Types of Life Insurance

The different types of life insurance are distinguished mostly by how long the premiums are level for. You should consider the type that best fits how long you need the life insurance for.

Life insurance has two general categories; term and permanent.

Term Life Insurance

Term life insurance is commonly used for family life insurance or dual income no kids.

Term life insurance policies have premiums that are level for an initial number of years called the ‘term’. At the end of the term, premiums increase to the point of affordability. Term policies also expire or cease at a certain age. The longer the initial term, the higher the initial premiums. Common types of term life insurance would be 10 year term (premiums level for 10 years), 20 year term, 30 year term, and term to age 65 (premiums level to age 65).

In step 1 when you determined your amount of coverage, you also determined how long you needed the insurance coverage for. You should choose a term that closely matches how long you need the coverage. Choosing a longer term than you need means you’re paying higher premiums to cover a time in the future when you won’t need the life insurance. Choosing a shorter term than needed means you’ll need to purchase a new policy in the future which will require a new medical exam.

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Permanent Life Insurance

Permanent life insurance is commonly used for final expense, burial expense, and estate creation.

Permanent life insurance has premiums that are intended to be level for life. While term life insurance has premiums that are inexpensive initially and then increase over time, permanent life insurance has premiums that are intended to be level for life. Your premiums today should be the same premiums when you’re 90, ensuring that the life insurance remains affordable as you age.

Permanent life insurance often has an investment component. For most consumers, permanent life insurance is intended to cover final expense and thus any investment component should be treated as s a secondary consideration.

Whole life insurance should have guaranteed premiums and guaranteed coverage for life.

Whole life insurance is the first of two types of permanent life insurance. There are two types – guaranteed and non-guaranteed. Guaranteed whole life has premiums and coverage that are guaranteed not to change for life and should be your initial consideration. Non-guaranteed whole life (including whole life witGO TO STEP 3 – Quotesh dividends) may have premiums or coverage that is not guaranteed, and are often subject to future shocks. Non-guaranteed whole life can (and sometimes, does) leave consumers with unaffordable premiums that increase as you age or decreasing coverage.

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Universal life insurance should have guaranteed level costs of insurance and investments should be kept to a minimum.

Universal life insurance is the second type of permanent life insurance. Universal life insurance has an insurance cost and a seperate investment section. Premiums are discretionary, any premiums paid above the insurance and admin costs are placed into the investment section. Most consumers should be aware that TFSA’s and RRSP’s are generally considered to be far superior investments.

Universal life is characterized by two general classes of insurance costs. The first type has insurance costs that increase annually. This type of universal life should be avoided in all but very rare cases. The second type has insurance costs that are guaranteed level for life. Universal life insurance that has guaranteed level costs and no investments used results in life insurance that is simply level insurance costs for life, no investments.

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