When it comes to life insurance, there are many options available – so many, in fact, that it can be an intimidating process to undertake. Many clients are overwhelmed, or unsure about which option is best in terms of cost, coverage and meeting their goals. That said, insurance can be quickly and easily simplified by dividing it into two broad categories: permanent and term.

Each of these insurance categories has multiple variations. The chart below is intended to provide clarity and relieve some of the anxiety associated with choosing the most appropriate insurance option for your situation. If you have questions about insurance options and what would best suit your needs and goals, please contact my team – we’d be pleased to answer your questions!

What you need to know

(source: Canadian Life and Health Insurance Association 2016)

Advantages of Permanent

• Provides protection for your entire lifetime.
• Premium cost usually stays level.
• Has cash values that can be borrowed, and used to cover missed premiums, or withdrawn if the policy is no longer required.
• Other options allow the policyholder various possibilities of continuing coverage if premiums are missed or discontinued.
• If the policy is participating, it receives dividends that can be taken in cash, left to accumulate at interest, or used to purchase additional insurance.

Disadvantages

• Initial cost may be too high for a sufficient amount of protection for your current needs.
• May not be an efficient means of covering short term needs.
• Cash values tend to be small in the early years. You have to hold the policy for a long time (10 + years), before the cash values become sizable.

Advantages of Term 100

• Provides protection to age 100 - if kept in force.
• Premium cost usually stays level, regardless of age or health problems.
• Premium cost is lower relative to traditional permanent policies.

Disadvantages

• Usually no cash values and no or limited non-forfeiture values.

Advantages of Term

• Suitable for short term insurance needs, or specific liabilities like a mortgage.
• Provides more immediate protection because, initially, it is less expensive than permanent insurance.
• Can be converted to permanent insurance without medical evidence (if it has a convertibility option), but will expire at age 80.

Disadvantages

• If renewed, premiums increase with age and at some point higher premium costs may make it difficult or impossible to continue coverage.
• Renewability of coverage will terminate at age 80.
• If premium is not paid, the policy terminates after 30 days and may not be reinstated if health is poor.
• Usually no cash values and no non-forfeiture options.

Have the following questions prepared when meeting with your advisor over this decision

• How much insurance coverage do I need?
• What type do I need? Should I have term or whole life?
• If I’m buying term, what term is appropriate for me? Ten years, 20 years or life?
• If I’m buying term insurance, is it convertible to permanent insurance?

The Bottom Line

As much as we can simplify insurance by using charts and lists to illustrate the differences between each option, it is very important to go over your needs with an expert. A wealth advisor will ask the right questions and identify the appropriate course of action. Relying on general feedback from friends and family can lead to problems as your future needs and current situation can and likely vary from theirs. Again, if you’d like to arrange a consultation regarding your insurance or wealth management needs, please reach out to our team.