Life insurance policies are legally binding contracts and cover specific details such as the price of the insurance premiums, the length of the contract and how long it will cover you for, and the sum that will be paid out to your beneficiaries if you die.
In addition to the main use of life insurance that we have discussed above, such policies can also be financially beneficial to you in other ways:
It is possible to build a nest egg of savings for your retirement at the same time as benefitting from the protection of insurance.
You have the choice of naming a charity of your choice as a beneficiary in the policy to donate some or all of the cash sum to them.
You can use the policy to cover estate taxes when you die.
If you own your own business, you are able to protect your interests as the policy would provide the funds to buy out a deceased business partner’s share of the company.
Term Life Insurance or Permanent Life Insurance?
By understanding the difference between term and permanent life insurance, will help you choose the protection you need for your unique situation.
Term life insurance provides temporary protection from the financial impact of death. Term insurance is useful coverage for young families, homeowners and business owners with debts, mortgages, liabilities or income replacement needs.
Term life insurance is typically inexpensive if you’re young and the coverage is temporary. The protection ends when the term ends (if you don’t renew). The cost increases if you renew when the term ends, usually after 10, 20 or 30 years.
You can usually convert term insurance to permanent insurance.
Permanent life insurance provides lifelong protection. Permanent life insurance can be useful for many situations including estate planning, retirement planning and the financial impact of death.
Permanent life insurance also has tax-advantaged cash values, a feature that you can utilize when you’ve maxed out your RRSPs (Registered Retirement Savings Plan) or TFSAs (Tax Free Savings Account). In some cases, you may want to consider using it to supplement RESPs (Registered Education Savings Plans).
The advantages of permanent insurance are that it will provide you guaranteed lifetime protection and the cost is guaranteed and doesn’t go up (in most types). Over the long term, it is typically less expensive than term insurance. You can also borrow or cash in the accumulated value.
The disadvantage is that for younger people, the premiums are more expensive than term initially.
Understand your needs
Prior to making a decision, review what makes the most sense for you and your unique situation. Depending on your circumstances, you could choose one or the other or a combination, talk to us and we can help.
We can help you figure out what makes sense in your situation.