When shopping for life insurance, you have two main options: term life insurance and whole life insurance. These are the two main types of insurance policies. Each is designed to give you the peace of mind of knowing that your family will be protected in the event of your death, but they have some important differences that you should be aware of before purchasing your policy.
What is term life insurance?
Term life insurance is a policy valid for a fixed period. They are generally for a period of 10 to 30 years, but can be established for any period. This type of policy is designed so that if you die while it is in effect, your beneficiaries will receive a death benefit.
It expires if you live beyond its maturity, and no death benefit is paid. To purchase a new one, you must negotiate a new premium or renew your term coverage.
What is whole life insurance?
Whole life insurance (also called permanent life insurance ) provides permanent protection. The policy never expires. If you pay your premiums, it provides a guaranteed payment.
Whole life insurance premiums are often fixed for the life of the policy. It is therefore not necessary to renew or renegotiate it. In addition to the guaranteed death benefit, the policy has an investment component called cash value. The cash value can allow you to borrow against the policy if needed, or you can claim it as a partial refund of premiums if, for whatever reason, you decide to cancel your policy before your death.
Advantages and disadvantages of term life insurance
Term life insurance generally costs less than whole life insurance plans, making it the most affordable option. You can get a higher payout for less. It is ideal for people with a young family, as it serves as an income replacement in the event of an unexpected death. You support your loved ones during your highest income years so that they can maintain their current lifestyle. Because your insurance premiums are lower, you have more money to allocate to your debts and to invest in your RRSP, RESP and other investment opportunities.
A term life insurance policy only pays a death benefit to your beneficiary if you die while it is in effect. Suppose you purchase a $500,000 policy for a 30-year term when you are 30 years old. The policy ends when you turn 60, which is when the term of the policy expires. You pay premiums for 30 years and your beneficiaries receive no benefits, but you get affordable coverage for 30 years.
Let’s continue with the example above. Your policy expires when you turn 60. If you still need insurance cover, you will have to negotiate new terms and pay higher premiums depending on your age then and your state of health, which will differ from those taken into account when you were 30 years old.
Advantages and disadvantages of whole life insurance
Life insurance is cheaper when you buy it at a younger age. If you choose whole life insurance, you usually never have to worry about premiums going up as you get older. The premium remains unchanged for the rest of your life if you pay it regularly.
If you continue to pay your premiums, your policy provides for the payment of a death benefit. Your beneficiaries will know what kind of payout to expect.
Some permanent life insurance plans have a cash value, which means they can accumulate cash value over time. Cash values accumulate tax-free and can be used however you see fit – a down payment on a home, tuition, or even retirement income – although the decrease in your value redemption will reduce the death benefit.
The cash value of your policy will not be paid to the beneficiary on your death. Only the death benefit is paid to him.
Because a whole life insurance policy has a guaranteed payout and a cash value, it generally costs more than a term life insurance policy.
Which life insurance option is right for you?
The right option for you depends on your own needs. If you only need life insurance for a short period of time, for example if your children are minors and rely on you for financial security, term life insurance may be more beneficial because premiums are more affordable. This gives you the peace of mind of knowing that your family will be able to rely on sufficient replacement income.
However, if you’re younger and want to freeze premiums at a lower rate, whole life insurance might be the best bet. This type of coverage can be ideal for ongoing needs, such as death-related expenses, while allowing you to earn some return on your investments.
Get the insurance coverage you need
Canada Protection Plan offers more permanent life insurance options than any other no medical insurance provider in Canada. Our wide range of plans have been designed to make it easier for everyone, including hard-to-insure clients, to get you the best protection at competitive premiums, as quickly as possible. Our policies only require completion of a health questionnaire and not a traditional medical examination. No needles or liquid samples will be required.
