Permanent Life Insurance
What is Permanent Life Insurance?
Permanent Life Insurance protects you if you are looking for a long-term option to cover you and your family when you may have a financial impact from death. While there are many advantages of taking out a Permanent Life Insurance policy, the one major con is it is significantly more expensive than a term Life Insurance policy.
There are two main types of Permanent Life Insurance: Universal Life and Whole Life, of which the latter is the most common Life Insurance plan on the market.
Universal Life
The Universal Life Insurance policy is a permanent life policy and the more flexible of the plans, compared to the Whole Life Insurance plan option. The premium (time and amount) and the death benefit are the two areas that have the most wiggle room.
What is included in an Universal Life Insurance policy?
Similar to a Whole Life Insurance policy, a Universal Policy has a guaranteed death benefit and guaranteed insurance cost.
What are the Benefits of a Universal Life Insurance Policy?
A Universal Life Insurance policy offers overall flexibility in future choices and planning options for policyholders and their beneficiaries.
If you hold a Universal Life Policy, you have:
- Contractual guarantees and choices including type of insurance charges.
- High returns.
- Option of policy cash values to increase.
These plans include:
A tax-deferred Accumulation Fund¹ with various investment account options allowing for pre-funding COI, policy loans, withdrawals, third-party borrowing (using the cash value as collateral), tax-free Disability Benefit, and tax-free payout to beneficiaries in the event of death.
What are the disadvantages of a Universal Life Insurance Policy?
With every Life Insurance policy plan, there are drawbacks. A Universal Life Insurance policy’s main disadvantages are:
- Investment choices need to be managed and monitored by the policy owner.
- Premium level NOT guaranteed.
Whole Life Insurance Policy
The Whole Life Insurance policy is one of two types of policies recognized as a Permanent Life Insurance policy and the most common Life Insurance plan on the market.
What Does a Whole Life Insurance Plan include?
A Whole Life Insurance policy protects you for your whole life — there are no cut-off dates when the insurance plan expires.
In terms of insurance coverage, this permanent plan offers a guaranteed death benefit to the beneficiary equal to the amount invested, even if the policyholder dies while the policy is still accumulating funds.
Ask your insurance carrier for the benefit amounts and the payout structure as it varies from company to company and depends on the contract details.
What will the Premium be under a Whole Life Insurance Policy?
A Whole Life Insurance plan’s insurance rates are cheaper than a Term Insurance plan and provide options that give level insurance rates for the duration of the contract. The amount of insurance coverage under Whole Life also rises over time.
Under the Whole Life Insurance plan, dividends and policy cash values are often used to offset premiums.
What are the Advantages of a Whole Life Insurance Plan?
In addition to a level guaranteed premium and death benefit mentioned above, there are several benefits to holding a Whole Life Insurance policy.
Whole Life Insurance Plan Benefits:
- Highest annual guaranteed cash surrender value of all permanent plans.
- Annual dividends provide value for consumers that are tax efficient, for accumulating and growing the value of the policy (including the Death Benefit & the Total Cash Surrender value.)
- You can switch from a Term Insurance policy to a permanent plan, such as Whole Life, depending on age, and other factors.
What are the Disadvantages of a Whole Life Insurance Plan?
A few drawbacks to Whole Life Insurance plans include:
- Pricey premiums (significantly higher in most cases)
- Fewer investment options available
- Less flexibility regarding plan options
Overall, the Whole Life option is lifetime coverage that will give you peace of mind with a higher premium.
Why Would you Choose a Whole Life Insurance Policy?
For permanent, evolving and increasing insurance needs, Whole Life provides:
- Lifetime coverage.
- Provide final expenses at the end of the policy period (funeral expenses, estate taxes, etc.).
- Support for retirement income.
- You don’t mind paying higher premiums over the long haul.
- Use of a large sum of money to donate (e.g., charity, organization).
Other Insurance Products
Simplified Issuance Insurance
Simplified Issuance Insurance is a type of Life Insurance that is ideal for people who want a quick and easy way to get insurance coverage. The streamlined underwriting process reduces the underwriting requirements providing greater eligibility but increases the premium.
Term Life Insurance
Term Life Insurance provides coverage within a specified time period (“term” of years), paying out a death benefit to a beneficiary when the policyholder dies. Once your Term Insurance policy expires or the policyholder reaches a certain age, they are required to renew the Term Insurance policy at a higher premium.
Permanent Life Insurance FAQs
Below are common questions answered about Permanent Life Insurance.
The policyholder pays the minimum required premium (or more, subject to the maximum amount allowed under the Income Tax Act).
The cost of insurance (COI) charges is deducted each month. COI options are Level or Yearly Increasing (YRT) and fully paid up to the age of 100.
A good candidate for a Universal Life Insurance policy is someone who wants a Permanent Life Insurance plan with evolving needs and additional tax efficient pre-funding.
When the policy’s contract expires, there are quick pay options (Level for 10, 15 or 20 years).
If you have a permanent policy like a Whole Life Insurance plan and you need the cash, you can cancel (surrender) the policy.
Cash surrender values allow for policy loans, automatic premium loans (if a premium is missed), third-party borrowing (using the policy as collateral) and cash surrenders when a portion or all the Permanent Life Insurance policy is cancelled.