Life Insurance: Personal
There are two main categories of life insurance; Term Insurance and Permanent Insurance.
Term insurance: These plans are typically used to satisfy a temporary insurance need such as insuring a mortgage. As such, the premiums are considerable less expensive than they are for Permanent insurance. Term insurance is ideally suited for young families with limited budgets.
Term insurance provides "pure" insurance protection. In other words, in return for the payment of the policy premiums the insurer promises to pay the face amount under the policy if death occurs during the term of the coverage. Premiums are level for the term but increase at each renewal, usually every 5, 10 or 20 years. Other terms are available depending on the insurer. Most policies are "renewable & convertible" meaning the insured has the option to renew or convert the policy to a permanent plan without having to provide medical evidence. These options typically expire at age 65.
Permanent Insurance: There are many types of permanent insurance products available in the market today however, the more common are Term to 100, Whole Life and Universal Life plans.
- Term to 100 plans are "pure" term policies whereby the premiums are level and guaranteed not to increase. Generally, the premium payment commitment will cease at age 100 however, the coverage will continue until the death of the insured.
- Whole Life is one of the oldest forms of permanent life insurance. Since premiums are level and the coverage is permanent, the premiums are much higher in the shorter term than premiums for regular term insurance. The unique feature of whole life insurance is the payment of policy dividends which provide a cash value. There are a number of options with respect to policy dividends including receiving dividends in cash, using dividends to reduce premiums, purchase additional paid-up insurance, term enhancements or some combination of these options. The insured does not control or in any way manage how the funds are invested.
With respect to taxation, Whole Life policies are quite complex and must be reviewed with your insurance advisor. The tax considerations are also subject to when policy was purchased as the rules have changed over time.
Universal Life (UL) plans were developed in response to consumer demand for a more accountable and flexible insurance product as compared to traditional Whole Life plans. UL is permanent life insurance protection with a tax-advantaged investment component. These plans offer complete disclosure with respect to pricing, mortality costs, expenses and investment returns. They also offer the policy owner the opportunity to choose from a wide range of investments and completely control the investment process. Universal Life can be used to supplement retirement income, long-term care or home care, and to build a cash pool tax-deferred.
Universal Life plans can be used as collateral for loans or a line of credit. More information about how to create an income stream or loan from a UL policy can be seen on the Insured Retirement Program page.