For nearly everyone, life insurance protection is a key component of a comprehensive financial plan. A good life insurance program does more than just replace the loss of income when you die. It also provides money to cover costs such as:
- the cash to pay for funeral and last expenses
- the capital to create a trust for loved ones
- cash as an inheritance
- cash for children’s education
- a donation to charity
- cash to pay the tax liability on a RRIF upon the last death
- cash to pay the tax liability on investments
There are three main types of life insurance:
Term Life Insurance
Term life insurance is the most economical form of life insurance. It can be thought of as temporary insurance which you purchase for a specific period of time. It is generally obtained for 5, 10 or 20 year term periods. At the end of the term a renewable plan will renew without requiring further medical underwriting, but rates will typically increase substantially. A plan that is convertible will allow the owner to convert to permanent insurance at any time at market rates without undergoing further medical underwriting. We generally recommend that our term insurance clients buy renewable, convertible policies.
Whole Life Insurance
Participating whole life (par) policies provide permanent insurance coverage with level premiums and a tax-advantaged cash value accumulation in addition to the death benefit. The insurance company manages the investment portion in a diversified portfolio that is invested primarily in bonds, mortgages, equities and real estate.
Par policies are built on a foundation of guaranteed values based on long-term conservative assumptions for investment returns, mortality, expenses, and other relevant factors. Collectively, these assumptions form the guaranteed premiums, death benefits and guaranteed cash surrender values. If the actual results in the par account are more favourable than the assumptions supporting the guaranteed values, there will be a surplus in the par account, a portion of which is paid to par policy owners as dividends.
Universal Life Insurance
Universal life policies provide permanent insurance with an investments portion built in. They are essentially an unbundled form of permanent insurance. You are buying term and have the option of investing the rest in a tax-advantaged plan. You can control the investments in your own selected portfolio and you can see detailed illustrations of where all of your funds are going.
Universal life insurance policies can be an excellent way to provide financial security for an individual, family or a business owner or partner by creating a dependable, tax-deferred financial reserve accessible for any purpose.