There are essentially three main types of life insurance available for Canadians. These three types of insurance are term life insurance, whole life insurance and universal life insurance. In this article we will be speaking about the basics of one of the most popular types of permanent insurance in Canada- whole life insurance.
Whole life insurance (sometimes referred to as permanent or cash value life insurance) is a type of life insurance policy which is guaranteed to remain in force for the insured person’s entire lifetime, provided that the required premiums are paid for the duration of the policy or until the maturity date of the policy.
Since whole life policies are guaranteed to remain in force for the insured person’s entire lifetime and never expire, the premiums are typically higher when compared to a term life insurance policy because of these additional benefits. A term policy lasts for a period of time and eventually will expire.
The premiums of a whole life insurance policy are fixed for the entire duration of the policy and are based on the age of the insured person when the policy is issued. The premiums do not increase and the insured person is required to pay premiums for their entire life or until the maturity date.
Whole life insurance policies are used by people who want a guarantee that the death benefit of their policy will eventually be paid out regardless of their age. The death benefit is paid out tax free at death and is usually used to cover the following needs (personal or business),
– Funeral expenses
– Estate planning (taxes payable at death)
– Taxes at death
– Charity legacy
– Income for a surviving spouse
– Buy sell agreements
– Key man insurance
– Retirement planning
– Deferred compensation
You may have heard about life insurance policies with cash value or an investment component. Whole life insurance policies can accumulate cash inside of the policy over time. The cash component of the whole life policy grows on a tax deferred policy which means that the growth of the cash investment is not subject to being taxed every year (this is a benefit).
The cash value starts at $0.00 when the policy is taken out and increases over the lifetime of the policy. The cash value amount typically consists of two amounts which are added to a total. There are guaranteed values provided by the insurance company as well as dividends that are typically paid out annually on the policy date.
Depending on if or when you do wish to access the cash investment inside of the policy in the form of a withdrawal or loan, there may be taxation depending on the ACB (adjusted cost base) of the policy. This is where these policies become more complex and we advise you to speak with us for further information.
Whole life insurance can be very basic or extremely complex. We recommend that you consult with us if you are interested in learning more as we can work together to understand your situation in more detail to ensure that you are choosing the most appropriate plan from the right insurance provider for you and your family.
West Coast Life Insurance is available to work with you and provide a no obligation consultation on your existing policy or if you are considering purchasing life insurance. Please do not hesitate to contact us with any questions or concerns that you may have.