There are three primary types of whole (sometimes called permanent) life insurance policies — traditional, universal, and variable. Each one has its own variations and characteristics to consider before deciding which is right for you. But we’ll help you navigate the tricky terms so you don’t become part of the 16% of Canadians without insurance!
Without further ado, let’s dive right into the whole life policy types.
Traditional life insurance is the one that most people think about when somebody mentions “permanent life insurance.” It gives you a death benefit and a savings account, covering you for your entire life. So, no matter when you die, it pays out. The value of the payment depends, of course, on the coverage level you take. Canadian insurers usually cover between $10,000 and $10 million — something for all budgets!
The investment feature (i.e., the savings account) holds a portion of your monthly premium payment. That pot is known as the “cash value,” which grows with interest.
Consider it your financial safety net. You can withdraw from your policy’s cash value when times get rough and even live off it in your twilight years.
However, it’s not quite as straightforward as that, There are a few variations to consider first, including:
With a limited pay whole life insurance policy, you pay monthly premiums for a set duration. The timeframe could be a pre-determined number of years or until you hit a specific age.
As soon as you meet the target, you no longer need to pay a monthly premium. The policy benefits stay for your entire life, and the cash value still grows with interest.
Participating whole life insurance coverage gives you the option of getting involved with the provider’s profits by securing dividends. Opting into the program increases both your death benefit and cash value.
You receive the dividends either as monthly payments or as credits toward your upcoming costs. Alternatively, you can choose to reinvest them with your insurer and earn even more interest.
Non-participating coverage, on the other hand, doesn’t give you the same ownership rights to get involved with the provider’s profits. In other words, you can’t receive dividends. This permanent policy type is usually reserved for estate planning and funeral or burial costs.
Because of the added incentives with participating cover, it’s generally less expensive to go with the non-participating option.
Term-to-100 life coverage gives you the best of both permanent and term insurance worlds. With affordable premium costs and lifelong coverage, it’s an ultra-popular choice.
You might be wondering, “how can you get a lifelong cover that’s cheaper than the standard permanent insurance?” At first glance, it seems impossible, doesn’t it? But, the cheaper premiums simply come from the removal of the cash value.
The death benefit and monthly premium stay the same throughout your policy. But your payments only stop once you reach 100 years old.
The second major type of whole life policy is known as universal or adjustable life insurance. It exists to offer increased flexibility than the policies we’ve just discussed.
To give you a taste of the various features offered under universal cover, take a look at the below:
As soon as you start acquiring cash value, you can use the earnings to manipulate your monthly premium payments. Although, a little word of warning — you must ensure your policy won’t lapse if your accumulated value dries up.
Additionally, it’s worth noting the following universal life policy variations:
With this option, the cash value increase directly links to the performance of a certain stock index. Your insurer picks an index and gives you interest based on the positivity of the market trends.
If you decide to take this policy, be sure to keep an eye on your cash value. If there isn’t enough to cover the cost of the premium and other expenses, your policy could lapse.
For a universal life insurance policy that isn’t linked to the success of the stock market, you should consider the guaranteed variety. Your premiums stay the same no matter how the market performs, as your interest rate is locked in at the start of the policy.
You get a “no-lapse” clause too. So, as long as you keep up with your premium payments, your cover won’t lapse.
The downside is that you gain very little cash value. Therefore, missing a premium payment isn’t an option as you’ll have nothing to bolster the shortfall.
The final kind of universal life insurance allows you to edit your premiums and death benefit. Plus, you get to invest the cash value in a plethora of funds, depending on your risk preferences and future investment objectives.
Assuming the funds perform admirably, you receive fruitful returns. However, there is always an element of risk. No investment is ever foolproof or guaranteed.
Lastly, you can choose variable life insurance. This policy mixes death protection and a savings account to invest in mutual funds, bonds, and stocks.
The primary advantage is your cash value tends to grow quicker. But, it presents a lot more risk. If the investments perform poorly, your death benefit and cash value could reduce.
With that said, you can often find providers willing to place a minimum cap on your death benefit to lessen the risk.
No matter what, acquiring life insurance is beneficial. But if you’re having trouble comparing all the types of whole life policies we’ve discussed, don’t hesitate to get in touch with us at Sim Gakhar. We’ll help you discover the policy that’s perfect for you, your lifestyle, and your budget. We’re just a phone call away!
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