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Designed for temporary life insurance protection, Term Insurance offers the lowest initial
premium expense. Over time, however, term insurance premiums can increase significantly.
In the long run the cost may even surpass the cost of permanent life insurance. |
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Intended to provide life insurance protection for an extended duration, even for your
entire lifetime. Permanent Life Insurance offers guaranteed premiums and guaranteed cash
values (accumulated as a result of your premiums). Some types can offer you cash value
growth driven by the equity markets. While the premiums are higher than you initially
would pay for the comparable amount of term insurance, over time the permanent life
insurance cost may be lower than term insurance.
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Term vs. Whole Life Insurance: There are different types of term policies. Level
term provides a consistent amount of insurance. Decreasing term, which is an ideal type of
insurance to cover any shrinking debt obligation, starts with a specified face amount
which decreases annually until it reaches zero at policy expiration. Increasing term
provides a growing amount of insurance, but the need for this type of protection is rare.
Many term policies are renewable, which means they may be renewed without providing
evidence of good health until a specified age. However, because of an insured's advancing
mortality (increasing chance of death at higher ages), renewal premiums will always be
higher than previous premiums. Many term policies are also convertible, which means they
may be exchanged for another type of policy, such as whole life.
Whole life insurance, sometimes called straight life or permanent life, is protection that
can be kept as long as you live.
You can choose to pay a premium that doesn't rise as you grow older, averaging the cost of
the policy over your life.
Whole life insurance has a "cash value" or the sum that grows over the years
with taxes deferred. If you cancel the policy, you receive a lump sum. You pay taxes only
if the cash value plus any dividends exceeds the sum of premiums paid, according to the
American Council of Life Insurance.
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Whole life insurance is a permanent form of insurance protection that combines a death
benefit with cash value accumulations. The face amount is constant, and this amount would
be paid if the insured dies at any time while the policy is in effect. Premium payments
are fixed and remain the same from the original effective date to the maturity date. The
policy is designed to mature at age 100-the age when premium payments would end and the
cash value would equal the face amount. At maturity, the face amount would be paid to an
insured that is still living.
Although whole life policies are among the most common forms of life insurance sold, most
individuals do not plan on paying premiums until age 100. Many of us do not expect to live
until that age. More commonly, whole life insurance is used as a form of level protection
during the income producing years. At retirement, many people then begin to use the
accumulated cash value to supplement retirement income.
This type of life insurance plays an important role in financial planning for many
families. In addition to the death benefit or eventual return of cash value, the policy
has some other significant features. During a financial emergency, policy loans may be
taken and the full policy values may later be restored. If the contract is a participating
policy, it may also pay dividends.
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Universal Life (UL) insurance combines both insurance coverage and an opportunity to
invest in a "tax-sheltered" investment environment. In Canada, UL insurance is
the only vehicle outside of RRSPs where you can accumulate money on a tax-sheltered basis.
The difference however, is at death; UL is paid out totally tax free compared to RRSPs
which are fully taxable at death. Premiums are paid with "after-tax" dollars,
therefore are not tax deductible.
Universal Life is purchased for those who have a permanent need for insurance and/or also
wish to have a tax-sheltered investment account. It is an ideal vehicle for those who have
maximized their RRSP contributions and wish to further shelter other investments from
taxation. UL is also used extensively in Estate and Succession planning to provide the
liquidity needed when taxes are due so that the estate and/or business can continue
without being eroded. As well, UL is used for those who wish to establish a Charitable
Planned Gift to their favorite charity upon their death. By doing so, the estate has not
been diminished by the charitable gift and the insurance gift may offset or even eliminate
taxes owing in the estate.
I will briefly explain how a UL plan works.
- Deposits are made to the plan either on a monthly or annual basis. You have the choice
of paying between a minimum premium and a maximum premium which, you can change at any
time. These premium amounts are determined by the amount of insurance, your age, and
health status. The minimum premium basically represents the cost of the insurance,
administration fees, and other associated costs with the plan. The maximum premium
represents the amount that may be deposited into the plan that keeps the policy exempt
from tax.
