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April 22, 2015

Understanding life insurance: Its benefits and how it works

1 min read


If you’re thinking about investing in life insurance, you’re making a smart choice. Life insurance is a wise investment and one that you’ll be thankful for when it matters most. Things happen and unfortunately they happen to good people all the time.

Being prepared

By imagining that the unthinkable can in fact happen, such as a tragic, sudden loss of life, or a natural death that occurs at old age or earlier than expected, we can better plan for the financial security of our loved ones left behind. Life insurance is particularly important for anyone with a dependent spouse, children, or other dependent family members.

Permanent life insurance vs. Term life insurance

Before getting started, you should understand the differences between term life insurance and permanent life insurance, as well as some of the pros and cons of each.

Duration of coverage

When you invest in a term life insurance policy, you lock into a fixed premium rate for a set period of time. For example, this time period could be anywhere from 10 years to 20 years, etc. If you pass away during the specified time period, the death benefit monies will then be transferred to the beneficiaries named by you in your policy. Once the time period has been reached, if you’re still on this earth, the term and the policy will expire.

Cost of coverage

Permanent life insurance is more costly but it was designed to remain in effect until your passing whenever that may occur. Like all of us, you are guaranteed to eventually leave this earth, which means the insurance company is guaranteed to pay out a death benefit to your named beneficiaries. However, while the term policy is more affordable and available for anyone, it is recommended in particular for young people with a need for protection from a crisis such as loss of earnings.

Investment vs. expense

While it is true that permanent life insurance has higher rates, it has a benefit that will not be found with term life insurance. With permanent life insurance, the policy builds cash value while a term policy will never build value by the end of its term and will simply expire.

Potential source of funds

Borrowing from your permanent life insurance policy is at times possible for policyholders tax-free for things such as education or retirement.

So while premiums for permanent life insurance are higher there are good reasons for this:

  • it is a policy that you’ll have for life,
  • it builds cash value, and
  • you can borrow from it when needed.

Permanent life insurance policies are recommended for any consumer concerned with asset protection and federal estate tax payments, as creditors cannot touch these types of policies. Additionally, there are several types of permanent insurance policies available such as: variable life, whole life, universal life, variable-universal life, and index-universal life.

The best life insurance for you

To learn more and find out which type of life insurance policy would meet all of your needs, both now and in the future, feel free to speak with an insurance expert at Mitch. Contact us at 1-800-731-2228 or email us at

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Mitch Team

The articles you'll find on the Mitch blog are all the result of a team effort, contributed to by one or more of our RIBO licensed insurance brokers and/or other Ontario insurance experts. Contributors to our blog include:

  • Adam Mitchell (RIBO) - President and CEO of Mitch Insurance Brokers
  • Nick Kidd (RIBO) - Chief innovation officer at Mitch, & director of business insurance
  • Alex Gemmiti (BSc, CIP, RIBO) - Service team lead at Mitch Insurance
  • Jesica Ryzynski (RIBO) - Insurance broker, claims specialist, and account manager at Mitch Insurance

Learn more about the Mitch Team

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