What life insurance products are available in the industry?

Geoff Cook - CFP, CHAIP

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As I mention in other posts all life insurance products are great they simply are ideal for a different person at a different time of their lives. I am going to discuss the products available to you in the industry and hopefully you can get a sense of what makes the most sense for you.

In order to do this properly we need to make some assumptions.

- Our person (Peter) is 40 years old in regular health.

- Peter is applying for $500,000 of life insurance.

- Premiums are paid monthly.

 - All products I will describe are 100% guaranteed. (The stated premiums, coverage date, and cash values)

There are some products available in Canada that are not guaranteed that are based on investment rates of returns. I would typically discuss these with people after they understand the guaranteed products, and decide they want a more investment related policy.


Life Insurance is all based on numbers. These numbers basically represent two things.

1) When do my premiums change?
2) How long do I pay?

Let's start off by looking at the most commonly purchased product on the market - The Term-10.


Term - 10
 

Remember I said...When do my premiums change?

Well a Term-10 means every 10 years your premiums are guaranteed to change. Here take a look.

As you can see ever ten years the premiums go up in cost to the point that you probably wouldn't want or be able to afford them anymore. If you were to hold on to this your whole life, you would pay more than you receive. In comparison, this product is very affordable for a large amount of coverage in the first 10 years.

You will also notice that this particular policy only lasts until Peter turns 85. Some policies last longer and some shorter.

Sometimes at this point people say...

 "Well what happens if I want my premiums guaranteed longer than that, is there any way to get my premiums steady for a longer period of time?"

The answer is yes...We have a Term - 20. A term 20 means your premiums will go up every 20 years.

At this point people sometimes say..."Well this is ridiculous, I am never going to die, why do I want to pay into something which over my life I will end up paying more than what I am getting, and you end up taking the insurance away from me at age 85."

This is when I like to go back to where we started, stating that life insurance is a tool. A tool that is meant to be used to provide tax free money at a discount. The best way to illustrate this money at a discount concept is to show what's called a Term - 100 also known as a term for life.

 Sometimes people after seeing the term-100 say..."Hey I really like that idea of buying tax free money at a discount...BUT...I dont really want to pay for my whole life, is there anything out there that allows me to pay it off even sooner?

The answer is yes.

We have guarantee paid up products. In this example, I will use the 20 pay. The idea here is that you pay a premium for 20 years and never pay another cent.


As you can see here, you are going to pay a lot more up front for this insurance. The insurance company is basically showing you the long term benefits of paying the policy off early. The insurance company is also over charging you, and they understand that so they are going to add a third component to the policy called a "Cash Value".

A cash value is an account inside your insurance policy which you can draw cash from. When you take part of the cash value out, it proportionately reduces your coverage.

For example - In year 20 above, if you were to take the $91,000 of available cash out of the policy, your coverage would be reduced from $500,000 to $409,000.

Now I will just show one more product.The 10-pay. This works the exact same way as a 20-pay except you pay for only 10 years.

 

 As you can see as I mentioned earlier all these products are very simple, and different. Again, there is no right or wrong answer they simply are useful for different people at different times of their lives.

I need to discuss one more important feature of life insurance policies.

It's important to understand that many life insurance companies sell Term products that are convertible in to whatever other products they have on their shelf. In other words, if you were to buy a Term-10 from a company and it was convertible, you would at any time in the future be able to change some or all of the coverage to a term-100 or a 20 pay provided they have it on their product shelf. 


Now that you know what's available to you in the market you can proceed to the next step which is How do I figure out how much insurance I need to read my post on this - click here

If you are unsure of what type of policy is right for your situation feel free to contact us, and we are more than happy to discuss this with you.

I will also mention some common uses for each.


Term-10

- Someone who needs to get the most amount of insurance for the lowest price.
- A family who needs a lot of insurance and is on a certain budget.
- Someone who only needs insurance for 10 years.

Term - 20

- Someone who want's guaranteed insurance for 20 years.
- Someone who is insuring a loan or a mortgage.
- Someone who is buying insurance for a separation agreement or on a business partner.

Term-100

- Someone who wants to buy guaranteed tax free money at a discount.
- Someone who wants to leave money to a friend, family member or charity upon death.
- To provide money for to pay for a tax burden on a cottage or an asset on death.
- To pay final expenses at death.

20 - Pay

- Someone who wants to buy guaranteed tax free money at a discount.
- Someone who wants insurance for life with the ability to access money before death.
- Someone who wants the ability to grow investments tax free.
- Someone who wants to leave a legacy or estate value.

10-Pay

- Someone who wants to buy the most guaranteed tax free money at a discount with the best possible rate of return.
- Someone who wants to provide money for estate planning purposes.
- Someone who wants to grow investments in a tax free manner.

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When dealing in financial matters, you are urged to consult an advisor for legal, tax or investment advice. Every effort has been made to present information in a clear, exacting manner. However neither the publisher nor the authors can be held responsible for any losses incurred due to the actions of any individual as the result of this post or any errors or omissions contained herein.

Infinite Financial places mutual fund transactions through Banwell Financial Inc. and Life Insurance transactions through Bridgeforce. To learn more about these relationships - click here

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