Permanent Life Insurance

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What is permanent life insurance?

Permanent life insurance is often called whole life insurance because it covers you for your whole life. It gives your beneficiaries a tax-free payment after you pass away. It symbolizes all your heritage and guarantees financial security to your loved ones when you are no longer in this world.

Some of these plans can build cash value over time. Permanent insurance costs are usually guaranteed not to increase from the time you first purchase the policy. And some permanent insurance plans let you pay for a limited time and then never again.

What is cash value

Cash value is the savings component attached to permanent life insurance plans. When you make premium payments, a portion of that fee is set aside and saved. This becomes your cash value. The longer you own the plan, the more your cash value savings grow.

Can I use my plan’s cash value?

You can use the funds in your cash value for financial emergencies like paying for premiums when you cannot or needing extra cash in your life. You can think of this process as taking out a loan, but instead of borrowing from a financial institution like a bank, you are borrowing from your own plan. You can also withdraw all the cash value in your policy, but this will end your plan. Keep in mind that in any withdrawal situation there might be some tax implications.

 

Premium payment options – what do they mean?

When it comes to premiums for whole life insurance plans, many insurers offer people different ways to cover the required payments. Typically, when people think about permanent coverage, they believe they will have to pay premiums for life. But there are other options available to clients.

Most companies will offer you to pay your premiums for a set period. For example: 8 Pay, 10 Pay, and 20 Pay, the number signifies the number of years you are paying premiums. For example, for 8 pay, you are paying premiums for 8 years. Once the period is completed, there are no more premium payments required and you will be covered for life while your cash value keeps growing.

 

Is permanent life insurance right for you?

Permanent life insurance may be a good choice if you are:

  • Interested in lifetime coverage, and premiums that do not change
  • Looking for a permanent guarantee that will help protect your family, cover the cost of your funeral, and let you make plans for your estate.
  • Interested in leaving an inheritance for your loved ones.

 

Permanent Life Insurance for Estate Planning:

Upon death, you are deemed to have disposed of all your assets at their Fair Market Value (E.g.: real state and business shares). When transferring to your children or non spouse, these dispositions may create a significant tax liability. Registered plans such as RRSPs, RRIFs or similar plans’ balances become fully taxable income in the year of death. A portion of all capital gains are included in your income in the year of death. The taxes must be paid before your assets can be passed on to your beneficiaries. Your beneficiaries will receive less value than expected. Your estate may be forced to sell some of your most cherished assets to pay the taxes.

In these situations, Permanent Life insurance is usually a more efficient way to provide cash at the time of death.

 

 Term life insurance Permanent life insurance 
What is it for? Temporary coverage from the financial impact of premature death Lifelong coverage from the financial impact of death 

Combining coverage with tax-preferred cash value growth 

Estate planning 

Who is it for, mainly? Young families and homeowners with a mortgage 

Adults with short-term financial needs, e.g.: protect a 10-year loan 

Business owners 

Adults with a long-term financial need 

People who already make full use of registered investment accounts such as RRSPs and TFSAs. 

What are the advantages? It is initially inexpensive  

More manageable if you are young 

You can afford higher coverage 

It is easy to understand 

Lifetime coverage continues even if your health fails 

The cost is guaranteed to never go up (with most types of permanent insurance) 

Later in life, it is less costly than term insurance 

It provides tax-preferred cash value growth opportunities for people whose RRSPs and TFSAs are topped up 

You can cash in or borrow against its accumulated cash value 

What are the disadvantages? Coverage is temporary; the protection ends when the term ends (if you do not renew) 

The cost goes up if you renew when the term ends (usually after 10, 15, 20 or 30 years) 

Initially it is more expensive than term insurance 
When is it most cost-effective? When you are young 

When you need only temporary coverage (e.g., until your mortgage is paid off or children are no longer financially dependent) 

Later in life 

When you have built up cash value in the policy 

When you have a sizable estate to pass along to heirs or charities 

If you are in a higher tax bracket 

Can you convert it to the other type of insurance? Yes No 
Trends to consider Increasing mortgage for a bigger house or increasing  consumer debt. You could still be in debt after temporary term life insurance stops being the cheaper option (or even becomes unavailable) 

Children are financially dependent on parents even into adulthood, even after your term policy expires 

 

The trend toward increased longevity makes this an increasingly attractive option because coverage is lifelong, not temporary 

What is permanent life insurance?

