In many situations, a term life insurance policy may
be the best way to provide adequate financial protection for you and your family. The
policies are usually straightforward and simple, and the premiums are low, particularly at
younger ages.
Term insurance is best suited to meet temporary
needs rather than the long-term needs of survivors. Temporary needs might include the cash
required following death to pay off a mortgage, meet high expenses when children are
young, or perhaps cover certain business obligations.
Term policies provide guaranteed death-benefit
coverage for a specified period such as one, five or 10 years. However, they do not
provide the level premiums and cash value build-ups or dividends that can be available in
permanent life insurance policies. Except for guaranteed term-to-100 policies, the
premiums will increase when you renew a term policy for another period of time.
While the guaranteed payment at death is a major
reason to buy any insurance policy, many people look for more from their life insurance.
Permanent life insurance can provide additional protection from a variety of life’s
uncertainties and be a source of funds for emergencies through policy loans. The cash
value at later stages of permanent insurance policy may supplement retirement income.
Term insurance is more direct and to the point and,
as a result, provides none of these benefits or opportunities.
Permanent life insurance policies, whether they are
some form of whole life, universal life or variable life are, by their nature, much more
complex and sophisticated. However, these products can be far more effective and provide
more flexibility in meeting your unique needs both now and in the future.
To properly assess those needs, you need to prepare
a checklist of obligations, income sources, present and potential expenses and, most
importantly, dreams and wishes for the future. Family responsibilities, of course, will
make this financial needs analysis an even more extensive exercise.
Your analysis would include all your current or
potential assets such as insurance policies, including those from work, your savings,
RRSPs and other investments, and equity in property or a business. Next you’d need to
look at all your liabilities including mortgages, taxes, credit card balances and so on.
The final stage would be to work out, with the help
of your insurance or financial advisor, the long-term income needs of your family and any
dependants, your retirement plans and ongoing financial obligations. Then it’s a
question of calculating the shortfall, if any, that you need to cover with insurance.
A member of the Financial Advisors Association of Canada
(Advocis) has a full understanding of both the various types of
insurance policies available, and the needs you should be considering. He or she can
provide guidance and help you develop solutions which may include, among other products,
term and/or permanent life insurance, other insurance products, or a combination of
insurance and other financial products that can best meet your present and future needs.
