What is life insurance banner image

Know your Financial Lingo- What is Life Insurance?

Life insurance is a contract between an insurance company and a policy owner, also called the insured. A primary purpose of life insurance is to provide a financial benefit to your dependents if you happen to die.

A life insurance policy guarantees a sum of money gets paid to your dependant, which is called your beneficiary, in exchange for the premiums you paid. Premiums could be a single upfront payment or a series of regular monthly payments.

When the insured person dies, the beneficiary will receive the policy’s face value or a death benefit payment.

Comic, person one "I finally found affordable life insurance, when I die, they'll send you a lottery ticket"

There are two main types of Life Insurance:

Term Life Insurance

This type of insurance lasts a set number of years, then it ends or pays out. For example, a policy owners' insurance coverage might run for ten years, after which it ends and they receive the policy face value.

Permanent life insurance

As the name implies, permanent life insurance stays in force for the insured’s entire life unless the policyholder stops paying the premiums or surrenders the policy. This class of insurance is typically more expensive than Term life insurance.  Whole life and Universal life are two common types of insurance that fall under this category also. 

If a breadwinner dies or dies early, many families can experience extreme financial hardship, so life insurance provides financial security against this risk. A life insurance policy is only as good as the financial strength of the company that issues it so it’s important to choose your provider wisely. 

WealthyPlanet's "Wealthopedia"  series demystifies financial terms and financial industry lingo. 


WealthyPlanet gives everyday Canadians confidence about their financial future through a powerful and free online financial planning platform, cost-effective products, and money coach advice.  Sign up to get first access and a complimentary financial plan assessment.