Permanent life insurance is often called whole life insurance because it covers you for your whole life. It gives your beneficiaries a tax-free payment after you pass away. It symbolizes all your heritage and guarantees financial security to your loved ones when you are no longer in this world.

Some of these plans can build cash value over time. Permanent insurance costs are usually guaranteed not to increase from the time you first purchase the policy. And some permanent insurance plans let you pay for a limited time and then never again.

What is cash value

Cash value is the savings component attached to permanent life insurance plans. When you make premium payments, a portion of that fee is set aside and saved. This becomes your cash value. The longer you own the plan, the more your cash value savings grow.

Can I use my plan’s cash value?

You can use the funds in your cash value for financial emergencies like paying for premiums when you cannot or needing extra cash in your life. You can think of this process as taking out a loan, but instead of borrowing from a financial institution like a bank, you are borrowing from your own plan. You can also withdraw all the cash value in your policy, but this will end your plan. Keep in mind that in any withdrawal situation there might be some tax implications.

 

Premium payment options - what do they mean?

When it comes to premiums for whole life insurance plans, many insurers offer people different ways to cover the required payments. Typically, when people think about permanent coverage, they believe they will have to pay premiums for life. But there are other options available to clients.

Most companies will offer you to pay your premiums for a set period. For example: 8 Pay, 10 Pay, and 20 Pay, the number signifies the number of years you are paying premiums. For example, for 8 pay, you are paying premiums for 8 years. Once the period is completed, there are no more premium payments required and you will be covered for life while your cash value keeps growing.

 

Is permanent life insurance right for you?

Permanent life insurance may be a good choice if you are:

  • Interested in lifetime coverage, and premiums that do not change
  • Looking for a permanent guarantee that will help protect your family, cover the cost of your funeral, and let you make plans for your estate.
  • Interested in leaving an inheritance for your loved ones.

 

Permanent Life Insurance for Estate Planning:

Upon death, you are deemed to have disposed of all your assets at their Fair Market Value (E.g.: real state and business shares). When transferring to your children or non spouse, these dispositions may create a significant tax liability. Registered plans such as RRSPs, RRIFs or similar plans’ balances become fully taxable income in the year of death. A portion of all capital gains are included in your income in the year of death. The taxes must be paid before your assets can be passed on to your beneficiaries. Your beneficiaries will receive less value than expected. Your estate may be forced to sell some of your most cherished assets to pay the taxes.

In these situations, Permanent Life insurance is usually a more efficient way to provide cash at the time of death.

What is it for?
Term life insurance :
Temporary coverage from the financial impact of premature death.

Permanent life insurance :
Lifelong coverage from the financial impact of death. Combining coverage with tax-preferred cash value growth. Estate planning.
Who is it for, mainly?
Term life insurance :
Young families and homeowners with a mortgage. Adults with short-term financial needs, e.g.: protect a 10-year loan. Business owners.

Permanent life insurance :
Adults with a long-term financial need. People who already make full use of registered investment accounts such as RRSPs and TFSAs.
What are the advantages?
Term life insurance :
It is initially inexpensive. More manageable if you are young. You can afford higher coverage. It is easy to understand.

Permanent life insurance :
Lifetime coverage continues even if your health fails. The cost is guaranteed to never go up (with most types of permanent insurance). Later in life, it is less costly than term insurance. It provides tax-preferred cash value growth opportunities for people whose RRSPs and TFSAs are topped up. You can cash in or borrow against its accumulated cash value.
What are the disadvantages?
Term life insurance :
Coverage is temporary; the protection ends when the term ends (if you do not renew). The cost goes up if you renew when the term ends (usually after 10, 15, 20 or 30 years).

Permanent life insurance :
Initially it is more expensive than term insurance.
When is it most cost-effective?
Term life insurance :
When you are young. When you need only temporary coverage (e.g., until your mortgage is paid off or children are no longer financially dependent).

Permanent life insurance :
Later in life. When you have built up cash value in the policy. When you have a sizable estate to pass along to heirs or charities. If you are in a higher tax bracket.
Can you convert it to the other type of insurance?
Term life insurance :
Yes

Permanent life insurance :
No
Trends to consider
Term life insurance :
Increasing mortgage for a bigger house or increasing consumer debt. You could still be in debt after temporary term life insurance stops being the cheaper option (or even becomes unavailable). Children are financially dependent on parents even into adulthood, even after your term policy expires.

Permanent life insurance :
The trend toward increased longevity makes this an increasingly attractive option because coverage is lifelong, not temporary.