into a participating account professionally managed by the investment team with an insurance provider.

  • A number of factors determine if the participating account experiences gains or losses, including operating costs, taxes, how well the investment portion of the fund performs, and more.

  • Dividends may be paid out on a policy’s anniversary, but aren’t guaranteed.

  • The dividend scale is the formula your insurance provider uses to calculate your yearly dividend payments unique to your policy.

  • The dividend scale interest rate is the interest rate used by your insurance provider to calculate the investment component of the dividend. It is not the growth rate applied to your policy.

How do dividends work with participating whole life insurance?

Any growth from a participating whole life insurance policy comes in the form of dividends, which are calculated using a formula known as the dividend scale. Before we get into how dividends work, here’s what you need to know about how the policy functions.

Participating whole life insurance pools money from policyholders (that’s potentially you) into a participating account. Those funds are professionally managed by an investment team at the insurance company with the goal of growing the investment, so the dividends can be paid out. You can use the dividends you earn in several different ways, including:

  • Toward the payment of your premiums

  • To purchase more life insurance

  • Having them paid out directly to you each year (you may be taxed on any cash you take out from your policy)

  • Having them held on deposit earning interest (you may be taxed on any cash you take out from your policy)

Dividends are paid out annually on your policy’s anniversary date, and they’re shared fairly and equitably with all policyholders using a formula called the “dividend scale.”

What makes up the participating account?

There are several factors that contribute to whether a participating account will experience a surplus of funds. They can include the following.

  • Investment returns: How well the invested funds perform

  • Expenses: What it costs to manage the account

  • Mortality (or death rate): The amount of claims that were made that year

  • Other factors: Including, but not limited to, the number of policyholders who cancelled their policy, surrendered coverage, or took out loans against their policy, and taxes

If the participating account performs differently than expected, and excess earnings or profits are generated, they’re kept within the account and eventually distributed fairly to policyholders through a change in the dividend scale. The opposite could also be true, and the account may experience unexpected losses that get passed back to policyholders. To help balance the gains against the losses, insurance companies use something called the “smoothing technique” to help reduce volatility over time, but more on that later.

What is a dividend scale?

A dividend scale is the formula or method your insurance company uses to calculate annual dividend payouts. It’s reviewed each year by the insurance company and takes into consideration factors such as the death rate among the policyholders, the expenses required to manage the account, and the fund’s investment performance.

Not all dividend payouts are the same. The calculation used to determine payouts is unique to each policyholder, based on things such as age, policy size and type, premiums paid to date, and premium payment options. Dividends are paid out fairly and equitably, based on those factors.

It’s also important to note that dividends are not guaranteed by your policy, and the amount of dividends that are paid out will change annually. But once paid out, those dividends belong to the policyholder and cannot be taken back by the insurance company.

What is a dividend scale interest rate?

The dividend scale interest rate (or DSIR) is a large part of the formula that contributes to the amount of dividends paid out to policyholders. The DSIR is applied when calculating the investment component of the dividend scale, but it’s not the growth rate applied to your policy. It can be potentially higher, or lower, than the investment returns on the participating account.

Factors beyond investment returns, including the participating account’s earnings and future expected returns, are also considered.

How often does the DSIR change?

Each year, insurance companies will approve maintaining or updating the dividend scale and the dividend scale interest rate. The dividend scale interest rate can go up or down, according to market factors such as inflation and fluctuating interest rates. Other parts of the dividend scale may also fluctuate, based on changes in the insurance company’s experiences, or other factors such as inflation.

Policyholders are directed by the insurance company, usually in their anniversary statement, on where to learn about policyholder disclosures.

What is the smoothing technique applied to the dividend scale?

Despite potential changes in the dividend scale, participating whole life insurance policies may offer consistent returns year over year (though, it’s important to note that dividends are not guaranteed). That’s because a smoothing technique is applied to help minimize the short-term impact of market fluctuations. It’s when changes in the investment gains or losses that are passed back to policyholders are spread over several years. This helps to manage investment risk and minimizes the effect of market volatility for policyholders.

Should I choose a life insurance company based on its DSIR?

