Permanent Life Insurance
Permanent life insurance is typically used to cover needs that will always be there such as funeral expenses or supplemental income for your survivors.
Term life insurance is suitable for more temporary needs or expenses that have a foreseeable end like your mortgage or putting your children through university.
You can often purchase a combination of policies to suit your individual needs. Beacon Insurance can help you find the right balance.
The basic features of permanent policies are:
level premiums: most policies have premiums that remain level over the lifetime of the policy. This doesn’t mean that the payments remain the same. It means that the premiums you pay in the early years of the policy when you are younger are higher than the risk you represent to the insurer, and when you are older the premiums you pay are lower than the risk you represent.
cash values: the amount of money that builds up in a permanent life insurance policy. You can use the cash value to boost your death benefit, pay your premiums, supplement your retirement income, or take out a policy loan.
participating policy dividends: participating policies share in the financial experience of the insurance company and receive annual dividends. Non-participating policies do not.
non-forfeiture options: these are options available to you if you miss or decide to discontinue paying premiums on your policy. The options will allow you to keep the policy in force or take a cash settlement.
Every permanent insurance policy is designed to provide you with coverage for your whole life. However, some are sensitive to interest-rate and/or stock market fluctuations and present a greater risk, while others provide guarantees.
Whole life is a traditional policy that uses very long-term interest rate assumptions to provide coverage for your lifetime. Your premiums, death benefit and cash value are guaranteed in most insurance contracts.
Interest-rate sensitive policies use current interest rates that change if interest rates change. There is the risk therefore that your premiums could increase if interest rates decrease.
The most popular interest-rate sensitive policy is Universal Life. It consists of two parts: life insurance, and an investment account. The premium you pay will be shared between cost of insurance charges and the investments you select. You decide how each part is set up and you can increase or decrease your premiums and death benefit within limits. Note that investment growth may not be guaranteed, and depends on the type of investment chosen. Be sure to speak with your life insurance agent or company to understand your investment options.
Variable life insurance consists of two parts: life insurance, and an investment component (e.g. stocks, bonds, index and other investment funds). Premiums are usually guaranteed but the cash values vary according to the performance of the investment component. The death benefits may be guaranteed or may vary with the fund’s performance, subject to a minimum guarantee, and you need to be comfortable with the associated risks. You might want to ask for policy illustrations in which low returns are shown. Also check your policy illustrations to see what the identified risks are.