What does life insurance cover?

Living life is more fun than thinking (or talking) about the end of it. Still, putting some time towards planning for when you’re no longer around can actually be a big part of living life with less stress – and helping the people you love do the same after you’re gone.

Having a life insurance policy means when you pass away, those who mean the most to you (such as, your chosen beneficiary or beneficiaries) will receive a financial payout to help them at what could be a very difficult time.

A life insurance payout will vary based on your policy and can cover costs like immediate funeral costs, as mortgage payments, education, and other costs when you’re no longer here to contribute. Some policies, including those offered by North Cover Life Insurance, also let you receive your full payout upfront if you’re diagnosed with a terminal illness, so you use it to delight in the things that bring you joy.

If that all sounds useful, you’re right. Life insurance can give you peace of mind now, plus financially help the people you care about most. Still, you probably have more questions. Read on – we’ve got you.

Life insurance in a nutshell

A life insurance policy is a contract between the insurer and the policy owner (that’s you).

The contract states that when the person insured dies, the insurer will pay out a sum of money to their beneficiary or beneficiaries. Those are the people you designate to get the money when you sign up for your policy (hint: they’re usually the people you want to be financially taken care of when you’re no longer around).

The amount you’re covered for will depend on your policy but it’s typically an amount that can provide a financial helping hand for several years, or to pay off major expenses, like a mortgage.

In return, you pay premiums – usually monthly. How much you’ll pay depends on your coverage amount and other factors, like your age.

In this case, Canadian residents outside of Quebec from 18 to 70 can apply for North Cover Life Insurance coverage from $100,000 to $1.5 million

Types of life insurance, explained

Now that you know what life insurance is, let’s talk about the different kinds. There are two main types of life insurance: term and lifetime.

Term life insurance lasts for a certain number of years before your coverage ends. For example, you can have term life insurance for 10 to 30 years. You may choose term life insurance if you only want coverage for a certain period, like while your kids are small or while you pay off your mortgage. After the term is up, you’ll need to get reassessed for a new policy.

Lifetime life insurance, meanwhile, is like what the name says: it’s active for your lifetime unless you choose to cancel the policy or stop paying the premiums. You’ll go through the process of getting a policy once and then you’ll stay covered until you pass away. North Cover Life Insurance is a type of lifetime life insurance policy.

Do I need life insurance?

Why get life insurance? “It's just such a simple way of protecting the people that you love,” says Stephanie Kotsopoulos, partner at Basis Wealth and Benefits in Toronto. “It's setting up something that's basic and doesn't have to be crazy costly but gives you that peace of mind that if something happens to you.”

Even if you’re planning to live a long, healthy life (which we hope you are), planning for the end is important. Yet, a recent poll from North Cover found that more than a third of Canadians don’t have any life insurance. That includes 23% who are parents to kids under 18 years old.

Stephanie says that upon your death, the people you love will already be grieving and under stress. The last thing they’ll need is financial worry.

Many people assume their estate will cover the cost of immediate expenses including funeral costs and bills, However, probate – which is the process where a will is proven and accepted as valid – takes time. And that’s if you have a will, which only half of Canadians do, according to our survey.

Meanwhile, costs can add up, which could be a difficult burden for your family to carry.

The benefits of life insurance

Easing the burden that future bills can bring to your family is where life insurance comes in handy. Your beneficiaries will receive their designated amount of the policy tax-free payout, giving them some stability and one less thing to think about.

They can use it to maintain their standard of living even though they’ve lost your income, use it to pay for school for your children, or even make a charitable donation. Really, it’s for whatever they need most.

Life insurance is important even if you have a will. You can leave the financial assets that are part of your estate, from your home to investments, to whoever you choose. However, the legal process for them to actually access any assets can take several months, or even years. Life insurance coverage is a good way to make sure they have money accessible shortly after you pass away.

You can also personally benefit from life insurance coverage, beyond ensuring your family will have financial support. North Cover Life Insurance, for example, offers a terminal illness benefit, that means that if you’re diagnosed with a terminal illness (meaning less than 12 months to live), we’ll give you your full payout right away.

So, when should you get life insurance?

Traditionally, the recommendation is to get life insurance when major life events happen – think marriage, kids, starting a business, or when you take on other assets or debts.

That’s all true, but Stephanie says the earlier, the better. “One of the biggest reasons [to get life insurance] is something called insurability,” she says. It’s often better to get life insurance younger as you’re generally healthier, considered lower risk, and may pay lower premiums.

Whatever your age, it’s always a good idea to stay prepared for the unexpected. Getting life insurance coverage that works for your needs is an important way to do that – and take some worry out of your day to day. Find out more about how life insurance works here.