Permanent Life Insurance

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As the name suggests, permanent life insurance can protect you and your family throughout your lifetime. If you want more than a death benefit from your life insurance policy and like the idea of a long-term savings or investment for various purpose, you might consider permanent life insurance. But be prepared to pay much higher premiums per $1,000 of coverage because you are now funding a considerable cash value account.

Permanent life insurance provides a death benefit and usually builds a guaranteed cash value and account value, these value accumulates within the policy on a tax-advantaged basis. Once a policy accumulated a healthy cash value, policyholder can use these funds in a variety of ways, like as a conservative asset class in retirement portfolio or to supplement retirement income during retirement.

Permanent insurance might be appropriate for:

  • Buy and own
  • Permanent need
  • Higher initial cost
  • Level premium with built-in flexibility
  • Coverage for life
  • Replacing lost income
  • Estate planning / Covering legal fee
  • Increasing value over your lifetime
    • Level or increasing death benefit
    • Tax-advantaged accumulated cash value
  • Receive benefits during life and at death
    • Access to cash value while living
    • Life insurance proceeds at death

Type of Permanent Plans

Whole life:

Whole life insurance can protect you and your family throughout your lifetime. It provides a death benefit and usually builds a guaranteed cash values & account values that builds over time, slowly at first and gaining steam after several years. When you buy a whole life policy, the premiums are set at that time, and are usually guaranteed to be level over the life of the contract or to pay off the cost of the policy over a 10, 15 and 20 years shorter period.

This is the traditional policy which offer death benefit and the growing cash values within the policy, it is similar to equity in your home which grows over time and you can take a loan against it or use it as collateral. You may also withdraw your cash value, but this usually require you to give up partially or fully your insurance coverage or even if you no longer want your whole life policy, you can surrender it to receive the current cash surrender value or convert it into an annuity.

Type of whole life Policies:

1. Participating policies: A participating policy shares in the financial experience of the insurance company, and policy “dividends” are declared annually and paid to policyholders. Premiums are based on conservative estimates of future expenses, death claims and interest or other investment earnings. When experience is more favourable than these estimates, a surplus is created, which allows the company to credit participating policyholders with dividends. Because dividends are based on future experience, such as costs and earnings, they are not guaranteed.

Dividends can be paid in cash, left in the policy to accumulate, used to pay part of the premiums, or used to purchase additional insurance.

2. Non-participating policies: A non-participating policy does not share in the insurer’s earnings and does not receive any dividends.

Universal life:

Universal life insurance is a unique blend of term insurance, permanent insurance and a savings account with the benefits of tax-advantaged investments with a flexible investment options which can be customized to your financial needs and aligned with your risk tolerance. Remember, universal life has many moving parts to clearly understand before you buy.

With universal life insurance, you pay an amount of money that is deposited into one or more investment accounts and each month, the insurance company takes out money to cover the cost of the insurance and administrative costs. The money left in the investment account earns a return based on the performance of the underlying investment options you’ve chosen inside your policy.  You don’t have to pay tax on any growth in the investment accounts because it is part of a life insurance policy, provided your policy value does not exceed an amount prescribed under the Income Tax Act.

Typically, the amount you pay for your insurance is structured in one of two ways: you either pay a level cost of insurance that spreads the actual cost of your coverage evenly over a certain period (10, 15, 20 years or for the life of the policy), or a yearly renewable term (YRT) cost that increases each year to equal the actual cost of insuring you as you grow older. These two cost structures allow you to tailor your policy to suit your specific needs. With the level structure, higher insurance costs are deducted in the early years of your policy, resulting in slower growth of your Cash Value. However, higher growth occurs in the later years when lower insurance costs are charged. The yearly increasing structure, on the other hand, provides higher Cash Value early in your policy and slower growth in later years when the costs to insure you increase.


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