Whole life insurance policies are made for those who want a secured death benefit guaranteed to their beneficiaries. These benefits include permanent coverage, a savings component, and tax-deferred bonuses.
Whole life insurance policies can protect your loved ones while providing a living benefit to the policyholder. This page will break down what whole life insurance in Canada includes, how whole life insurance started, and how whole life insurance can affect you and your beneficiaries before and after death. If you’re left with any questions, don’t hesitate to contact life insurance professional Sim Gakhar for further information.
Whole life insurance is a contract between an insurance company and a policyholder. So long as all terms are met, the insurer will pay out the death benefit of the policy to the policyholder’s beneficiaries when the policyholder dies.
Whole life insurance is sometimes referred to as traditional life insurance. It is one type of permanent life insurance, alongside universal life, indexed universal life, and variable universal life insurance policies. All of these insurances are also filed under the “cash value” category of life insurance, as we’ll discuss whole life insurance’s cash component further below.
Contrarily to term life insurance, whole life insurance lasts for the policyholder’s entire lifespan. More rarely, some forms of limited pay policies are paid over 10 years, 20 years, or at age 65.
Premium payments are maintained regularly in exchange for a guaranteed death benefit to the policyholder’s beneficiaries. These premium payments are fixed and generally higher than term life insurance, although these payments will not increase with age as they might do for term life insurance.
Withdrawing from a whole life insurance policy or negating payments will reduce the cash value of your policy.
While life insurance in Canada began in 1846, whole life insurance took off after World War II. After the unexpected realities of the war, families were looking for secured income in the case of the early or unexpected death of their relatives. This began an increase in the number of whole life insurance policies up until the late ‘60s.
Soon enough, investors became interested in other forms of returns. Even so, whole life insurance remains one of the most popular types of life insurance sold throughout Canada in the 21st century.
Whole life insurance policies include a cash savings portion for policyholders. This cash value grows throughout the policy and builds interest. This interest is subject to taxes, but may grow on a tax-deferred basis, depending on the policy.
To grow their cash value, policyholders can pay more than their scheduled payments or premium. These extra payments are called paid-up additions (PUA). Another way to you’re your cash value is through your policy’s dividends. Whole life insurance dividends can also be allocated to the cash value to earn more interest.
This cash value grows with each PUA and reinvested dividend, serving as equity for the policyholder. If the policyholder wants to withdraw funds, they can be withdrawn tax-free up to the total of premiums paid.
Policyholders also have the chance to request a loan through their cash value. Outstanding loans will reduce the death benefit of the policy by the owed amount. Interest rates charged on these loans vary per person, so be sure to discuss this with Sim Gakhar before requesting your loan.
Let’s say Example Insurance contracts a term life insurance policy with J Smith for $25,000. J holds his policy for over thirty years, at which time his cash value grows to be $10,000. J can withdraw or borrow this money while he is alive.
Upon J’s death, Example Insurance will pay out the full $25,000 to J’s beneficiaries; however, Example Insurance will only realize a $15,000 loss because of the cash value.
Policyholders may name whole life insurance beneficiaries who are relatives, friends, business partners, or even organizations. The death benefit is determined within the initial policy contract.
Some whole life insurance policies allow for dividend payments, which is when the policyholder increases the death benefit by using their dividends to purchase additional benefits.
On the other hand, if the policyholder failed to make their payments before death, the death benefit will be reduced.
If the policyholder becomes critically ill, terminally ill, or disabled before death, some policies include provisions, called “riders”, including things like an accidental death benefit or waiver of premium provisions.
When receiving the death benefit, a beneficiary is not required to add the money to their gross income. If the policyholder had decided to hold the money in an account and distribute it to the beneficiary in allotments, then they will be liable for any interest the money accrues while in the account.
On rare occasions, individuals will choose to sell their insurance policy before death, in which case they are responsible for paying taxes on the proceeds. This is not a recommended practice, as then the whole life insurance policy is terminated and your beneficiaries will not receive the death benefit.
Choosing a whole life insurance company with the right provisions can be an overwhelming task. Life insurance professionals like Sim Gakhar offer a helping hand for those who are looking for their perfect policy today.
If you’re wondering how to secure your whole life insurance policy, it’s best to get answers straight from a life insurance agent. Sim Gakhar is one of the top professional life insurance agents and investment advisors in the Ontario area, and she is eagerly awaiting your call.
Sim is experienced in securing the right whole or other life insurance policy for your needs. With her head-on approach, you will be able to discuss your concerns, wants, and expectations openly and with encouragement.
Mrs. Gakhar knows that the best life insurance policy is the one that fits the client best, so she will ensure you are pleased with both the outcome of your work together and your life insurance policy.
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