Because the DSIR is only one component, choosing a policy based primarily on this factor won’t provide you with a complete picture of the ways in which your life insurance policy will serve your needs. The DSIR is important, but it’s only a single component among many used to determine your dividends.

Talk with your insurance advisor before deciding on a policy, so you know you’re making the right choice for you and your family. Be sure to ask your advisor about an insurance company’s:

  • Investment strategy and plan for stable, long-term growth

  • Experience and diverse areas of expertise in managing the participating account

  • Long-term commitment to the participating account as the DSIR changes over time

Interested in learning more about participating whole life insurance and if it’s right for you? Contact your insurance advisor to understand how life insurance can offer you future growth and protection.

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Disability Insurance for Self-employed Workers

8 Min Read
RBC Insurance
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That’s where disability insurance for self-employed workers and disability insurance for business owners comes in. It helps you protect your income, lifestyle, and, in some cases, your business. And it’s especially important for self-employed people who don’t have access to a group plan through their employer.

No one likes to think about the possibility of serious illness or injury. Unfortunately, accidents and illnesses happen, so it’s worthwhile being prepared.

Wondering if disability insurance is right for you? Here’s what you need to know.

Key takeaways

  • Disability insurance is designed to provide an income if you sustain a serious illness or injury. It can allow you and your family to pay your bills and maintain your lifestyle during a difficult period.

  • If you’re self-employed, an individual insurance plan may be an important part of your financial health, as it could provide financial support and other benefits.

  • The cost of disability insurance for self-employed people varies. Your monthly premium will depend on a few factors such as your profession, the type of coverage you want, how much income you want replaced if you can’t work, and more.

  • There are individual disability insurance policies available to suit various needs.

How does disability insurance work if you’re self-employed?

Disability insurance is a form of income protection that you pay for each month. If you ever can’t work because of an illness or an injury, disability insurance can help you cover your monthly expenses.

If someone is working for an employer, they’ll often get coverage through a group plan that has short-term disability (STD) and long-term disability (LTD) insurance. They may also qualify for government help through Employment Insurance (EI) and/or the Canada Pension Plan (CPP).

But what if you’re self-employed, or you’re a business owner? You may still be able to claim benefits if you pay into CPP or EI for self-employed workers. But you might also want to consider an individual disability insurance plan to make sure you can continue to pay your bills in the event you become injured or ill.

Most individual disability insurance plans work something like this:

  1. You pay a fee (called a “premium”) each month.

  2. If you ever have a serious injury or an illness and can’t do your job for an extended period of time, you submit an insurance claim.

  3. If your claim is approved, you receive a monthly payment that covers a percentage of your usual earnings. It’s typically tax free to help you get closer to the amount you usually make each month.

  4. Your plan may also give you access to specialists and extra supports to help you recover more quickly and return to work.

What are common reasons for self-employed workers going on disability insurance?

Surprisingly, just eight per cent of disabilities are caused by injuries due to workplace mishaps or car accidents. These other health issues are more common:

  • Mental health disorders: From clinical depression to substance abuse, issues with mental health are a common reason people need time off work.

  • Cancers: Treatment may make it difficult or impossible to work for a period of time.

  • Cardiovascular diseases: Heart disease, heart attack, and stroke can all require time off for treatment.

  • Musculoskeletal diseases: Arthritis, for example, can cause joint pain, mobility issues, and weakness that turn certain types of employment into a struggle.

Why should self-employed workers consider disability insurance?

You may have a home, a car, or an investment portfolio, but none of those things is your most valuable asset. It’s actually your ability to make a living. If you’re 35 and have an annual income of $72,000, you have the potential to make $3,160,994.63 over the next 30 years, assuming a modest 2.5 per cent salary increase each year. That’s a serious chunk of change.

As a self-employed person, you’re in a unique position, since:

  • You don’t have protection from an employer’s group insurance plan.

  • You may have fixed operating costs, such as monthly rent for an office space, that put extra pressure on your finances.

  • You are responsible for your clients or your customers. If you can’t work for several months, business may go elsewhere, which could have long-term effects on your income.

An individual disability insurance plan may be an important part of your financial well-being if you’re self-employed. Here’s how it can help.

