Life Insurance
What is Life Insurance?

Life insurance is used to protect the financial security of the people you love most.

A life insurance policy pays a cash benefit, tax free, to your beneficiaries when you die. The amount of money for which you are insured and the type of insurance you buy depends on your needs.

People can get life insurance through work (some employers offer it through group benefits plans. This type usually ends when you leave the employer.) or they buy it on their own (usually from an insurance advisor).

There are 3 types of life insurance: term, permanent and universal.

  Term insurance Permanent insurance Universal life insurance
  Summary Low cost, temporary protection for times of high financial risk (e.g. when you have a mortgage) Stable lifelong protection without the complexities of universal life. Over the long term, it offers generally a better financial choice than buying and renewing term insurance. A more flexible but intricate type of insurance that combines long term life insurance with an opportunity for tax-deferred savings
Duration Coverage will end at a certain age Guaranteed lifetime protection Typically lifetime protection
Amount of insurance Once chosen, doesn't change Once chosen, doesn't change Choice of level or increasing amount of insurance
Cost Lowest initial cost, but cost may increase each 5, 10 or 20 years. Cost can rise dramatically in later years.

Typically guaranteed not to change for the life of the policy but some products are adjustable.

Premiums tend to be higher than term insurance when you're younger but will be lower than term when you're older.

Cost of the insurance may be:
  • guaranteed and level
  • increase each year or
  • be a combination of both.
Cash value None A cash value usually accumulates, and is paid to you upon cancellation. Payments made, in excess of required cost of insurance, can be invested and grow tax-deferred.

Why do you Need Life Insurance?

Your needs are different from someone else's, but it's good to start with a rule of thumb, If people rely on you to provide for them, then yes, you probably need life insurance.

How does life insurance fit into a financial plan?

The primary purpose of life insurance is to protect - against the personal and financial strain of an unexpected death. However, life insurance comes in many forms and can accomplish other, more complex, goals too.

Term insurance is the simplest type. It is temporary and covers you in case of death for a specified period of time. Like all life insurance, it pays a cash benefit to your beneficiary, tax-free. Term insurance is most useful serving a temporary need, such as when debt loads are high. It is initially the most affordable insurance but the cost will increase as you age. If you want long-term coverage, a permanent insurance solution may be a better choice.

Permanent insurance is just that - permanent. It keeps you covered as long as you live. Over the long term, it could be less expensive than term insurance. Permanent insurance is a good foundation for your financial plan because it will carry you through your entire life. From this foundation you can build your plan by adding health protection and savings programs.

Universal life insurance is a unique design - it provides a tax-free death benefit plus the option to invest and earn tax-deferred interest.

Deposits to the policy fund can be used for :

  • funding the insurance portion or
  • investing, or
  • both of the above

Universal Life policies are also used as a sophisticated financial advise tool for people with significant disposable income.

What Does It Cost?

The cost of the life insurance you buy reflects several things, including:

  • The amount of insurance
  • Your age
  • Your gender
  • Your current health and medical history
  • Whether you smoke
  • Lifestyle (for example: what is your driving record or are you a recreational aircraft pilot?)

Many insurance plans offer options that cost extra. That cost is included in the regular premium that you pay.

To learn more about what life insurance, contact us today.

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