Here are brief descriptions of the main types of life and health insurance available on the Canadian market.
Term life insurance
Term 100 life insurance
Non-participating whole life insurance
Participating whole life insurance
Universal life insurance
Disability insurance
Critical illness insurance
Annuities
Term life insurance
Term life insurance is useful for situations where a person has an insurance need that will end within a foreseeable period of time, or if the financial resources are insufficient to provide protection for the entire life.
As the name suggests, this type of policy offers time-limited protection, with a termination date. If the insured dies before this date, the death benefit is payable, but if he/she dies after this date when the coverage is terminated, no benefit is payable. The period of coverage in question can be 10 years, 20 years, 30 years or end at a certain age like 65 or 75 years old.
A uniform premium will be payable within the chosen period in order to cover the risk of death during this same period. Depending on the features provided for in the contract and the options chosen, the premium level will vary. Obviously, the shorter the renewal period, the lower the premium will be (the premium for a T10 is lower than that of a T20).
Most term contracts offer a right to renewal at maturity and a right to convert to permanent life insurance.
Term 100 life insurance
Although referred to as “term”, a policy of this type has relatively little in common with typical term insurance (T10, T20, etc.).
In fact, it is more of a permanent life insurance that is more akin to non-participating whole life insurance. It has all the characteristics of such a policy: premium payable for life and level death benefit. Unlike non-participating whole life, however, the T100 offers no cash surrender value or very rarely.
Non-participating whole life insurance
Whole life insurance is a type of permanent life insurance that provides three basic elements to the policyholder: a guaranteed base premium, a death benefit, and cash surrender value. There are two main types of whole life insurance: “non-participating” and “participating”.
The simplest form of whole life insurance is the non-participating policy. The amounts provided for in the contract, namely the premium, the death benefit and the surrender value, are established with certainty at the beginning of the contract and will not vary during the course of the contract.
The non-participating whole life premium contains a savings portion to establish a cash surrender value. The premium is therefore necessarily higher than that of a T100 policy.
Participating whole life insurance
Some life insurance policies provide a benefit to the policyholder on a periodic basis. This advantage is drawn from the profits generated by the policy. In fact, policies of this type are generally grouped into a "pool" within which cash inflows and outflows take place. When the results are better than the conservative assumptions on which the premiums are based, the policies are profitable and the law requires a minimum reimbursement of 90% of these profits to the policyholder, which depends on the size of the insurance carrier (for large insurance carriers, this percentage can reach 97%). The distribution of these profits among the policyholders is determined on a discretionary basis by each insurer. This right to a share of the profits is called “dividend”.
This type of policy is used to cover a permanent need, particularly in the context of the goal of maximizing the estate value.
Universal life insurance
The purpose of a universal life (UL) policy is to provide the owner with great flexibility with respect to the death benefit, premium payments, investments and many other aspects. The purpose of a UL is also to allow the accumulation of investments whose income is not taxable annually and can be paid to the beneficiaries without tax consequences at the time of death. Most components of a universal life insurance policy can be observed and, to some extent, controlled.
This type of policy is also used to cover a permanent need in the context of the goal of maximizing the estate value.
Disability insurance
The purpose of loss of income disability insurance is to compensate for the loss of income of the insured in the event of his incapacity following an accident or illness. It is often called salary insurance. This type of insurance can also cover a worker's bonuses, commissions, business income and professional income.
There are also other products that cover the financial impacts resulting from the individual's disability, such as overhead expense insurance, key person insurance and buy-sell insurance within the framework of a shareholders’ agreement.
Critical illness insurance
Critical illness insurance (CII), introduced in the 1990s, provides for the payment of a lump sum after the waiting period prescribed by the contract, upon diagnosis of one of the insured illnesses.
CII should not replace disability insurance, but rather complement it. In fact, CII only covers certain illnesses, while disability insurance covers accidents and several illnesses.
A critical illness can possibly lead to additional costs not covered by public plans or by supplementary health insurance.
In general, the benefit is payable if the person survives 30 days after diagnosis of the covered illness. If the insured dies before the 31st day, no benefit is paid.
This benefit is tax-free and can be used to cover any financial eventuality and prevent the persons affected, or their family, from having to make major drains on their accumulated wealth, their retirement fund or to liquidate assets.
Annuities
In return for a certain capital paid to a life insurance carrier, a person will receive, at a frequency fixed in advance, regular benefits consisting of capital repayment and interest income.
There are two main types of annuities: life annuities and non-life or certain annuities. In the case of a life annuity, the duration of the payments is established in relation to the life of one or more people. This duration is therefore not known in advance, whereas in the case of a certain annuity, it is determined at the time of subscription.
