Financially Speaking

From love and affection to financial security, your family depends on you for many things. The love and affection parts are yours alone to give; the financial security part derives from multiple sources, first among them, your income. During your life, your income supports your dependents’ lifestyle. When your income is gone, life insurance helps to fill this financial void. The proceeds are received tax-free by your beneficiary and are readily available when needed, – for example to pay for any taxes arising from your death and to invest to generate income.

You do need insurance – the question is what type is best for you and that can be confusing – there are plenty of insurance companies offering a host of life insurance products. Here’s the simple answer: There are actually just two basic types of life insurance, term and permanent. Here’s how they work.

Term insurance is well-suited to meeting high, short-term protection needs for the lowest initial cost. The policy is usually renewable after 5, 10 or 20 years without providing proof of health, and many plans offer the option of converting to a permanent product later, also without providing proof of health. However, premiums increase with your age at renewal and can become substantial in later years. Coverage for most term plans ceases entirely at age 75 or 80.

Permanent insurance provides lifetime coverage. There are two main types:

• Participating (par) Whole life is the ‘traditional’ type and usually the most expensive. It provides a guaranteed amount of insurance coverage for life and a guaranteed cash value. Premium costs are level for life or for a pre-set period of time. The policy’s cash value accumulates on a tax-deferred basis and can potentially grow beyond basic guaranteed values through dividends paid to the policyholder. You can recover the full cash value only if you cancel the policy; you can withdraw a portion or all of the cash value and/or dividends; or you can borrow from the cash value and pay interest on the loan. Death benefits are reduced by the amount of loan outstanding on the policy.
• Universal life combines permanent life insurance and tax-advantaged investment options in one policy. Fund values also accumulate on a tax-deferred basis and can be used to pay part or all of the cost of your insurance. The fund balance normally increases the death benefit. You select the investment mix according to your comfort with risk and financial goals.

Your short- and long-term insurance needs will evolve with your lifestyle and overall financial circumstances. The best way to find the best insurance solutions for you is to speak to your professional advisor or insurance representative.