- Term life: Used in 90% of situations to cover in part or entirety of the insurance need, it remains in force for a fixed amount of time. It is the most affordable of all types of insurance and does not accumulate any cash value.
- Whole life: Insurance the covers you for your entire lifetime. More expensive than term insurance, it can also accumulate a cash value. It is a good base coverage used to cover final expenses or to increase the size of an inheritance left behind.
- Participating whole life: Identical to traditional whole life, with the minor difference that this insurance allows policyholders access to “dividends” when the insurance company is more profitable than expected. These dividends can have many uses such as increasing coverage.
- Universal life: The most flexible and expensive kind of life insurance. Ideal for clients who have maximized there RRSP’s and TFSA’s and who need life insurance.
Types of Life Insurance
You have several options for purchasing life insurance. Emma helps you break them down. Life insurance is more affordable than you think. And it can be faster too.
4 Differents Types of life insurance
Planning for your family's future is one of the most important things that you can do. One of the most common ways of doing so is through the purchase of life insurance. The alternative is to self-insured oneself by attempting to earn enough money to replace the death benefit that an insurance company would usually assume in exchange for a monthly premium. The amount required to protect one's family usually being in the range of several hundreds of thousands of dollars. For many young families, the latter isn't an option. We know talking about this subject can be uncomfortable. However, it is possible not to feel a sense of dread whenever the topic comes up. Given the obvious fact that everyone wants to have a secure future, it is no surprise that there are several types of life insurance policies that you can choose from, depending on your preferences and your needs. Several different features are available depending on which type of insurance is chosen. The purpose of the article is to touch base on the vast majority of options.
Term life insurance
Let us begin by exploring what term life insurance entails. Also known as pure life insurance, this policy guarantees the payment of a defined death benefit if the life insured (person who's life is insured) dies within a specific time frame. It is important to note that this type of insurance does not accumulate any cash value. Therefore, if the policy is cancelled, the policyholder does not recuperate any of the premiums paid, and if the term ends and the life insured has not passed away, the beneficiaries do not receive any death benefit.
A term life policy is meant to protect the dependents of the life insured in the case of an untimely death. It ensures that the survivors do not find themselves stuck with the deceased's financial burdens such as healthcare bills, outstanding debts, unpaid mortgage or even funeral expenses. Term life insurance is not typically used for charitable giving or estate planning. The premiums paid for the sole policy purpose are to cover the underwriting costs. The premiums are, therefore, much lower in comparison to other types of life insurance.
When getting a quote for a term life policy, a multitude of factors are considered. These include past and present health conditions, current age, one's smoking status and even one's judicial record. All these things are taken into account and incorporated into the insurance company's calculations for a given individual's premiums. The rules are simple; the younger and healthier the applicant, the lower the price.
Again, when choosing if life insurance is the right product for you, take into account that for the insurance company to pay whatever face value is specified in the contract, the insured must die within the specified period of the policy. If the policy term comes to an end and the person is still alive, there is no payout whatsoever.
A typical feature of term life is that the premiums have a fixed rate during the entirety of the term. They remain stable as time progresses. However, the rates significantly increase when one renews the policy at the end of the term in large part due to decreased life expectancy. While it is normal for the rates to increase when one ages, insurance companies assume that an individual that chooses to renew his or her policy has severe health problems. They are thereby forcing him to maintain his old coverage.
If you wish to avoid going through the typical and tedious process of acquiring insurance with an agent visiting you at home, Emma's life insurance might be for you. With its online registration system, you can get the term life insurance you want without leaving the comfort of your home!
Whole life insurance
The name says it all! Whole life or permanent insurance, figures amongst the many types of life insurance. As the name suggests, the coverage does not expire at the end of a term. This specific insurance policy covers the policy holder's "whole life" and can also accumulate a cash value. The policyholder can decide to cancel his policy at any time, therefore, getting access to the said cash value. By cancelling the policy, however, the policyholder also renounces his heirs' access to the death benefit. This type of policy is frequently used for estate planning, charitable giving and even in some cases as collateral for a loan. Whole life insurance offers a lot of benefits and flexibility but at a price. Versus a term policy held to term, where the insurer may or may not have to pay out a death benefit; if a policyholder maintains his whole life coverage, the insurer is certain to have to doll out death benefit payments eventually. This factor, in conjunction with a cash value, results in higher premiums. Out of all the types of life insurance, this is probably the most misused and misunderstood of all.
The premiums for whole life are most often "levelled" and do not change until and unless the policy has lapsed. Levelling the premiums result in higher initial payments, then one would normally pay for their age but smaller amounts in the future then one's age would allow. In this regard, term and permanent are similar due to rates being fixed for the duration of the policies. It is crucial to make sure that all your payments are paid on time to prevent the policy from lapsing. An interesting aspect that the cash value brings to permanent insurance is that the insurer can deduct the payments from the said value if the policyholder is having cash flow problems. It will cause the cash value to decrease and eventually disappear if the situation does not correct itself, allowing more time to pass before the policy lapses.
If you are interested in this type of policy and want a hassle-free experience purchasing whole life insurance, go to emma.ca. An advisor will help you by chat from the comfort of your home.
Participating Life Insurance
A form of whole life insurance, this type of life insurance is a little different in regards to other permanent policies since it gives the policyholder access to "dividends" from the insurance company's participating policy pool. For those who are worried about investing in the stock market, the dividends we are referring to are not dividends in the classic sense of payout delivered by stocks. By purchasing a participating whole life policy, you are not buying shares in the insurance company. You are simply purchasing an insurance policy that may or may not offer a guaranteed "return on investment" to you in exchange for higher premiums. These "dividends" are not guaranteed, but neither can they be negative. They can be used in many ways such as premium reduction or to purchase additional coverage either in the form 1 year term insurance or additional permanent insurance. When used for the latter, the death benefit may increase with time and give access to even more "dividends" creating a snowball effect. To put it in simpler terms, participating life insurance pools the premiums of all participating policyholders and allows them to share in the profits of the insurance company when the company's investments perform higher then expected or if there are fewer deaths then predicted. The dividends are distributed among policyholders according to the percentage of participation that their subscribed death benefit allows!
As previously mentioned, the premium rates for participating life insurance policies are usually higher than normal whole life policies. It can be even higher if one opts for a policy that promises "guaranteed dividends" (take note that not every company offers this option).
Are you wondering if this type of policy is for you? Our experts here at emma.ca are here to help!
Universal Life Insurance
The most flexible type of whole life insurance is also the most expensive. With the possibility of modifying the premiums at any time, the possibility of reducing the fiscal impact of the investment component, possibly increasing the tax-free death benefit and having access to funds that fit your investor's profile, universal life is fully customizable. It can allow you to get a whole life policy while paying very low premiums like term insurance. You also have the option of paying regular premiums or opting for a one-time premium payment (certain limits exist).
In addition, universal life insurance also allows the policyholder to invest in a variety of funds, depending on the insurer. The funds can be withdrawn from the policy without cancelling the policy, but they are subjected to taxes. The accumulated savings can also be kept with the insurance company to increase the final payout. As attractive as this insurance seems, the fixed fees are much higher, and the management fees of the funds are higher than in regular investments, which can have a long term impact on the earnings. This policy may be adequate for people who have maximized all traditional investment vehicles (TFSA, RRSP) and still have an insurance need.
Does your profile fit with this type of insurance? Our experts here at emma.ca will gladly guide you in your choice of a universal life policy.
If you still have questions after reading this blog post, why not contacted one of our certified experts! We look forward to helping you protect your family and achieve your financial independence.