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Life Insurance

Life insurance is a financial protection product that provides a tax-free lump-sum payment, known as a death benefit, to designated beneficiaries when the insured person dies. It is designed to replace income, pay debts, cover final expenses, or provide financial stability for dependents and loved ones. Life insurance helps ensure that family members can maintain their quality of life and meet ongoing financial obligations even after the loss of the primary earner.

There are two main types of life insurance: term life insurance, which provides coverage for a specific period such as 10, 20, or 30 years, and permanent life insurance, which provides lifelong protection and may include a savings or investment component (such as whole life or universal life). Premiums are based on factors such as age, health, lifestyle, and coverage amount.

Example:

If you purchase a $500,000 term life insurance policy with a 20-year term, your beneficiaries will receive the full $500,000 tax-free benefit if you pass away within that period. If you live beyond the term, coverage ends unless you renew or convert the policy.

What to Watch For:

Review your policy regularly to ensure it aligns with your current financial goals and family situation. Missing premium payments can cause the policy to lapse, ending coverage. For permanent policies, understand how the cash value and investment features work, including fees and potential tax implications. Always confirm your beneficiary designations are up to date.

Related Terms

Term Life Insurance

Term life insurance provides financial protection for a specific period of time, known as the term, such as 10, 20, or 30 years. If the insured person dies during that period, the insurer pays a tax-free lump-sum death benefit to the designated beneficiary. This type of insurance is designed to provide affordable coverage for temporary needs, such as replacing income, paying off a mortgage, or supporting dependents until financial independence is achieved.

Beneficiary

A beneficiary is the person or entity designated to receive the proceeds or benefits from an insurance policy upon the policyholder’s death or when a covered event occurs. In life insurance, the beneficiary receives the death benefit as a tax-free lump sum. In accidental death and dismemberment (AD&D) insurance, the beneficiary receives payment if the insured person dies as the result of an accident. Beneficiaries can also be designated in certain health or travel plans that include accidental death benefits.

Misstatement of Age

Misstatement of age occurs when the age of the insured person is recorded incorrectly on an insurance application or policy. Because age is a key factor in determining eligibility, premiums, and benefit amounts, any error - whether accidental or intentional - can affect the terms of coverage. The misstatement may be discovered during underwriting, at the time of a claim, or during a policy review.

Optional Benefit / Rider / Add-On

An optional benefit, also called a rider or add-on, is an additional feature that can be purchased to enhance your existing health, dental, life, or disability insurance plan. Optional benefits allow you to customize coverage by adding protection that suits your personal needs, rather than relying only on the base plan design.

Life Insured

The life insured is the individual whose life is covered under a life insurance policy. If the life insured passes away, the insurer pays the death benefit to the designated beneficiary or to the policyholder, depending on the policy structure. The life insured may or may not be the same person as the policyholder. For example, a spouse, parent, or business partner may own a policy that insures another person’s life.

Learn More About Life Insurance

What Insurance Do I Need and When?

What Insurance Do I Need and When?

Discover essential insurance types for every life stage in Canada. Learn the best times to secure health, travel, disability, critical illness, and life insurance to safeguard your financial future. Get expert guidance from Aeva, your trusted insurance brokerage partner.

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