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Whole life insurance

December 18, 2012

piggy bankWhole life insurance is just that – coverage for life.  It’s a permanent type of life insurance to provide protection for a lifetime, unlike term life insurance, which provides coverage for a specific period of time.  This type of life insurance spreads the cost over the lifetime of your policy, keeping premiums typically lower.  It may seem like this type of life insurance policy is a higher cost than other policies; but with the investment component known as a ‘cash value’, you will earn tax-free money and it can also be used to make payments to your premium.

Who can benefit?

Those who have family can significantly benefit from whole life insurance.  It’s ideal for those people looking to ensure the financial security of loved ones in the event of death.  It may provide protection in the event of family’s loss of income, outstanding mortgage costs and educational needs.  It is also ideal for those looking for a simple and affordable product.

There are typically four whole life insurance options available:

  • L10 – providing lifetime coverage with premium payments for 10 years;
  • L20 – providing lifetime coverage with premium payments for 20 years;
  • L65 – providing lifetime coverage with premium payments up to the age of 65;
  • L100 – providing lifetime coverage with premium payments up the age of 100.

Benefits

  • Unless making a change to your policy, you have life-long coverage with no medical exams required;
  • Guaranteed cash surrender values (lump sum received if policy is cancelled before maturity or an event occurring);
  • Tax-savings benefit;
  • May insure multiple people under the same policy;
  • Premiums are guaranteed for the life of the policy and determined based on the general state of your health.

Payment Duration

Whole life insurance policies spread your payments of the insurance coverage of the estimated duration of your life; which means that you could ultimately pay for the policy even when you’re retired. There are methods of paying for the policy sooner, while you’re making more money.  Most commonly are the 10 and 20-year plans.  The shorter the time, the higher the payments; but you’ll be done paying for the policy at early age.

Tax Advantages

A common reason for selecting a whole insurance policy, in addition to the other benefits, is the tax benefit that you could receive.  The cash value of your insurance policy is an investment that can gain interest as a rate determine by the long-term financial forecasts.  Whole life insurance is typically very stable for Canadians with a guaranteed rate of return.  You will be gaining interest on these funds that you would normally be taxed on.

Overall, whole life insurance is a good value for your money, as you build cash value that you’re able to borrow against if you need to in the future.  The premium remains the same always, allowing you to know what to expect.  Your family will receive the protection they’ll need in the event of a death.   Whole life insurance policies continue to gain popularity in Canada, for the both the protection received as well as the investment component.  The key to whole life insurance policy is to understand that it is a long-term investment and commitment – fixed premiums and fixed rate of return.