Financial support

When a disability lasts longer than 90 days, it can typically continue for two to three years. Could you pay your bills for that length of time without your usual income? Your options include depleting your savings, relying solely on the earnings of a spouse or partner, taking out a loan (if you qualify), or planning ahead with disability insurance. Purchasing disability insurance can offer some relief in knowing that you’ll have financial support if you become too sick or injured to work.

Access to specialists

Appointments with specialists may help you recover sooner. Some disability insurance plans can get you quick access to physicians (e.g., rheumatologists, oncologists, or psychiatrists), mental-health professionals, and in-person or virtual rehabilitation services.

Return-to-work support

For many people, work isn’t solely about the paycheque. It’s also about meaningful output, contributing to society, and the sense of accomplishment we get from providing for our families.

These are just a few reasons that some people wish to return to work as soon as possible after illness or injury. Some disability insurance policies can help you get back to work faster by providing these supports:

  • Work conditioning (support as you return to work gradually)

  • Work-site modification

  • Transferable skills analysis (if you can’t go back to your old career)

  • Job search assistance

  • Assistive devices (such as wheelchairs, hearing aids, and prostheses)

  • Dependant care (if you needcare for your kids or your parents, so you can go to a rehab program).

How to choose the right disability insurance plan if you’re self-employed

Speak with an advisor or broker and ask plenty of questions. You’ll want to compare a few aspects of each plan you’re offered.

  • Occupations: Does the provider typically cover your type of occupation?

  • Terms and conditions: How does the provider define “disability”?

  • Benefits: What types of benefits are offered with each plan? How long do the benefits last? Does the provider have access to medical professionals and offer return-to-work assistance?

  • Customer service: Does the provider have a team of trained specialists who will help you through the claims process and offer support while you’re on disability?

Is disability insurance worth it for self-employed workers?

Imagine you had to take months or years off work. Would you still be able to afford your mortgage or rent, utilities, car, groceries, school fees, and any of the other expenses you’ve accumulated? Most people would say “no.” If you’re in the same boat, disability insurance could be a useful part of your financial wellness plan.

Can any self-employed worker get disability insurance?

Ultimately, you’ll need to speak with an advisor or broker and answer some pre-qualifying questions about your type of work and how long you’ve been self-employed. There are individual disability insurance policies available to suit various needs, and an advisor can get into specifics.

How much does disability insurance cost for self-employed workers?

Every plan is different. That means the cost of disability insurance for self-employed people will also vary. Your monthly premium will depend on a few factors, including:

  • Your profession

  • The type of coverage you want (there are many options, from what types of injury and illness are covered to how long you would be able to claim benefits)

  • How much income you need replaced if you become sick or injured and can’t work.

To figure out the amount of income you’d need covered, you’ll need to have a close look at your current monthly expenses.

Chat through the details with an advisor or broker to find out the best plan and the amount of coverage to best suit your occupation and your lifestyle.

*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

Home > Discover & Share > Page 5

Should I Buy Life Insurance in My 20s or 30s?

7 Min Read
RBC Insurance
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For many, it’s a time to double down on values and build a strong foundation for the future, but there are many reasons to consider life insurance right now as part of that plan.

Life insurance can be an important part of short and long-term financial planning. Starting early can help you find financial security and protect all that you’re building and working towards now, with other benefits, like more affordable monthly rates and investment growth.

Key takeaways

  • Life insurance is a great way to protect your family’s financial future even when you’re young, by ensuring they can financially support themselves if you’re gone.
  • It may be more affordable to buy life insurance in your 20s and 30s, when you’re likely younger and healthier.
  • Short-term financial benefits can include affordability and coverage without a medical exam, for peace of mind as life changes and your family grows.
  • Long-term financial benefits can include better eligibility (coverage even if you wait until later in life and develop health issues) and ways to grow wealth through investment opportunities.

Why should people in their 20s get life insurance?

Younger people might consider life insurance for the following reasons:

Lower premiums

Life insurance premiums, the monthly or annual fees you pay now to keep your coverage active, are often lower for younger people. It can be much more affordable to have purchased life insurance when you’re younger, than when you are in your 40s or older.

