Whole Life Insurance
Whole Life Insurance is the most basic form of permanent life insurance. It provides insurance for a fixed rate (level premium) for your ‘whole life’.
Since whole life insurance maintains a level premium for the duration of your life this gives it some big advantages over term life insurance.
(1) Whole life insurance was developed to be in force at death, so all or a portion of the money you pay into it will be paid back to your family. Statistics show that only 3 – 5 % of term life insurance will ever have to be used to pay out a death claim, because the majority of people will die at an age older than the 10, 20 or 30 year term period chosen. Even if a policy holder continues to renew to another term, they often just outlive the mandatory expiry date (typically at age 75 or 85). Many people simply cancel their term life insurance, as it gets more expensive to renew.
(2) A level premium allows your whole life insurance to build up a Policy Reserve. During the early years the premium on whole life may seem expensive but the excess premium is conservatively invested and built up to form a significant policy reserve, that reserve is then used to subsidize the higher cost of insurance in the later years. A level premium whole life policy is higher than term life insurance at the start, but becomes less expensive later on, in the long run, whole life insurance can be a more cost effective solution.
(3) The policy reserve can build up Policy Values, those policy values can make available some other useful options.
Whole life insurance is a good solution for a family’s long term needs. For example, if a person wants to provide protection for their spouse and children over a lifetime, then whole life insurance is a good fit. Not only does this insurance protect the family’s income and education plans, later on it can protect their retirement and estate goals too.
Insurance is the only way to be sure that a tax free lump sum of cash comes in, just at the exact time needed, to keep your family’s current lifestyle.
Insurance helps a family survive and pay the bills when a wage earner dies and no more pay cheques are coming in. In situations where people die suddenly without insurance, it often becomes difficult to pay everyday bills, never mind finding the money to fund your child’s education. Often, if there is already an education plan in place but day to day living expenses and surprises, necessitate cashing those in to pay current bills.
Longer term, retirement savings plans become a far away dream without that wage earner’s salary, usually people are forced to cash out existing RRSPs and investments in order to take care of cash needs now, just to get by.
Even longer term, there can be numerous costs and taxes at death. Sometimes these costs are substantial and cause devastation to the estate, family and business, if any. Insurance is the only way to be sure you’re family has a tax free lump sum of cash, just at the exact time these taxes and costs occur.
Remember, over time your insurance needs will evolve, so if you can focus on the long term now, you may find whole life insurance can be a more cost effective choice than term life insurance.
Be Careful: About Designating a Beneficiary.
Caution: If someone offers you a Guaranteed Issue Whole Life Insurance policy be careful, as you might get a much better rate elsewhere. You want to avoid their 2 year waiting period where you do not receive the full death benefit and bypass their other restrictions too.
Guaranteed Issue Whole Life Insurance is usually only an option if you cannot get life insurance elsewhere, use it as a last resort.
Tip: Get your whole life insurance early on so you can lock in lower fixed rates.
Tip: Consider using a Joint Last to Die Whole Life Insurance to cover obligations that come due when both parents have died, such as estate taxes or debts.