Life insurance is a contract between an individual and an insurance company that provides a death benefit to the beneficiaries in case of the policyholder’s death. Life insurance can be a useful tool for Canadians in ensuring the financial security of their loved ones. But the question arises, do Canadians need life insurance in retirement?
In Canada, the history of life insurance dates back to the 19th century, when the first life insurance company was established. Since then, life insurance has become an integral part of Canadian households and is widely used to provide financial protection to families.
Retirement is a time when individuals stop working and start enjoying the fruits of their labor. However, this is also a time when they need to consider their financial security and that of their loved ones. A life insurance policy can provide a death benefit to the beneficiaries, which can be used to pay off debts, cover funeral expenses, and provide a source of income to the family. Additionally, life insurance can also help retirees in leaving a legacy for their loved ones.
There are two main types of life insurance policies: term life insurance and permanent life insurance.
Term Life Insurance
Term life insurance is a type of life insurance that provides coverage for a specified period, such as 10, 20, or 30 years. If the policyholder dies during the term of the policy, the death benefit is paid to the beneficiaries. Term life insurance is the simplest and most affordable type of life insurance, and it is ideal for individuals who have a temporary need for life insurance.
Permanent Life Insurance
Permanent life insurance, on the other hand, provides coverage for the entire lifetime of the policyholder. This type of life insurance is more expensive than term life insurance but offers several additional benefits, such as the accumulation of cash value. The two main types of permanent life insurance are whole life insurance and universal life insurance.
Cost of Life Insurance in Retirement
The cost of life insurance in retirement depends on various factors, such as age, health, and the type of policy. For example, a 60-year-old retiree in good health can expect to pay around $50 to $100 per month for a term life insurance policy with a coverage of $500,000. On the other hand, a permanent life insurance policy with the same coverage could cost several times more.
- Retirees can use the death benefit from their life insurance policy to pay off debt and ensure that their beneficiaries are not burdened with debt after their death. (Source: National Association of Insurance Commissioners)
- Life insurance can also be used as a source of income during retirement, especially if the policy has a cash value component. (Source: American Council of Life Insurers)
- Some life insurance policies allow policyholders to access the death benefit while they are still alive, making it a flexible financial tool in retirement. (Source: National Association of Insurance Commissioners)
Here are some examples of how life insurance can be used in retirement:
- A retiree with a term life insurance policy can use the death benefit to pay off their mortgage and ensure that their beneficiaries are not burdened with debt after their death.
- A retiree with a permanent life insurance policy can use the cash value component of the policy as a source of income during their retirement years.
- A retiree with a whole life insurance policy can access the death benefit while they are still alive to pay for unexpected medical expenses or other emergencies.
Like any financial tool, life insurance in retirement has its pros and cons. Let’s take a look at some of them:
Pros of Life Insurance in Retirement
- Provides financial security to beneficiaries: The death benefit from a life insurance policy can provide a source of income and financial security to the beneficiaries after the policyholder’s death.
- Offers tax benefits: Life insurance death benefits are generally tax-free, providing an added financial benefit to the beneficiaries.
- Can be used as a source of income: Some life insurance policies, such as whole life insurance, can provide a source of income during retirement.
- Leaves a legacy: Life insurance can help retirees in leaving a legacy for their loved ones.
Cons of Life Insurance in Retirement
- Cost: Life insurance in retirement can be more expensive than life insurance during working years.
- Decreasing coverage: The coverage of a term life insurance policy decreases over time, making it less effective in providing financial protection as the policyholder ages.
- Limited use: The death benefit from a life insurance policy can only be used in the event of the policyholder’s death, making it a limited financial tool.
Life insurance is likely to evolve as new technologies and innovations emerge. For example, the use of blockchain technology and digital assets in life insurance is expected to increase in the future, making it easier and more convenient for individuals to manage their life insurance policies. Additionally, new products and services are likely to be introduced to better meet the needs of retirees in ensuring their financial security.