Summary: If you’re looking to create an estate or ensure your beneficiaries will receive a benefit no matter when you die, whole life insurance with cash value may be the right choice for you.
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Life insurance is an important and valuable product as it protects your loved ones in the event of your death. It can replace your family income when resources are limited, allowing your loved ones to maintain their quality of life. It also can be used to cover your mortgage and personal loans, financial obligations your family may not be able to assume.
According to the Canadian Health and Life Insurance Association, 22 million Canadians owned $4.7 trillion in life insurance in 2018. That represents approximately 60 per cent of the country’s population and works out to an average of $417,000 per household. While that may seem like a lot, insurance experts actually believe that Canadians are underinsured. It’s important to discuss your life insurance options with an insurance broker. Depending on your personal long-term financial goals, a permanent life insurance policy with cash value may be the best option, as it has a cash value that you can leverage.
What is permanent cash value life insurance?
Unlike term life insurance that lasts for a specific, pre-set period of time, permanent life insurance with cash value lasts your entire lifetime. It’s comparable to building equity in your home as it grows over time and you can borrow directly against it or use it as collateral for a loan. You can also withdraw your cash value, but this will usually reduce your death benefit.
Permanent life insurance with cash value offers two options: whole life and universal life insurance options.
Differences between whole life and universal life insurance
While both whole life and universal life insurance policies are considered permanent life insurance with cash value, whole life policies have a fixed premium, meaning you pay the same amount each and every year for your coverage. Much like universal life insurance, whole life has the potential to accumulate cash value over time, creating an amount that you may be able to borrow against. Universal life insurance policies offer flexible premiums that may allow you to adjust how much you'll pay each year by accessing some of the policy's cash value, although you will need to pay the minimum premium amount or the policy will lapse. Depending on your policy's potential cash value, it may be used to skip a premium payment, or left untouched with the potential to accumulate value over time.
Why you should consider life insurance with cash value
Life insurance serves a variety of purposes, with the main purpose being income replacement. Many policyholders, however, tap into cash value life insurance for other reasons such as saving for retirement or paying for their child’s post-secondary education. Life insurance policies with cash value provide both a death benefit and cash value accumulation during the policyholder’s lifetime. With cash value policies, policyholders can use the cash value in a variety of ways, including, but not limited to:
A tax-sheltered investment;
A means to pay policy premiums later in life;
A benefit to pass on to their beneficiaries.
Is cash value life insurance right for you?
If you’re thinking of purchasing life insurance, it’s important to consult with an insurance broker who can guide you through the process and make recommendations, based on your situation and long-term goals. But if you’re someone who likes to prepare for the future and wants a guarantee that life insurance coverage lasts for the as long as you live, then permanent life insurance with cash value may be a good option for you. This type of insurance is guaranteed for as long as you live, provided that you maintain the required payments. As well, you’ll have peace of mind knowing your premiums will stay the same, regardless of age or changing health status.
Ultimately, the type of life insurance policy you buy will depend on your financial goals. If you need life insurance for a limited number of years, then term life insurance may be a good option.
However, if you're looking to create an estate, or ensure that your beneficiaries will receive a benefit no matter when you die, then a permanent life insurance policy with cash value may be the right choice for you.
Visit LSM Insurance to learn about the different life insurance options and get a free quote today!