By Zoran Dakovic
(WINDSOR, ON) – Life Insurance is fairly simple to understand. You pass away and the beneficiary (the person to whom you designate to receive the pay-out) gets a tax-free lump sum check.
In a sense, it is that cut-and-dried. However, there is a variety of options that you may choose from when selecting the appropriate coverage for yourself. We will take a look at the three most common types of Life insurance available; Term, Permanent, and Universal.
TERM – The cheapest and most affordable insurance, by far. Term life insurance provides temporary protection for temporary needs. It also has some flexibility, so you can adjust your insurance as your needs change. You can choose between Term life insurance, providing coverage for one person, or Joint Term life insurance, where one policy covers two people who share a joint risk (eg: a mortgage). Term life insurance is a popular choice for:
- individuals focused on affordability and flexibility,
- mall business owners facing debts or significant start-up costs,
- business owners with complex needs like key person protection or buy/sell agreements, and
- people with mortgages or other temporary debt.
PERMANENT – Permanent life insurance is an excellent choice if you want lifelong coverage and equity in the form of a cash value over time. Key advantages of permanent insurance over term insurance are:
- Permanent insurance costs are usually guaranteed when you first purchase the policy.
- Some permanent insurance plans allow you to pay for a limited number of years, then never again. Imagine…you could buy insurance when you’re 40, finish paying the premiums when you’re 50, and be fully covered for the rest of your life. In contrast, term insurance is virtually always “pay as you go” and you’ll be paying premiums while you have the coverage.
- Permanent life insurance premiums can be guaranteed level for life (they don’t increase as you age, even if your health changes), or they can vary depending on the permanent insurance plan you choose.
UNIVERSAL – Look at it as an all-in-one way to protect and build your money. Universal life insurance is one solution that combines two important aspects of financial planning: permanent insurance protection for lifelong peace of mind, plus investment account options that can grow your savings, tax-deferred. Universal life insurance is a popular choice for:
- People who have maximized their RRSP contributions
- Parents and grandparents who want to maximize their estate for their children and grandchildren
- Business owners looking for a tax-efficient way to protect the value of their business
In summary, Term life insurance is recommended if you’re looking to save money and cover a temporary need (for example a 20 year mortgage). Permanent life insurance is primarily used to cover expenses such as funeral costs or probate fees (costs which all of us will face at the end of our lives and that will always be there). Universal life insurance is a way to protect yourself and make your money work for you by building equity.
Zoran Dakovic is a financial adviser with Sun Life Financial. You may contact him at 519-739-7777 extension 2245 or by email.