Permanent Life Insurance
Permanent Life Insurance is a life insurance policy that lasts your whole life – as long as you’re paying your premiums.
Why Choose Permanent Life Insurance?
While we believe that Term Life Insurance is more suitable for most people, there are some circumstances when permanent insurance might be a better choice.
For example if:
You’re chronically ill or a smoker and have the option to convert your term policy to a permanent policy at standard rates (smokers, etc. usually have to pay higher rates)
You have a cottage or investment property you’d like to leave to your family
You have other investments that will trigger a large capital gain (life insurance benefits are tax-free)
You own a business and are investing in tax advantaged financial strategies
If you are a good fit for permanent life insurance, your next decision will be to figure out how much insurance to buy. It all depends on how it fits into your overall financial plan but if you need some help with this, let us know.
What Kind of Permanent Life Insurance Do I Need?
Permanent insurance comes in 3 different flavours: Term-100, Universal Life Insurance and Whole Life Insurance.
Term-100
As you’ve probably guessed, a T-100 policy (not a Terminator reference) covers you until you turn 100 years old. While it’s not really a permanent policy since it can expire before your death, most people don’t live to 100 so it’s the least expensive “whole life” policy available.
Key Advantages
Cheapest form of “permanent” insurance
Stable premiums until age 100
Provides funds to pay final expenses or capital gains taxes incurred by your estate/dependants
Disadvantages
No cash back if your policy expires while you’re still alive
If you’re more than 31 days late on a premium payment, your policy expires
Universal Life Insurance
Universal Life (UL) is pretty similar to the T-100 in that it lasts your whole life and premiums are stable throughout the policy period.
But because this is a true whole life policy, it comes with an “investment account” that lets you deposit cash into the policy to be invested in the insurance company’s fund. The funds grow on a tax-deferred basis and the principal and interest become part of your death benefit to be paid to beneficiaries on a tax-free basis.
This feature makes it the most popular permanent insurance product – especially for those looking to transfer wealth without paying hefty estate taxes.
Key Advantages
Affordable (relative to other permanent insurance policies)
Stable premiums until age 100
Can be used to pay capital gains taxes when you die
Investment account feature (as explained above)
More flexible than a Whole Life policy
Disadvantages
Complex and can be hard to understand
High fees on the investment account
Universal Life Insurance Payment Options
Did we mention that Universal Life is complex? Universal Life has 2 payment structures to choose from: Level Cost of Insurance and Increasing Cost of Insurance (aka. Yearly Renewable Term Cost of Insurance).
Level Cost of Insurance
Premiums remain the same for life
Premiums can be paid over the course of your life (resulting in a cheaper monthly premium)
Or, premiums can be paid over a shorter period of time (this is more expensive on a monthly basis but you could be done paying for your policy in as little as 10 years and still have it for life)
Increasing Cost of Insurance
Premiums start low but increase over time
Pay the Target Premium! This means you’re paying the annual premium plus a fixed amount to be invested in the investment account. Depending on the return, you may be required to pay more or less in the future
Our Recommendation
If you do have a need for permanent insurance, Universal Life offers the best value compared to other permanent policies.
Whole Life Insurance
Whole Life Insurance is very similar to Universal Life Insurance but instead of depositing additional cash into the investment account and choosing your investments, a whole life policy automatically builds cash value every year relative to your limit of insurance and premiums paid.
Key Advantages
Premiums are stable for life
Provides guaranteed increasing cash value (like a GIC)
Cash value growth is higher than with GIC’s
Useful for paying capital gains taxes when you die
Disadvantages
Complex and hard to understand
It’s the most expensive type of life insurance
The cash value growth (while higher than a GIC) is usually lower than what you would get investing in equities
Whole Life Insurance Payment Options
Payment options here are the same as for Universal Life: you can either pay for life (the lowest monthly cost) or a limited payment for only 10, 15 or 20 years.