Easier to get approved

There are many factors that affect life insurance premiums but your age and your health are arguably two top factors, so why not lock in low premiums now? When you buy a term policy the rate is set and you pay the same premium for the duration of your policy term.

You plan to own a home

Carrying a mortgage can feel daunting when you’re starting a family and money is tight. Life insurance includes benefits that could help your family cover mortgage costs and afford to stay in your home if something happens to you. Plans that offer investment opportunities can also add equity to your estate and give you more options for getting loans or paying down debts later.

You are getting married or starting a family

Protecting your family goes beyond baby-proofing the house. Life insurance is a way to safeguard your new family’s financial stability, now and in the future, so you can all sleep better at night.

How does life insurance in your 20s and 30s protect your loved ones?

Immediate benefits: You’ll have peace of mind knowing that if something happens to you now, any expenses related to your death will be taken care of. Your loved ones will receive a death benefit, a lump sum of tax-free or tax-deferred money when you pass away. Death benefits can help cover funeral costs and expenses and cover your debts. For example, public student loan debts are forgiven when you die, but private loan debts may still need to be paid off.

Long-term benefits: Signing up for a life insurance plan early means costs will be more affordable over the years. This can help during a time of life when daily expenses can be high, like when you’re paying for daycare costs or rent. Even if you don’t have a family but plan on starting one someday, you can rest easier knowing you’ve planned for their financial stability.

Permanent life insurance plans can have additional long-term benefits. They can help grow your wealth over the years, with a portion of your premiums invested. It can also help with estate planning by covering some of the government taxes and fees that arise when you pass away, and your assets are transferred to loved ones.

What life insurance options are available to younger people

Depending on your goals and life plans, life insurance companies have different options to meet your budget and life stage.

Types of life Insurance

Term life insurance: Term life insurance plans are more affordable plans over a set amount of time (called a term), usually between 10 and 40 years. Coverage expires when your term is up but can be converted to permanent plans later. Term insurance is a popular choice for people at a younger age who may want a lower monthly cost now, as they’re paying off debts or planning other life purchases.

Permanent life insurance: Permanent coverage costs more upfront but covers you for life. Different types of permanent life insurance plans are available including Whole Life, Universal, and T100. Some permanent plans offer investment opportunities to grow wealth as you protect your family.

  • Whole life insurance: Provides lifetime coverage, with monthly fees that won’t change over time. You will still be insured for life, even when your payments end. This can be an option for people who take a “set it and forget it” approach to their finances and investments.
  • Universal life insurance: A more flexible permanent plan that allows you to update your premiums and benefits over time as life changes. This can be an option for people who want to be able to shift plans and enjoy being hands-on with investments.
  • T100 life insurance: A straightforward permanent plan where you pay a fixed amount each month or year for life and no longer need to pay a monthly premium when you reach 100.

Questions to ask when considering what life insurance is best for you:

Do I need life insurance if I don’t have kids?

Life insurance can be an important part of your financial plan, even if you don’t have kids. It can cover expensive funeral costs, debts like private student debts and bank loans, and relieve the financial pressure on other family members or friends. If you do have kids in the future, you can list them as beneficiaries on your plan at any time.

What if my goals change over the next 20-40 years?

You can update your beneficiaries at any time throughout your life, so if you have a new partner or more children, you can ensure everyone is protected.

Can I change my life insurance plan over the years?

Permanent life insurance plans can be adapted over the years. You can pay your set premium or decide to pay more into your plan to increase its value or end its term early.

Will the amount I pay monthly change over the years?

Both term and permanent plans have set monthly payments that won’t change over your lifetime. However, some permanent plans have the option of changing the amount you pay and your coverage.

What is the best age to buy life insurance?

There is no best age to buy life insurance, but purchasing a policy in your 20s and 30s has many benefits, like more affordable costs. It’s usually more affordable to purchase a plan when you’re young and healthy rather than waiting until later when you may have developed health issues.

How to decide what options are right for you?

Getting a policy earlier in life may help you save money, plan for your family and invest in your future. A licensed insurance advisor can help you ask the right questions and develop a personalized plan that will ensure you make the right choice for you and your family.

*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.