Term vs. Permanent Life Insurance: Which One is Right for You?

Posted on by Tax Partners
31
Dec

Introduction

Key Takeaways:

  • Life insurance options include term and permanent coverage, each suited to different needs.
  • Understanding the features, costs, and benefits of each type is crucial to making an informed decision.

Knowing Your Options

Life insurance is an essential financial tool for protecting your loved ones. Whether you’re planning for a specific time frame or seeking lifelong security, your choice boils down to two main types: term life insurance and permanent life insurance. Both options have unique advantages, and selecting the right one depends on your financial goals and circumstances.

Term Life Insurance

Affordable coverage for specific time frames.

How Long Does It Last?

  • Term life insurance is purchased for a set period, typically 5 to 50 years.
  • At the end of the term, you can:
    • Renew the policy annually (rates increase with age).
  • End the policy.
  • Convert it to a longer-term or permanent policy, subject to conditions.

How Much Does It Cost?

  • Premiums are initially lower compared to permanent life insurance.
  • Costs rise upon renewal as you age.

What Are the Benefits?

  • Provides a tax-free death benefit to your designated beneficiaries.
  • Funds can be used for:
    • Paying down debts.
  • Covering mortgage payments.
  • Supporting education expenses or other financial needs.

Permanent Life Insurance

Lifelong protection with added financial benefits.

How Long Does It Last?

  • Coverage lasts your entire life, provided premiums are paid.
  • Withdrawals or policy changes may impact coverage.

How Much Does It Cost?

  • Premiums are generally higher than term insurance.

What Are the Benefits?

  • Guarantees a tax-free death benefit for your beneficiaries.
  • Builds cash value over time, offering:
    • Access to funds during your lifetime through loans or withdrawals.
  • Potential uses for the accumulated cash value, such as supplementing retirement income or funding large expenses.

Types of Permanent Life Insurance:

  1. Participating Life Insurance:
  • Offers guaranteed growth within the policy.
  • May pay yearly dividends.
  • Premiums remain constant.
  • Managed with a conservative investment approach.
  1. Universal Life Insurance:
    • Includes investment options for managing your risk profile.
  • Provides flexibility in premium payments.
  • Often less expensive than participating life insurance.

Applying for Life Insurance

For Term Life Insurance:

  • Process:
    • Answer basic medical questions.
    • Undergo underwriting.
  • Coverage Options:
    • Online applications: $50,000 to $1,000,000.
  • Advisor-assisted applications: Up to $25,000,000.

For Permanent Life Insurance:

  • Process:
    • Most policies require medical questions and underwriting (exceptions exist for no-medical exam policies).
  • Coverage Options:
    • Online applications: Up to $25,000.
  • Advisor-assisted applications: Up to $25,000,000.

What's Next?

Now that you’re familiar with the differences between term life insurance and permanent life insurance, consider consulting a financial advisor. Together, you can:

  • Evaluate your financial goals and determine the most suitable type of insurance.
  • Obtain competitive quotes for your desired coverage.
  • Explore additional insurance options, such as critical illness insurance, to enhance your financial protection.

Take the first step toward securing your financial future today.

This article is written for educational purposes.

Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at [email protected], or by visiting our website at www.taxpartners.ca.

Tax Partners has been operational since 1981 and is recognized as one of the leading tax and accounting firms in North America. Contact us today for a FREE initial consultation appointment.

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