- You choose what investment options you want with the deposits above the minimum premium.
These range from daily interest, Guaranteed Medium and Long Term Interest accounts,
various conservative, growth, or aggressive portfolios, links to various indexes such as
the S&P 500 or NASDAQ, or linked to a vast array of mutual funds and mutual fund
portfolios.
- Each month, the company withdraws the cost of the insurance, administration fees, and
other associated costs from the plan for as long as it is in force.
- As long as the investments remain inside of the plan and the deposits are within the
given limits, they will remain exempt from taxation. Compared to similar investments
outside of a UL plan, these funds will grow faster as they are not reduced by the effects
of taxation.
- If the plan is being funded over the minimum premium, premiums may only have to be made
for a projected period of time given assumed rates of return on the investment account. In
other words, once there's enough interest being generated from the investment account to
cover the annual costs of the plan, no more deposits will be needed given an assumed rate
of return. Once this happens, the cost of insurance is being paid with "before tax
dollars".
- Upon death, the face amount of insurance plus the investment account (if the increasing
death benefit is chosen) are paid out entirely tax free to your intended beneficiary(s).
If a beneficiary other than your estate is chosen, the benefit will also escape probate,
legal, executor, and any other associated estate costs and will be paid out promptly
without having to wait for the estate to be settled.
- The investment account can be accessed by either a withdrawal, policy loan, or by using
the policy as collateral for a "Leveraged Life" strategy.
The insurance portion of the plan can either be based on a level cost of insurance
(Term 100) or on a yearly renewable term (YRT - increasing) cost of insurance.
The YRT option has very low insurance costs in the earlier years of the plan but very high
costs in later years. Most plans have an option to change to a level cost of insurance at
a future time at your attained age. People who choose this option are usually looking to
maximize their investments in the plan and are less interested in the death benefit.
Most often in estate and succession planning, the level cost of insurance option is chosen
with the death benefit that pays out the face amount of insurance plus the investment
account. Most people want to know that their costs are locked in and guaranteed throughout
their lifetime so that their plans will stay the course.
Benefits and riders, such as a Critical Insurance, Child Term Rider, Accidental Death
Benefit, and Disability Waiver, are usually optional features with most Universal Life
Insurance plans.
UL plans vary greatly in the options and benefits they provide. Upon your request, I can
provide you with the information you need to make this informed decision.
A complete analysis of your life insurance needs with a qualified and experienced
insurance professional will help you to determine what your need for insurance may be. For
a no obligation analysis of your insurance planning needs, please contact me to discuss
and review your options for your unique situation.
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When you're healthy, you're probably not thinking about coping with a critical illness.
But that may be the best time to consider the impact an illness could have on you, your
family and your finances.
When you own a Critical Illness Insurance plan, you have comfort in protection with:
- a lump sum cash benefit to spend as you choose
- freedom to make choices regarding your treatment, care and recovery
- financial independence during a difficult time.
- preservation of your investments
There is a wide range of Canadian insurance companies who offer a critical illness
policy. The terms and conditions will vary from company to company, but the following
ailments are insurable by virtually all insurers.
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- Other life threatening cancer
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- HIV through Blood Transfusion
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- Pre Senile Dementia (Alzheimer's)
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- Loss of Independent Existence
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As not all critical illness policies are the same, it is important to seek out
professional advice and guidance in choosing your policy. I can help.
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PLAN NAME: Visitors to Canada Emergency Hospital/Medical BENEFIT LIMIT OPTIONS: $10,000 /
$25,000 / $50,000 / $100,000 / $150,000
Visitors to Canada Travel Medical Insurance covers injuries and sicknesses requiring
emergency hospital confinement or emergency medical treatment for visitors to Canada,
sustained while in Canada on a single trip.
Additional benefits provided to the Insured include medical transport, emergency dental
accident expense benefit and subsistence allowance benefit.
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- I believe that integrity and honesty is the best and only policy to serve you
- I believe that being open and fair is the best way of doing business
- I believe that being simple and direct is the best way to communicate
- I believe that when you are successful we become successful as a result
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