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.
What is it for?
Temporary coverage from the financial impact of death
Lifelong coverage from the financial impact of death
Combining coverage with tax-preferred cash value growth
Who is it for, mainly?
Young families and homeowners with a mortgage
Adults with a long-term perspective
People who already make full use of registered investment accounts such as RRSP’s and TFSA’s
What are the advantages?
It’s initially inexpensive, if you’re young
You can buy lots of coverage
It’s easy to understand
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
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)
It’s more expensive than term insurance
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)
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
Can you convert it to the other type of insurance?
Can it supplement the insurance you have at work?
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
The trend toward increased longevity makes this an increasingly attractive option because coverage is lifelong, not temporary
Read the full article below on the sun life website: