By understanding the difference between term and permanent life insurance, this will help you choose the protection you need for your unique situation.
Term life insurance provides temporary protection from the financial impact of death. Term insurance is useful coverage for young families, homeowners and business owners with debts, mortgages, liabilities or income replacement needs.
Term life insurance is typically inexpensive if you’re young and the coverage is temporary. The protection ends when the term ends (if you don’t renew). The cost increases if you renew when the term ends, usually after 10, 20 or 30 years.
You can usually convert term insurance to permanent insurance.
Permanent life insurance provides lifelong protection. Permanent life insurance can be useful for many situations including estate planning, retirement planning and the financial impact of death.
Permanent life insurance also has tax advantaged cash values, a feature that you can utilize when you’ve maxed out your RRSPs (Registered Retirement Savings Plan) or TFSAs (Tax Free Savings Account). In some cases, you may want to consider using it to supplement RESPs (Registered Education Savings Plans).
The advantages of permanent insurance are that it will provide you guaranteed lifetime protection and the cost is guaranteed and doesn’t go up (in most types). Over the long term, it is typically less expensive than term insurance. You can also borrow or cash in the accumulated value.
The disadvantage is that for younger people, the premiums are more expensive than term initially.
Prior to making a decision, review what you makes the most sense for you and your unique situation. Depending on your circumstances, you could choose one or the other or a combination, talk to us and we can help.