Learn about different types of life insurance
Life insurance offers financial safety for your loved ones in case of an unexpected death. These benefits can help meet all the needs of your family, including:
- Mortgages, credit card debt, unpaid bills
- Child care expenses
- Education for your children
- Living expenses for your family
- Large tax liabilities
- Legacy fund for your children
- And much more
Keep providing for your family, even when you are no longer there for them.
There are two types of Life Insurance: Temporary and Permanent Insurance.
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Term Life Insurance provides coverage for a certain period of time, such as 10 years, 15 years, or 20 years.
Why considering Term Life Insurance?
Term insurance may be an option when you want protection for a specific period and have a limited budget.
Term insurance could be purchased to provide coverage for 10-15-20 years, for example, until you’ve paid off your mortgage or/and your children become independent.
Term Insurance has an expiration date.
Learn the Top Reasons Why Life Insurance is considered to be one of the best types of coverage for your mortgage in our recent blog post.
What are the pros and cons of Term Insurance?
- In the early years, the Term Insurance price will be much lower than the price of Permanent Insurance.
- Each term you renew the insurance, the amount will increase (every 10 or 20 years).
- The premium for Term Insurance increases with age and can be very expensive after the age of 60-65.
- One of the policy options is to convert Term Insurance to Permanent Insurance without any medical evidence.
Key benefits of Term Life Insurance
- Budget friendly for short term needs
- Death benefit guaranteed for your term (if you keep paying your premium for your term)
- Protection for certain period of time
An insurance type with cash value that offers lifetime coverage
Regardless of when death happens, the beneficiary(ies) will receive the guaranteed death benefit.
Compared to Term Insurance which provides coverage for a certain period, Whole Life Insurance coverage has no end date.
The payments of LEVEL premium will not change with time.
The primary future element of this policy is the savings component, which can be invested for tax-free growth and used for different needs.
Whole Life Insurance would use a lower-risk investment strategy, and a policyholder will not get a negative return as insurance would cover a risk.
There are two types of Whole Life Insurance: Participating Whole Life Insurance and Non-Participating Whole Life Insurance.
The insured can receive dividends for participating in a Whole Life Insurance policy.
There are many different ways to use these dividends as well.
How can you use the savings component – Cash Surrender Value?
- Partially withdraw Cash from Cash Surrender Value
- Borrow against Cash Surrender Value from the insurance company
- Use Cash Surrender Value as a collateral for leveraging money from a financial institution - this strategy can be used as an additional source of retirement income, which is non-taxable
- Keep building Cash Surrender Value, as some policies allow you to make additional premium payments
Speed up your payment
Another option Whole Life has for premiums: pay for life, Pay 10, Pay 20 (the period can be different depending on your insurance provider) or pay until a certain age.
For example, if you want to have coverage for life but do not want to pay after 65, you can choose to pay off premiums early.
Whole Life has insurance Cash Surrender Value, and you can choose a premium offset option where you can stop paying out-of-pocket, and your dividends will cover the rest of your ongoing premiums.
Key benefits of Whole Life Insurance
- Protection, saving and investment in the same product
- Cash Surrender Value can be used for different needs
- Receive the dividends (they are never guaranteed but most of the insurance companies are well manage investment and often pay dividends)
- Tax deferral on your investment (if you keep your dividends inside the policy)
- Death benefits are guaranteed for life (if you keep paying your premium)
The most flexible type of Permanent Life Insurance with investment and savings components
The policy holder has to keep a minimum payment of premiums to hold the coverage.
This type of insurance uses a higher risk of investment than Whole Life Insurance.
For an investment return, premiums need to be higher than the minimum.
Similar to Whole Life, Universal Life has cash value, which can also be used for different purposes.
For example, you can take a vacation from paying the premium and use the cash value to cover that. In this case, if you did not pay your premium for several months and have enough cash value, your policy will still be in force.
Additionally, one of the advantages of this type of insurance is that you can use the Universal Life policy to shelter investment income if you reach your maximum RRSP contributions.
Key benefits of Universal Life Insurance
- Flexibility, complex insurance needs, premium flexibility, mortality costing option
- Tax deferral for investment income
- Protection and investment in the same product
- Cash Value
- Can increase/decrease the death benefit or/and add investment, or add cumulative premium or index to inflation
- Can add more people to the policy or change lives insured by the policy (to add a person to the policy, they need to qualify, it may impact the insurance cost)
Term 100 provides lifetime protection
This type of insurance is easy to understand and requires no investments. The insurance offers no cash value, but is guaranteed to pay out death benefits if the life insurance owner passes away.
Term 100 is a life insurance policy that offers coverage for life and the premium will not change during the time. Term 10 only provides coverage for 10 years and the premium will increase as you age.
Term 100 has two options for premium is the same as Whole Life: pay for life or speed up your payment – Pay 20 (or Pay 10, the period can be different depending on your insurance provider) or pay until a certain age.
For example, if you want to have coverage for life but you do not want to pay after age 65, you can choose to pay all premiums early.
Key Benefits of Term 100 Insurance
- Guaranteed death benefits (if you keep paying your premium)
- Easy to understand, your coverage will be in place until the moment you stop paying for the policy