Understanding Life Insurance – Sun Life Financial Feature
Their are two basic types of life insurance. Term can last for a set amount of time. Permanent can last for your entire life. But which one is right for you? Knowing their differences and benefits can help you find out.
Term Permanent
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| What is it for? |
- Temporary coverage from the financial impact of death
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- Lifelong coverage from the financial impact of death
- Combining coverage with tax-preferred cash value growth
- Estate planning
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| Who is it for, mainly? |
- Young families and homeowners with a mortgage
- Business owners
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- Adults with a long-term perspective
- People who already make full use of registered investment accounts such as RRSP’s and TFSA’s
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| What are the advantages? |
- It’s initially inexpensive, if you’re young
- You can buy lots of coverage
- It’s easy to understand
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- Lifetime coverage continues even if your health fails
- The cost is guaranteed to never go up (with most types of permanent insurance)
- Later in life, it’s less costly than term insurance
- It provides tax-preferred cash value growth opportunities for people whose RRSPs and TFSAs are topped up
- You can cash in or borrow against its accumulated value
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| What are the disadvantages? |
- Coverage is temporary; the protection ends when the term ends (if you don’t renew)
- The cost goes up if you renew when the term ends (usually after 10, 15, 20 or 30 years)
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- It’s more expensive than term insurance
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| When is it most cost-effective? |
- When you’re young
- When you need only temporary coverage (e.g., until your mortgage is paid off or children are no longer financially dependent)
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- Later in life
- When you have built up cash value in the policy
- When you have a sizable estate to pass along to heirs or charities
- If you’re in a higher tax bracket
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| Can you convert it to the other type of insurance? |
Yes |
No |
| Can it supplement the insurance you have at work? |
Yes |
Yes |
| Trends to consider |
- Rising mortgage and consumer debt. You could still be in debt after temporary term life insurance stops being the cheaper option (or even becomes unavailable)
- Adult children are financially dependent on parents longer than ever, perhaps even after your term policy expires
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- The trend toward increased longevity makes this an increasingly attractive option because coverage is lifelong, not temporary
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Read the full article below on the sun life website:
Full Article - Sun Life