Should You Choose Term Life or Permanent Life Insurance?
So you're thinking about life insurance. How do you choose between the two main types, term or permanent? You can think about premium costs, payout, taxes, and protecting those who benefit from the policy. But ultimately, it's a decision many people make taking their entire financial portfolio into account.
Term Life Insurance
This option has a set end date: 10, 15 or 20 years, or whatever is the policy length. The terms are often pretty straightforward: affordable premiums and a guaranteed payout in the event the insured person passes away.
You might want term insurance if you and a partner share a mortgage. You can take out a policy for the life of the mortgage, for a value of the debt you owe on the house. That way, if the unthinkable occurs, your loved ones at least have the available cash to protect your most important investment.
Life insurance proceeds, unlike those of mortgage protection insurance, go to the beneficiary. The funds are tax-free and your loved one can use that cash however they see fit. With mortgage protection insurance, the beneficiary is your lender. They receive the money to pay off what's left of the debt. That's why some experts often recommend opting for term life insurance instead of mortgage protection insurance.
You may want term insurance for other reasons, such as to provide a benefit to your children while they are still young and dependent on you financially. Even if you are childless and don't have a mortgage, you may have other debt. Insurance can cover this so it won't effectively cancel out the investments in your estate. Life insurance proceeds can also help take care of debt that goes to your loved ones after your passing, like co-signed loans.
The drawbacks? Term insurance expires. When you renew, you'll likely have to pay a lot more, whether you're starting a new term or choosing permanent insurance.
Permanent Life Insurance
Then there's the permanent life insurance option. As long as you continue to pay premiums, your policy stays in place. Those premiums also never increase -- but they are often more expensive than what you'd pay for a term policy.
Permanent life insurance can also be an investment vehicle. It typically gains cash value over time. That means you can sometimes borrow against the policy, or you can receive some of your money back if you cancel it altogether. Some policies allow you to get some of your death benefit during your lifetime, if you are diagnosed with a terminal illness.
Because permanent life insurance lasts your entire life, your beneficiaries will eventually receive a payout. That payout is tax-free, so those with significant assets sometimes use this as way to shelter their funds when they have maxed out TFSAs and RRSPs.
The drawbacks? Permanent life insurance is pricey compared to term insurance, and the extra cost may not be worth it if term insurance will serve your purposes.
Find the Right Coverage
The latest quotes on cheap life insurance are available on Kanetix.ca. Take some time to explore what's out there, and what options is best for you and your family.