What are the different types of Life Insurance?
Depending on your age, life stage and needs, you may need a mix of Term and Permanent Life Insurance.
Term Life Insurance
Term life insurance is a simple and flexible solution that protects against temporary problems such as debt elimination and replacing income for your family.
- Inexpensive to start and easy to understand.
- Efficiently provides a large amount of coverage for a defined period of time.
- Premiums increase every 10, 20 or 30 years, depending on the term chosen.
- Can be converted, in whole or in part, to permanent life insurance without a medical up to a specified age.
- It expires prior to life expectancy.
- It becomes prohibitively expensive over time because premiums increase at each term renewal (e.g year 21 on a 20-year term policy).
- It has no cash value and is not eligible to receive policyholder dividends.
- There is no flexibility to change or skip premium payments.
Permanent Life Insurance:
Participating Whole Life Insurance
Participating (PAR) Whole Life insurance is a type of permanent life insurance that provides lifetime coverage. PAR Whole Life insurance is a unique asset that combines permanent life insurance protection with a tax-advantaged investment component.
- Guaranteed premiums, cash values, and death benefit.
- Policyholders are eligible to receive dividends annually based upon the experience of the insurance company’s participating account.
- Policyholder dividends vest immediately upon receipt and cannot decrease in value.
- Cash value and death benefit growth (in excess of the guarantees) when policyholder dividends are received.
- Ability to access the cash value in your policy in a tax-efficient manner while you are alive.
- Low maintenance for the policy owner.
The premiums for PAR Whole Life policies are deposited into an account called a participating account. The insurance company manages this account and invests these premiums on behalf of policy holders. If the actual performance of the PAR account is better than the underlying assumptions made by the insurance company, the surplus is paid out to policy holders in the form of policyholder dividends.
A PAR whole life policy is currently classified by the Canada Revenue Agency (CRA) as an exempt life insurance policy for taxation purposes. As such, there is no income tax on accumulating policy reserves, the assignment of a policy to a bank as collateral for a loan is not a disposition for income tax purposes, and loans received by the policy owner may be tax-free.
Universal Life Insurance
Universal Life insurance is a type of permanent life insurance. It provides lifetime coverage with built-in flexibility.