Life insurance – What is it?

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 amortgage )

 

Stable lifelong protection without the complexities of universal life. Over thelong term, it offers generally a better financial choicethan buying and renewing terminsurance.

 

A more flexible butintricate  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.

 

 

More details on term insurance

 

More details on permanent insurance

 

More details on universal life insurance