Permanent life insurance
Permanent insurance provides guaranteed coverage for life. It is best suited for estate and retirement planning.
Permanent insurance is substantially more expensive than term insurance, especially in the early years of a policy. It is best suited for long-term insurance needs. It is most often used to:
- generate additional retirement income for people who are already contributing the maximum to their RRSP and TFSA each year, or
- provide cash for estate planning purposes, such as covering taxes or donating to a charity.
3 types of permanent insurance
- Universal life
- Whole life
- Term to 100
1. Universal life insurance
Universal life insurance provides guaranteed lifetime coverage, but also includes an investment component that generates tax-deferred savings. Here’s how it works:
- You make ongoing deposits to the policy – with some flexibility in terms of the amount.
- A portion of the deposit is used to pay the premium.
- The rest is invested and grows tax-sheltered, allowing you to boost the value of your long-term savings.
When you die, the beneficiaries you name in your policy receive the insurance amount and the investment proceeds – tax free.
You may also be able to borrow against the savings you’ve built up and use this money to supplement your retirement income. When you die, the policy proceeds can be used to pay back the loan.
2. Whole life insurance
Whole life insurance also provides guaranteed lifetime coverage, but the premium you pay is fixed and doesn’t change from year to year.
Whole life insurance also has a cash value, with savings that build over time. You can use the savings as collateral to take out a loan or use the money for any reason if you surrender the policy before you die. Some whole life policies also entitle you to dividend payments from the insurance company.
3. Term to 100
Despite its name, term to 100 insurance is not term insurance – most policies provide coverage for your lifetime. If you live past 100, you no longer have to pay premiums, but the coverage will continue. Your premiums remain level for your lifetime, or in some cases, may be payable over 20 years.
Term to 100 typically has no savings component or cash value. For this reason, it is the lowest cost permanent insurance available.
A term to 100 policy can be a good choice if you need long-term insurance protection but don’t want or need the additional savings of a universal life or whole life policy.
Permanent insurance guarantees coverage for life and has other savings benefits. It is best suited for longer-term planning needs.