“Buy term and invest the difference” is a strategy that suggests you purchase a term life insurance policy—which is typically much less expensive than whole life insurance—and then invest the money you save on premiums separately, often in an RRSP or other investment account.
Here’s how it works:
- With whole life insurance, you pay higher premiums, part of which goes toward building up a cash value within the policy.
- With term life insurance, you pay lower premiums for a set period (like 10 or 20 years), and there’s no cash value component.
- The “difference” refers to the money you save by choosing term over whole life. The idea is to invest that difference yourself, potentially growing your savings more efficiently than the cash value in a whole life policy.
For example, if a 45-year-old male nonsmoker buys $500,000 in coverage:
- Term insurance might cost $779/year.
- Whole life insurance might cost $5,800/year.
- If you buy term, you could invest the $5,021/year you save. Over 20 years, assuming a 6% return in an RRSP, you could end up with significantly more savings than the cash value from a whole life policy.
Who should you listen to?
This strategy is generally best for people who:
- Need coverage for a defined period (like until the mortgage is paid off or kids are grown).
- Have RRSP or TFSA room to invest the difference.
- Prefer flexibility and control over their investments.
However, there are situations where whole life or universal life might make sense, such as if you’ve already maximized your registered accounts, need lifelong coverage, or value the guaranteed cash value and death benefit.
It’s important to understand your own needs and financial goals. The “buy term and invest the difference” approach is usually more cost-effective for most people, but not always. If you want a personalized recommendation, I’d be happy to discuss your specific situation and help you weigh the options.
That’s a thoughtful question, and it’s one that comes up often as people approach retirement age. After age 65, your need for life insurance typically changes. You may no longer have young children or a large mortgage, so you likely don’t need as much coverage as you did when you were younger. However, there are still important reasons why life insurance can be valuable after 65:
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Final Expenses: Many people want to ensure their funeral and final expenses are covered so their loved ones aren’t left with a financial burden. A smaller permanent policy can provide peace of mind that these costs will be taken care of.
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Pension Protection: If you or your spouse rely on a pension, there may be a reduction in benefits when one of you passes away. Life insurance can help make up for that loss of income and provide financial stability for the surviving spouse.
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Outstanding Debts: Even after retirement, you might have a small remaining mortgage or other debts. Life insurance can help pay these off so they don’t become a burden for your family.
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Leaving a Legacy: Some people want to leave a small inheritance or financial gift to their loved ones or a charity.
At this stage, the focus is usually on permanent life insurance, such as whole life or term to 100, because these policies provide lifelong coverage with level premiums that won’t increase as you age. This makes them predictable and sustainable, especially since term insurance options become limited and more expensive after age 75.
In summary, while your need for a large policy may decrease after 65, life insurance can still play an important role in covering final expenses, protecting your spouse, and leaving a legacy.
If your salary goes up, it’s a good idea to review your life insurance coverage. The main purpose of life insurance is to replace your income for your family if something happens to you. As your income increases, your family’s standard of living and financial needs may also rise, so you may want to consider increasing your coverage to match your new salary.
You don’t have to buy more insurance immediately, but keep in mind that if you wait and buy additional coverage later, it will cost more because you’ll be older. Some people choose to buy a bit more coverage now to lock in lower premiums, especially if they expect their income to rise significantly in the next few years.
When calculating how much coverage you need, you can subtract any employer-provided life insurance from your total need. For example, if you have $300,000 in coverage at work and your total need is $1,000,000, you’d only need to purchase an additional $700,000 individually.
In summary, as your salary increases, it’s wise to reassess your life insurance needs to ensure your family would have enough financial support if you weren’t there to provide for them.
If your assets increase and you feel you no longer need as much life insurance as you currently have, there are a few ways you can manage your coverage:
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Reduce Your Coverage Amount: Some life insurance policies allow you to decrease the death benefit. This means you would have a lower amount of coverage, and your premiums could be reduced as well. You would need to request this change with your insurance provider.
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Cancel a Portion or All of Your Policy: If you have multiple policies or riders, you may be able to cancel some of them while keeping the rest. If you no longer need any coverage, you can cancel your policy entirely. For permanent policies with cash value, you may receive a portion of the accumulated value if you surrender the policy.
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Adjust How You Use the Policy: With permanent life insurance, you can sometimes use the cash value you’ve built up to supplement your retirement income or cover unexpected expenses, rather than focusing solely on the death benefit.
It’s important to review your options carefully, as reducing or cancelling coverage is often permanent. If you’d like, I can help you review your current policy and discuss the best way to adjust your coverage to fit your new financial situation.
