Life insurance is to help protect the ones we leave behind but how does one satisfy insurance needs over their life. Some insurance needs have a set expiry date and some insurance needs are in place for life.
Term Insurance - term life insurance is affordable coverage for your big expenses, so your loved ones are protected when it matters most. It is temporary coverage that can be used to pay bills, the mortgage, fund education, or even to keep a business going.
Permanent Insurance - It’s guaranteed lifelong coverage that protects the people you care about. But it’s more than just insurance. Over time your policy can build value you can access for cash during your life, with certain tax implications. Types of permanent insurance are:
- Universal Life Insurance
- Participating Life Insurance
Speak to an advisor to make a plan that works for you!
Term Insurance
Term life insurance is well suited to meeting high, short-term protection needs for a low initial cost. For example, a couple with young children and a mortgage might select term life insurance as an affordable way to obtain the full protection they need today. Many term life insurance policies are renewable after five, 10 or 20 years with no need for proof of health. At renewal, the price will increase as appropriate for your age. These increases in premium can become substantial in later years. Coverage usually ends at age of 75 or 85. Many term life insurance policies also provide the option to convert to permanent life insurance, with no proof of health. However, this convertibility often expires around age 65 or 70. Be sure you understand the available conversion options. Some companies impose significant restrictions or have a limited choice of permanent life insurance policies to which you can convert.
The overall cost of term life insurance reflects:
- Initial premium
- Renewal rate and whether evidence of insurability is required
- How long you’ll need the protection
- How much flexibility you want to meet your changing needs in the future
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Permanent Insurance
As the name suggests, permanent life insurance can protect you and your family throughout your lifetime. It provides a death benefit and usually builds a cash value. The cash value accumulates in the policy on a tax-advantaged basis. If you need to, you can withdraw cash or borrow against its value. Withdrawals may be subject to tax. Be sure to review the product guide provided by the life insurance company. It should clearly show:
- How the life insurance works
- How cash value can accumulate in the policy
- The company’s track record for providing value to policyowners
Universal life insurance
Universal life insurance combines permanent life insurance with a tax-advantaged investment component. You can select an investment mix that’s as individual as you are, taking into account the amount of investment risk you’re comfortable with and your financial goals and circumstances. As your cash value accumulates, you can use it to pay the cost of insurance or, depending on the option you select, to increase the total death benefit. This type of life insurance is particularly suited to people who want to actively manage the investment component of their life insurance policy.
Participating life insurance
Participating life insurance gives you a foundation of guaranteed values and tax-advantaged growth, plus the opportunity to receive policyowner dividends. Participating policyowners’ premiums go into a special account called the participating account. The life insurance company manages this account, investing in a diversified portfolio of bonds, mortgages, equities and real estate. This frees you from the details of hands-on management. Earnings come from favourable investment returns, mortality experience and expense management. The life insurance company may then distribute some of these earnings to you in the form of policyowner dividends. You can decide how you want to use your dividends. Some popular options are:
- Use your dividends to buy more permanent life insurance. This can help offset inflation and provide higher long-term growth in your cash value and death benefit.
- Use your dividends to buy a combination of term and permanent life insurance. This can help you buy more coverage today at an affordable price.
