Which Type of Life Insurance Is Right for Me?

Choosing the Right Life Insurance for You

Term vs. Permanent Insurance

Term life insurance is a very affordable short-term option because it covers only a certain number of years at a time, usually five or more. The policy would then be renewable at the end of the term or you would have to buy another policy, and premiums would likely increase. As long as you have kept up with payments, term life insurance provides coverage to your beneficiary, estate or trust during the agreed term. However, as it is only applicable within the term specified and your possible renewable, often coverage is available only up to a certain age (e.g. age 65). The coverage in term life insurance also does not accumulate a cash surrender value.

While term life insurance costs less than permanent life insurance, the latter has the benefit of providing you coverage for a longer period – for your entire lifetime. As long as you have kept up with payments, your beneficiary, estate or trust will receive the amount specified in your policy upon your death at any time. In addition, the policies tend to convert to a cash value that you may receive upon potential cancellation, and which you may be able to use for a loan as collateral that would be subsequently subtracted from your coverage until the loan is repaid. Two of the most common types are whole and universal; the former of which guarantees your premiums and death benefit, while the latter uses investments in combination with your coverage and the money may be accessible to you if needed.

The Pros & Cons and Ideal Situations for Both Types

Term life insurance is ideal in situations where you require coverage for a set period of time. Term insurance works well when you have a specific need that is short- or medium-term, such as to cover your mortgage or other debt, to provide for your financial dependents until they reach age of majority, to meet contractual obligations (e.g. to secure support in a separation agreement), or to ensure there are funds available for your children’s or grandchildren’s post-secondary education. Since it is also more affordable, term life insurance could be a better short-term solution that frees up money you may need elsewhere.

If you want continued coverage after the policy expires, there is flexibility for you to simply renew or repurchase a term insurance policy. A convertible term policy could allow greater flexibility in the event you may need to change to a permanent policy; this convertible option may require you to incur higher premiums, but it will avoid having to first take a medical exam to qualify for insurance. If you only purchase term insurance for the period over which you need it, however, you are likely to pay less overall for coverage.

Permanent life insurance is better suited for individuals who want or require coverage during their entire lives. Since you can accumulate the cash value on many permanent policies, it may help to acquire savings that are not subject to tax deductions and can be borrowed if needed, regardless of your credit rating while you are still alive, including for payment of the remaining premiums on your policy. Since your death benefit would act as collateral for the loan, your insurance company would deduct the amount owed if anything is outstanding upon your death.

Premiums are lowest when you are young and they increase upon renewal as you age, so a permanent life insurance policy may be more beneficial in the long run for costs you know you will incur, such as taxes in the year of death resulting from a deemed disposition of your assets upon death (e.g. in RSPs or RIFs), funeral and cremation and/or cemetery costs, and lawyer fees. If you find that as you reach the end of your life, you have sufficient funds to cover your expenses from other sources, you may be more interested in charitable donations, which can be made through your life insurance policy. Additionally, if you maintain this coverage until your demise, the return on your investment is assured.

Self-employed business owners may be especially interested in obtaining some life insurance, particularly as collateral for a loan, to secure leveraged investments, to cover other debts, to provide for others, and to gain flexibility in dealing with the business and/or business assets after your death. The proceeds of life insurance can also provide financial flexibility so that any business assets that are to be sold do not need to be sold right away when financial markets may be at a low point.

Regardless of the type of life insurance you choose or if you opt for a combination of both types, your life insurance policy will provide tax-free financial protection in the event of your early demise. You can plan to cover your financial obligations, provide financial comfort to your beneficiaries who have grown accustomed to a particular lifestyle and pay for certain expenses. If you don’t name a particular person as the beneficiary, the money from your policy may be left to your estate, a trust or a charity.

Contact D. A. Kurt Insurance Brokers Ltd. & Financial Services for Life Insurance in Kitchener

A licensed life insurance broker in Kitchener at our firm can review your unique needs, plans, and financial obligations to help you decide on the best insurance options for you. At D. A. Kurt, our life insurance brokers have a solid reputation and can supply a free quote for you. Contact us for all your insurance needs at info@kurt-ins.com.

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