Yesterday got an error, no context. Today, the question went through:
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Type of Policy: Term life insurance generally has lower premiums compared to whole life insurance, which includes a savings component and never expires.
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Age: The younger you are when you purchase a policy, the lower your premiums are likely to be. As you get older, premiums increase significantly.
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Health Status: Your overall health, including whether you smoke, impacts your premiums. Healthier individuals typically pay less.
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Coverage Amount (Death Benefit): The higher the death benefit you choose, the higher your premiums will be.
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Length of Coverage: For term life insurance, the number of years you want coverage for will affect the cost. Longer terms usually mean higher premiums.
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Cost Structure: Some policies offer an increasing cost of insurance, where premiums start lower and rise each year, while others offer a level cost, where premiums remain the same throughout the policy.
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Risk Category: Your risk category, determined by factors like age, health, and lifestyle, also plays a role in setting your premiums.
These factors are considered together to determine the final cost of your life insurance policy.
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Great questions folks, thanks.
Looking at the answers, I’m pretty happy with the results. The answers IMO are comprehensive and correct for the majority of them, with a rare answer being correct but maybe not as comprehensive or specific as I’d like.
I haven’t seen anything that’s incorrect come out of there yet, though I haven’t done much in the way of adverserial testing.
Also, one of the cool things about LLM’s is that they automatically speak different languages. I just ran a hindi query through our chatbot and it answered in hindi. I think.
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My wife is a homemaker, should we also buy life insurance for her? And how much coverage would be appropriate?
Why should I buy life insurance for my kids?
Why doesn’t everyone agree term life is best?
What are the different types of life insurance I could buy and how do they differ?
Which company offers the best life insurance policy?
Am I covered by life insurance if I die in a different country?
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How can I tell if a life insurance company is a good one?
Also, remember, if you’re not paying anything for a service, then you are the product.
Thanks for helping me build my set of test cases lol.
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Yes, it’s a good idea to consider life insurance for your wife, even though she is a homemaker. While she may not have an outside income, her contributions to your household—such as childcare, household management, and other unpaid work—have significant value. If something were to happen to her, you would likely need to pay for services to replace what she does for your family.
When determining the appropriate amount of coverage, there are a couple of approaches:
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Replacement Cost Approach: Estimate the annual cost to replace the services she provides (like childcare and household duties). For example, if you estimate these costs at $20,000–$25,000 per year, multiplying that by 10–15 years suggests a coverage range of $250,000–$500,000.
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Matching Coverage Approach: Some families choose to have the same amount of coverage for both spouses, regardless of income. This can be based on the amount of coverage you have for yourself, especially if you feel both parents’ roles are equally vital to your family’s well-being.
Ultimately, there’s no single “correct” answer, but many families select coverage between $250,000 and $500,000 for a stay-at-home spouse. You can also consider your specific needs, such as covering your mortgage or providing a financial cushion, to help decide on the right amount.
There are several reasons to consider buying life insurance for your children:
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Guaranteeing Future Insurability: Purchasing a life insurance policy for your children when they’re young guarantees that they will always have coverage, even if they develop health issues later in life that might otherwise make them uninsurable. Once the policy is in force, it can’t be terminated by the insurance company, no matter what happens to your child’s health in the future.
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Insuring Your Income: While children don’t have an income to replace, life insurance on a child can help protect your own income. If the unthinkable were to happen, many parents need to take extended time off work to grieve. Life insurance can provide financial support during this difficult period, allowing you to take the time you need without worrying about immediate financial pressures.
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Locking in Premiums for Life: By purchasing a policy when your child is young, you can lock in lower premiums for their entire life. This means they’ll have affordable coverage as adults, regardless of any changes in their health.
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As a Financial Gift and Lesson: Life insurance can also be a meaningful financial gift. It’s a way to show your children you care about their future and to teach them about financial responsibility. When they’re older, you can transfer the policy to them, giving them a valuable asset.
Ultimately, life insurance for children is about providing long-term security, protecting your family’s financial stability, and offering a thoughtful gift for your child’s future.
Not everyone agrees that term life insurance is the best because different people have different needs, priorities, and opinions about what matters most in a life insurance policy. While term life insurance is often the most affordable option and provides coverage for a set period, some people may prefer other types of life insurance for reasons such as:
- Permanent Coverage: Some people want lifelong coverage, which term life does not provide. Once the term ends, the policy expires unless it’s renewed, often at a much higher cost.
- Cash Value: Permanent life insurance policies, like whole life or universal life, build cash value over time, which some people find appealing as a savings or investment component.
