Many people mistakenly believe that term or permanent life insurance is expensive, but the reality is, depending on your age, gender, health, occupation, and coverage amount, it’s possible to secure affordable premiums.
That’s according to Lillian Huang, an insurance advisor in Calgary, who also says life insurance policies can be tailored to your needs.
“There are so many insurance companies that have different products now, and they can even do a specific term, if your mortgage is 21 years, for example,” says Huang.
If you have dependents, if you’re a homeowner, if you’re planning on expanding your family or want to leave a legacy, then life insurance is a must, says Brian So, an insurance advisor in Vancouver.
Life insurance is sold as term insurance or permanent insurance.
Term insurance
Term insurance is the more popular option as it is usually less expensive than permanent life insurance and offers different durations, ranging from 10 to 40 years, along with different coverages. It’s flexible: some term insurance policies can be purchased without undergoing a medical – others require one. A medical may involve filling out a questionnaire and/or meeting with a nurse affiliated with the insurer who will assess your vitals and query your medical history.
Term insurance, which typically offers coverages of up to $20 million, pays out a lump sum, which can be used to pay off a mortgage, pay for a caregiver or fund a child’s education.
Permanent life insurance
Permanent life insurance can be more expensive but can also grow in value over time, making it a valuable tool in estate planning. Huang says it’s popular with people who have higher incomes or multiple properties, and who may want to supplement their retirement income down the road and leave a sizeable estate rather than a tax burden for the next generation. At death, beneficiaries receive a tax-free payment that can be used to pay off any funeral costs or estate fees.
Some permanent life policies allow you to borrow or withdraw funds from your policy, which may reduce your death benefit.
There are three forms of permanent life insurance: whole life, participating and universal.
- Whole life is lifelong coverage with a tax-free death benefit which doesn’t allow for investing within the policy. Premiums are guaranteed to stay the same for the duration of the policy.
- If you buy a participating coverage, money grows in the policy in a conservative mix of investments and pays a yearly dividend.
In a universal life insurance policy, you manage your investments and allocate funds according to your risk profile. This type of coverage offers more flexibility than whole life and participating life because you can select the amount of premium you pay and the death benefit you receive. Premiums may be divided into cash value — the amount of excess payments that can grow over many years — and the cost of insurance. The downside of this coverage is that the premium may increase over time.