Life insurance is a form of protection that provides your loved ones or beneficiaries with a tax-free payout upon death. This payment can assist in meeting financial obligations even after you have passed away. By safeguarding the financial well-being of those who rely on you, life insurance can provide you with peace of mind. It is critical to ensure that you have adequate life insurance coverage and that you choose the appropriate policy type to safeguard your beneficiaries.
Term Life Insurance provides coverage for a specified period of time, or "term," typically ranging from 10 to 25 years. If the insured person were to pass away during the term of the policy, a tax-free death benefit would be paid out to the designated beneficiary.
Unlike permanent life insurance policies, term life insurance does not have a cash value component that grows over time. This means that the premiums for term life insurance tend to be lower than those of permanent life insurance policies. Term life insurance policies can be either renewable or convertible. Renewable policies allow the policyholder to renew their coverage at the end of the term, without needing to undergo a medical exam. Convertible policies allow the policyholder to convert their term life insurance policy into a permanent life insurance policy, without needing to undergo a medical exam.
Permanent Life Insurance provides coverage for the lifetime of the insured person. Unlike term life insurance, which provides coverage for a specified period of time, permanent life insurance policies don't have an expiry date and are designed to provide coverage for the entirety of the insured person's life. One of the key features of Permanent Life Insurance is that it has a cash value component, which grows over time through interest and/or investment earnings. This cash value can be accessed by the policyholder during their lifetime, either through loans or withdrawals, and can also be used to pay the premiums of the policy.
There are different types of Permanent Life Insurance policies, including Whole Life and Universal Life. Whole Life Insurance policies provide a guaranteed death benefit and a fixed premium payment, whereas Universal Life Insurance policies offer more flexibility in terms of premium payments and death benefit amounts.
It's important to note that Permanent Life Insurance policies tend to have higher premiums than Term Life Insurance policies, as the coverage is designed to last for the lifetime of the insured person and includes the cash value component. However, Permanent Life insurance policies can offer a number of benefits, such as tax advantages, estate planning advantages, and the ability to accumulate savings over time.
Mortgage Insurance pays out a tax-free amount of money to beneficiaries if the insured person dies. However, there are some clear limitations with Mortgage Insurance. Typically, a lender owns the policy and, as a result, is the beneficiary. This usually means that the Lender will use the proceeds of the benefit to pay only what remains of the outstanding mortgage balance. In essence, the amount of insurance coverage decreases over time with the balance of the mortgage as the monthly premium remains the same. One of the most limiting factors is that Mortgage Insurance tends to be post-claim underwritten, increasing the risk that the insured could be denied coverage years after payment had commenced.
The solution to these limitations is to obtain a Life Insurance policy instead. With this option, the insured actually owns the policy and gets to choose the beneficiary. The insured gets to keep the coverage regardless of any changes or reduction in the mortgage. Most importantly, coverage is underwritten at the time of application and once the policy is placed, it cannot be revoked by the insurer (except in cases of misrepresentation or fraud).
Critical Illness Insurance
Critical Illness Insurance offers a tax-free payout in the event that you are diagnosed with a serious condition. The specific medical conditions covered by your policy will be outlined in your contract, but common examples include cancer, heart attack, and stroke.
Disability Insurance provides financial assistance when you are unable to work due to an illness or injury. It offers monthly income to help cover your expenses during this difficult period.