Types of Life Insurance
There are three main types of life insurance options:
Term life insurance is typically the most affordable and provides protection for a specific amount of time such as five to 30 years; or up to a maximum age. Your premiums will be fixed for the duration of your insurance coverage and your loved ones will receive payment if you should pass away during this time. Term life insurance is more affordable when you purchase it when you are younger and healthier with the rates increasing as you age.
You should consider term life insurance if:
- You are on a budget but would like to provide for your loved ones;
- You think your circumstance will change over the years and your need for coverage will decrease;
- Your needs are short-term.
Whole life insurance provides insurance for the entirety of your life and will give your beneficiaries a tax-free payment after you pass away. With most whole life insurance plans your premiums will remain the same even if you experience changes to your health over the years. It can be more expensive during the early years of coverage.
Whole life insurance is a good option if you:
- Have permanent financial obligations that will continue after your death;
- Have accumulated significant wealth and assets that will result in the need to pay estate after you pass away; or,
- Want to provide a tax efficient transfer of wealth to loved ones or charity following your death.
Universal life insurance enables you to build your savings and provide a guaranteed death benefit for your loved ones. These policies offer a range of investment accounts with the payments you make above the cost of your insurance plan being put aside to grow in a long-term tax savings account.
You should consider universal life insurance if you:
- Want to build your savings in combination with your TFSA and RRSPs;
- Want to leave money for your beneficiaries; or,
- Own a business and are looking for a way to protect the value of your business that is tax-efficient.