Life insurance is a great way to create peace of mind for you and your family. There are three different types of life insurance term, whole, and universal. It can be difficult to understand how to choose the right insurance for your unique situation.
I will outline the three different types of life insurance policies. Explain the pros and cons of each policy type, and give you some key takeaways that can help you decide on the best life insurance policy for your family.
Term Life Insurance
Term life insurance provides coverage for a specified number of years. Common terms run between 10 to 30 years.
In addition to the pre-determined lifespan of this coverage, its rate is also pre-determined and guaranteed.
Term insurance has no cash value, however, and its rate does spike after the specified term is over, should you want to extend your plan.
Pros
- Lower cost premiums
- Simplified policies
Cons
- Death benefits are only available for your policy term
- There is no cash value, you will only receive the agreed-on death benefit
Whole Life Insurance
Provides set coverage for your entire life. Upon your death, your designated beneficiary receives the benefit.
As part of a Whole Life, the insurance premium is invested, it’s also possible to build and access the cash value associated with this policy–before the end of your life.
You can pull out a loan from a whole life insurance policy. Loans can be paid back to ensure your beneficiaries get the full death benefit payout. If the loan is not paid the amount will come out of the death benefit plus interest.
Pros of a Whole Life Insurance Policy
- You can borrow against the policy
- Loans are tax-free
- Premiums can be locked in
Cons of a Whole Life Insurance Policy
- Higher cost than a term life policy
- Cancellation of your policy could mean surrender charges
- Loans will come out of death benefits if not paid back
Universal Life Insurance
Another great option for your insurance policy is Universal life insurance.
Universal Life insurance simultaneously covers an individual for their entire lifespan while investing in their savings.
Like whole life insurance, one designates a beneficiary to receive the benefit of this coverage, come end-of-life. However, with Universal Life, any extra amount of money paid above the cost of the rate can be added to a tax-preferred savings account to grow.
This surplus can alternatively be simply added to the death benefit, depending on the individual’s preference.
Pros
- No fixed premiums with flexibility in payment options
- Lower premiums than whole life insurance
- Options to make changes to your policy as your needs change
Cons
- Costs may rise as your policy ages
- No guaranteed death benefit
How to Choose a Life Insurance Policy
The life insurance policy you choose will depend on your needs and the budget available for monthly premiums.
Each policy differs in the ability it has to meet the needs of your unique situation.
Both the Whole and Universal policies build cash value. You can also borrow against both policies. A term policy will not have any cash value and will not have any ability to loan you money from the policy.
Whole life insurance charges a premium to guarantee your death benefit. Universal life insurance allows you to increase and decrease your death benefit and premium as your life and needs change.
A term policy is there to create peace of mind for families who wish to set up extra income for their family in the event of their passing. A term policy is made to guarantee a set premium and death benefit for the entire term. Some term policies will allow you to switch them to a whole policy near the end of the term.
The best way to choose a policy is to speak with an insurance specialist and outline what you want your insurance policy to do for you.
Benefits Beyond The Simple Terms
We have largely discussed the terms and conditions of each life insurance plan. The important thing to note is the things life insurance can give you that go beyond simple numbers.
Here are a few great benefits on why you should buy life insurance now.
- Protect your loved ones from financial loss and undue stress
- Pay off debts for your family
- Transfer wealth to the next generation
- Make an impact philanthropically
- Peace of mind for you and your family
Let your insurance policy work for you.
If you want to manage your policy and be actively involved you may prefer a Universal insurance policy.
If you prefer to set up your life insurance and simply let it run a Whole life insurance policy may be better for you.
If you are simply looking for a guaranteed death benefit for your children a term life insurance policy may be the right thing for you.
If you need help finding the right life insurance plan, please call me at (604) 461-6164 or email me at info@ahopkinsinsurance.ca. I would be happy to help you out.
