Life Insurance for most people is still a mystery even though we have more need for it today than ever before. How much coverage you need, and what type of life insurance to get are two of the most important questions to have answered.
The amount of coverage you need is dependent upon several factors which can be calculated from your personal financial profile. It is also dependent on what you are using it for, is it temporary in order to offset a mortgage, is it permanent and meant to take care of final expenses or is it going to be used for estate planning or a combination?
The best way to answer the coverage question is to consult with a broker who can provide an in-depth analysis for you. But to answer the second question what type of insurance should I get?
In Canada, there are two types to choose from: term, and permanent. Here’s a quick overview of each:
Term Insurance is the simplest, least expensive form of insurance and offers the lowest initial premiums in most cases. It is usually designed to fill a specific need for a specific period of time. For example somebody with a mortgage will often acquire term insurance so that, if death occurs while there is still an amount owing, the mortgage will be paid off. Term insurance will be inexpensive at a young age, but it gets more costly with age. There are no cash values associated with term Insurance so at the end of the term of your policy, assuming that no benefits have been paid, there is nothing concrete to show for having paid premiums.
Most term insurance sold in Canada today is renewable. This means that at the end of a set term, it is possible for the client to renew coverage without evidence of insurability. These terms usually last 5, 10, or 20 years. Upon renewal, the client can retain their coverage, but will have to usually pay a higher premium based on their age. The last option to renew will usually come about around age 65 or 70. Many term insurance contracts are also convertible, which means they can be converted into permanent insurance without underwriting.
Permanent Insurance is a more expensive and more versatile insurance product, designed to stay in force for the life of the insured. Permanent insurance products are often used when there is a need for estate planning or estate preservation.
There are, very broadly, three types of permanent insurance:
Whole Life which features guaranteed premiums which may be paid for a limited period, or for the whole life of the life insured. It is usually more expensive at the policy's issue date than term insurance, but its cost will never increase. In this case the insurance company manages the reserve, and, if a policy owner terminates the policy, there is the opportunity for that policy owner to access the cash values associated with the policy. Coverage remains in force either until the policy is terminated by the insured or until the death of the life insured.
The second is Universal Life which gives the policy owner great flexibility. It is still permanent insurance, but the policy owner is given flexibility to manage the policy reserve, the amount of premiums, and the coverage in force. It is somewhat more complex than whole life, and requires a degree of active management by the insured.
The last product is called Term to 100 and is usually abbreviated as T-100. This is also a permanent insurance with no, or very limited, cash values. Because it lacks the cash values associated with whole life or universal life, it is less expensive. At the same time, it is a more basic product and provides the policy owner with less flexibility.
Life can be complicated; thankfully life insurance doesn't have to be. Knowing your own information is the key before meeting with a broker. This Virtual Shoe Box is a great tool to help you to keep track of your important personal and family documents – everything from insurance policies, bank accounts, investments and mortgages to health records and will and estate information.
For more information and guides on life insurance visit:http://www.protectingwhatmattersmost.com/
No comments:
Post a Comment