For residents of Calgary, there are two broad categories of life insurance available in are term, or temporary insurance, and permanent insurance.
Some Words of Wisdom
A couple of words of advice to people who are considering purchasing life insurance. First you need to speak with an independent life insurance advisor. Independent of agents represent various Canadian life insurance companies and can offer you a larger variety of products. Also, advisor you end up choosing choose to do business with should conduct a needs analysis to determine the exact amount of insurance you require. Finally, many times the most affordable life insurance policy is not the best policy for you. While most of the life products are the same at all of the companies, some policies do offer unique features that could prove beneficial for your situation. Typically the difference in the monthly premium between the first cheapest and the tenth cheapest is only a couple of dollars per month.
Term Life Insurance
Term insurance is, usually, bought for a fixed period like 10 or 20 years. The premium will remain the same for the selected fixed period and at the end of the term will renew at a higher premium. If you continue to pay the renewal premiums, a life insurance policy will typically end at age 75 or 80.
Term to 100 insurance fits somewhere in between temporary insurance and permanent insurance. You will pay a level premium each and every year until you turn age 100. This is a fixed cost for the rest of your life, and you must pay this premium every year in order to keep the policy in force.
Permanent Life Insurance
Permanent life insurance has two main categories. They are whole life and universal life. When I first started in the life insurance business whole life was the dominant permanent life insurance solution. It was not until the early to mid-1980’s that universal life began to take a more prominent role in life insurance planning.
Universal Life Insurance
Universal life insurance is that they call an unbundled product. There is the actual life insurance component, which lasts for the life of the client, and an investment component allowing for excess premiums to be invested in a variety of bond and equity linked investments. If those investments perform well, then the cash value of the policy will increase. Depending on what the cash value is invested in, there is also the potential for the cash value to decrease. It is a very transparent product. It is easy to track what the client is charge, from an expenses basis, and how the investment component is performing.
Whole Life Insurance
Whole life insurance is not unbundled. Sometimes it is referred to as a black box. There is far less transparency as far as expenses and investment performance. Without starting to sound too much like an actuary, if the participating fund (where your premiums above the insurance cost are invested) returns a profit, the life insurance will share those profits with all the participating fund policy owners in the form of policy ‘dividends’. If the fund does well, you’ve been charged too much for your premiums and the insurance company is returning those excess premiums.
There is also a form of whole life insurance called non-participating. This is still a permanent product, but the policy holders do not participate in the par fund. Also, with whole life policies, the premiums tend to be higher than universal life. This is because there are many built in guarantees that whole life offers that universal life does not. There are a guaranteed cash value and a guaranteed death benefit as long as the policy remains in force. For the most part, universal life insurance policies do not offer the same level of guarantee.
Just A Brief Overview
This is by no means a comprehensive overview of the life insurance product offerings available to Canadians. I just want to give you a basic idea of what is out there. The keys to remember are to seek independent advice, don’t just go with the cheapest option for the sake of price and make sure you educate yourself before you talk to an advisor. A great resource for information is the Canadian Life and Health Insurance Association . They have some great resources on the types of products that are offered in the Canadian marketplace.
Some Words of Wisdom
A couple of words of advice to people who are considering purchasing life insurance. First you need to speak with an independent life insurance advisor. Independent of agents represent various Canadian life insurance companies and can offer you a larger variety of products. Also, advisor you end up choosing choose to do business with should conduct a needs analysis to determine the exact amount of insurance you require. Finally, many times the most affordable life insurance policy is not the best policy for you. While most of the life products are the same at all of the companies, some policies do offer unique features that could prove beneficial for your situation. Typically the difference in the monthly premium between the first cheapest and the tenth cheapest is only a couple of dollars per month.
Term Life Insurance
Term insurance is, usually, bought for a fixed period like 10 or 20 years. The premium will remain the same for the selected fixed period and at the end of the term will renew at a higher premium. If you continue to pay the renewal premiums, a life insurance policy will typically end at age 75 or 80.
Term to 100 insurance fits somewhere in between temporary insurance and permanent insurance. You will pay a level premium each and every year until you turn age 100. This is a fixed cost for the rest of your life, and you must pay this premium every year in order to keep the policy in force.
Permanent Life Insurance
Permanent life insurance has two main categories. They are whole life and universal life. When I first started in the life insurance business whole life was the dominant permanent life insurance solution. It was not until the early to mid-1980’s that universal life began to take a more prominent role in life insurance planning.
Universal Life Insurance
Universal life insurance is that they call an unbundled product. There is the actual life insurance component, which lasts for the life of the client, and an investment component allowing for excess premiums to be invested in a variety of bond and equity linked investments. If those investments perform well, then the cash value of the policy will increase. Depending on what the cash value is invested in, there is also the potential for the cash value to decrease. It is a very transparent product. It is easy to track what the client is charge, from an expenses basis, and how the investment component is performing.
Whole Life Insurance
Whole life insurance is not unbundled. Sometimes it is referred to as a black box. There is far less transparency as far as expenses and investment performance. Without starting to sound too much like an actuary, if the participating fund (where your premiums above the insurance cost are invested) returns a profit, the life insurance will share those profits with all the participating fund policy owners in the form of policy ‘dividends’. If the fund does well, you’ve been charged too much for your premiums and the insurance company is returning those excess premiums.
There is also a form of whole life insurance called non-participating. This is still a permanent product, but the policy holders do not participate in the par fund. Also, with whole life policies, the premiums tend to be higher than universal life. This is because there are many built in guarantees that whole life offers that universal life does not. There are a guaranteed cash value and a guaranteed death benefit as long as the policy remains in force. For the most part, universal life insurance policies do not offer the same level of guarantee.
Just A Brief Overview
This is by no means a comprehensive overview of the life insurance product offerings available to Canadians. I just want to give you a basic idea of what is out there. The keys to remember are to seek independent advice, don’t just go with the cheapest option for the sake of price and make sure you educate yourself before you talk to an advisor. A great resource for information is the Canadian Life and Health Insurance Association . They have some great resources on the types of products that are offered in the Canadian marketplace.