- Personal Preferences: Some may value features or benefits that are only available in permanent policies, or they may have unique financial goals that align better with other types of insurance.
- Lack of Understanding: Not everyone is aware of the key benefits of term life insurance, such as renewability and convertibility, or how to compare policies effectively.
Ultimately, the “best” type of life insurance depends on your individual situation, goals, and what you value most in a policy. That’s why it’s important to compare not just premiums, but also policy features and benefits, to find the right fit for your needs.
There are several types of life insurance you can buy, and the main difference between them is how the premiums are structured over time—not the death benefit itself. No matter which type you choose, if you purchase a $500,000 policy and pass away, your beneficiary receives $500,000. The key differences are in how much you pay and for how long.
Here’s a breakdown of the main types:
1. Term Life Insurance
- Provides coverage for a specific period (such as 10, 20, or 30 years).
- Typically has the lowest initial premiums.
- Premiums usually increase if you renew after the initial term.
- Coverage ends when the term expires, unless you renew or convert the policy.
2. Permanent Life Insurance
This is an umbrella term for policies that last your entire life, as long as you pay the premiums. There are a few main types:
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Whole Life Insurance
- Premiums are higher than term, but remain level (don’t increase as you age).
- Coverage lasts for your lifetime.
- Builds cash value over time.
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Universal Life Insurance
- Also offers lifelong coverage.
- Premiums are generally higher than term and can be flexible.
- Builds cash value, and you may have some flexibility in how you pay premiums.
How They Differ:
- Term Life: Cheapest now, but gets more expensive if you renew as you get older. Good for temporary needs.
- Permanent Life (Whole/Universal): More expensive now, but premiums are level or flexible and can be more cost-effective over a long lifetime. Good for lifelong needs.
The best type for you depends on how much coverage you need, and for how long you need it. Once you know those two things, you can compare the cost structures and choose the policy that fits your needs and budget.
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I found the answer to this question interesting. I didn’t think it would name names.
There isn’t a single company that can be called the absolute “best” for everyone, because the best life insurance policy depends on your personal needs and preferences. All life insurance companies in Canada are highly regulated, financially stable, and required to meet strict standards, so you can expect your claim to be paid as long as you answer all application questions accurately and honestly.
However, some companies do stand out in certain areas:
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RBC Insurance offers unique options at the end of their term policies, making it easy to move into a new term. They also often don’t require a medical exam for people up to age 55 for up to $2 million in coverage, which can be very convenient.
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Foresters Financial provides additional family-related benefits, such as scholarships and community service opportunities, and holds one of the highest financial strength ratios in the industry.
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Wawanesa Life is known for excellent customer service, with knowledgeable and responsive support staff. Many customers have had outstanding experiences with their service team.
When choosing the best company for you, consider what matters most: price, policy features (like renewability and convertibility), customer service, and any extra benefits that fit your family’s needs. Most importantly, make sure the policy you choose is affordable for the length of time you need coverage.
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Yes, you are generally covered by your life insurance policy if you die in a different country, as long as you continue to pay your premiums from a Canadian bank account. Your coverage remains in force worldwide, provided your payments are up to date.
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To determine if a life insurance company is a good one, here are some key points to consider:
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Financial Stability: All life insurance companies in Canada are highly regulated and must meet strict financial requirements. The government regularly monitors them to ensure they have enough reserves to pay claims. There’s also an organization called Assuris that guarantees your policy (within certain limits) even if a company were to become insolvent. So, financial stability is generally not a concern with any Canadian life insurance company.
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Customer Service: Most companies offer reasonable customer service, but some stand out. For example, Wawanesa Life is known for having knowledgeable and responsive support staff, which can make your experience smoother.
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Claims Payment: All companies are required to pay claims as long as the policy is in force and all application questions were answered accurately and honestly. The only common reasons for a denied claim are suicide within the first two years of the policy or if there was missing or incorrect information on your application.
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Policy Features: Look at what each company offers in terms of policy options, flexibility, and any additional benefits that may be important to you or your family.
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Reputation and Experience: Most Canadian life insurance companies have been around for 100 years or more, so age is not usually a deciding factor. Instead, focus on the company’s reputation for service and reliability.
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Your Personal Needs: Some companies may be better suited for your specific situation, such as offering better rates for certain health conditions or more flexible policy options.
In summary, a good life insurance company is financially stable, provides reliable customer service, pays claims promptly, and offers policies that fit your needs. If you want a standout experience, you might consider companies known for exceptional service, but overall, you can expect a solid experience from any major Canadian life insurance provider.