Tuesday, July 15, 2008

Which type of life insurance is best: term or permanent?

The cost of an insurance policy should almost never be the final determinant of which type of product to buy. There are advantages and disadvantages to both term and permanent life policies, and it’s important to figure out one’s personal insurance objectives before making a choice.

Term insurance was designed with cost in mind. It offers inexpensive protection for a temporary period, usually 10 or 20 years, and is normally purchased by those who have a specific objective in mind – usually coverage of a mortgage, line of credit or business loan. For those who worry about leaving such debts behind in the event of an early death, term life insurance offers a simple solution.

A single example will serve to prove the cost efficiency of term life insurance Canada:

A 40-year-old male non-smoker can take out $250,000 of term-20 coverage with Canada Life for $37.58 a year. But that same applicant will have to pay $214.20 a month for $250,000 of 20-pay whole life coverage with Empire Life.

Need we say more?

But for those who desire an investment component to their insurance coverage, term will certainly not do. All the premiums paid into a term life policy are unrecoverable at the conclusion of the term purchased.

Not so with universal life and whole life (permanent) policies, whose premiums are considered “paid-up” and provide cash surrender values and policy loan opportunities for the insured. In many cases the option of what types of securities and where to invest is also left to the discretion of the insured.

For those who seek to purchase life insurance but want more flexibility with their paid-in premiums, the added cost of whole life or universal life policies are clearly worthwhile.

In some cases, a mix of term and permanent insurance may best meet the needs of an applicant with more complex needs. It’s always best to consult with a financial advisor before making such decisions.

No comments: