Permanent Life Insurance

Permanent life insurance, also known as whole life insurance, will cover you for your whole life. Permanent life insurance is designed to provide permanent protection for your permanent needs. This includes things such as funeral expenses, estate and capital taxes at death, estate protection or simply to leave a legacy for your loved ones. There is an investment feature inside a permanent life insurance policy which is tax-sheltered. Permanent life insurance plans are much more expensive than term life insurance as these plans never expire and are guaranteed to pay out regardless of when you die. Permanent plans are sold with a 10-pay, 15-pay, 20-pay or pay to age 65 premium structures. You just have to pay the premiums for 10, 15 or 20 years and at that point the policy is paid up and no more premiums are required and you are covered for your entire life.

Most permanent policies have a level premium structure for the entire policy life. Premiums are averaged over your life expectancy and will not increase as you get older. You will have to pay more for a permanent policy than for a term policy initially however, premiums will not increase as you age and you will spend less in the long run when compared to term life policy.

There are two types of permanent life insurance:

1. Whole Life Insurance
2. Universal Life Insurance

Whole Life Insurance: Whole life insurance provides guaranteed protection for your entire life. Whole life insurance has no fixed term and is designed to cover you for your whole life. It’s more than just insurance as it accumulates cash values over time. This accumulated cash value is your asset and can be accessed in many ways. You can withdraw it or borrow against it when required with some tax implications. There are two types of whole life insurance:

1. Participating Whole Life Insurance
2. Non-Participating Whole Life Insurance

Participating Whole Life: Participating life insurance provides you with lifetime protection that includes a tax advantage savings component and has the potential to pay you annual dividends as well. It is called participating whole life as it allows you to participate in the profits of the insurance company through investment. You pay your premiums and the cash value grows tax-free. Payments are pooled in a separate account called the participating account. Funds are professionally managed by the insurer. Assets are invested in a diversified portfolio consisting primarily of bonds, mortgages, equities and real estate and may provide you with dividends based on the account’s performance. Each year, the company assesses its profit with the participating investment fund’s actual claims and expenses. These profits are then redistributed to the policy holders. You can take dividends as cash, leave them to accumulate; purchase more paid up additions insurance, or reduce your premium. A tax-free death benefit will be paid to your beneficiaries upon your death.

Non-Participating Whole Life: Non-Participating whole life insurance is a basic permanent life insurance policy. These plans offer more simplicity and a lower premium, but they do not generate an annual dividend. Non-participating whole life policies provide lifetime death benefit protection guaranteed premiums and guaranteed cash values as long as the payments are made on time. In non-participating policies the profits are not shared and no dividends are paid to the policyholders. Policyholders do not receive dividends but premiums are generally lower than participating whole life plans.

Universal Life Insurance: Universal life insurance is the most flexible permanent life insurance with an investment savings feature and low premiums similar to term life insurance. It provides flexibility as you can adjust your premiums and death benefit. There is a separate investment component that you manage with the help of your financial advisor. It gives you the freedom to select and manage the investment mix that matches your unique risk profile. Universal life insurance policy also accumulates cash values.

Who Is Permanent Life Insurance Best Suited For?

Permanent Life insurance is best suited:

For funeral expenses
For estate planning
For charitable giving
For your retirement income
For investing in your child's future
To fund buy & sell agreements
For affluent people with very high net worth
For individuals in a high tax bracket looking for savings and future income

Which Insurance Is Better For Me – Term Or Permanent?

Whether term life or permanent life insurance is better for you will depend on your own personal needs. Term life insurance lasts for a set amount of time, is very affordable and can protect you during a critical period of your life. Permanent life insurance will last for your entire life, is more expensive, but will cover you all the way until death. Knowing their features, differences and benefits can help you determine whether term life or whole life insurance is better for you.

What Is The Difference Between Term And Permanent Life Insurance?

	TERM LIFE INSURANCE	PERMANENT LIFE INSURANCE
PURPOSE	Designed to provide temporary coverage for your temporary needs like mortgage and other short term debts	Designed to provide lifelong coverage for permanent needs like funeral expenses, estate planning and charitable giving
SUITABILITY	Homeowners with a mortgage and other short term loans and debts, families with kids and business owners	Affluent individuals who have already made full use of RRSPs and TFSAs and high net worth individuals looking for estate planning or wealth transfer to next generation
AFFORDABILITY	Very affordable premiums	More expensive than term life insurance
COVERAGE	Temporary short term coverage	Lifelong coverage
PREMIUMS	Premiums will go up at each renewal	Premiums will remain fixed for the life of the policy
CASH VALUE	No cash value	Builds cash values
COST EFFECTIVE	❖ When you are healthy and young ❖ When you need temporary coverage for your short term needs ❖ When you want more coverage in a fixed budget	❖ When you get older and develop health issues ❖ When there is enough cash value in the policy ❖ When you are in very high tax bracket ❖ When you want to transfer your estate tax-efficiently to your heirs
ADVANTAGES	❖ Least expensive insurance option ❖ You can buy more coverage at less price ❖ It’s straightforward & easy to understand ❖ Very budget friendly to meet short term needs ❖ Renewable & Convertible ❖ Guaranteed tax-free death benefit	❖ Lifetime coverage forever despite deteriorating health later in the life ❖ Guaranteed fixed cost that will never go up ❖ Less expensive than term life insurance in old age ❖ Tax-sheltered cash value growth for affluent individuals who already maxed out RRSPs and TFSAs ❖ Options to withdraw the accumulated cash values or borrow against it with some tax implications ❖ Guaranteed tax free death benefit.
DISADVANTAGES	❖ Coverage is temporary; gets very expensive as you age and sometimes becomes unaffordable when you need it the most ❖ The cost goes up at each renewal	❖ It’s very expensive and not meant for everyone ❖ On average its 10 to 12 times more expensive than term insurance ❖ Non – convertible ❖ Not flexible

At the end of the day, you should buy what you need and what you can afford. Picking a plan which can meet both your present needs as well as all your future needs can be a tricky and complicated decision. That’s where you need professional advice from an experienced and trusted Insurance Broker. Term life is a good option if you have short term needs and have a limited budget. Permanent life insurance is a good choice if you are looking for a lifetime of protection. Sometimes it’s advisable to have a combination of term insurance and permanent insurance if you have both short term and long term insurance needs. But as there are many complicated and different types of insurance plans with different features and benefits; it’s always advisable to consult with a knowledgeable insurance broker that can help you determine the best option as per your unique needs and budget.

At Family Care Insurance; we will analyse your needs along with your budget and will shop around with several insurance companies to get you the best plan at the best possible rates. As an independent broker we offer multiple options at competitive prices. Need Insurance? Call us today to see how much you could save.