Learn about life insurance
Whether it is a term, whole, or universal life insurance, life insurance decisions are very important in your overall financial planning. Please don’t be misled by wrong choices.
Someone asked me on Twitter last week for my opinion on an old life insurance question: is a term or whole life better. I’d love to share ideas but would like to expand the question a bit.
First, explain, term and whole life are two of life insurance, and the third is universal life insurance. Medicare generally pays an insurance benefit when you are sick, but life insurance pays a tax-free death benefit to the beneficiary only when the insured dies. Many Canadians have employer-provided group life insurance. Some people choose to buy individual life insurance as a supplement to group life insurance, others do not.
Term life insurance is relatively inexpensive life insurance that provides protection for a specific period (the older the insured, the more expensive the premium). Typically, consumers purchase this temporary insurance for periods with significant financial obligations, such as a mortgage, to protect their dependents. For example, if you owe a mortgage of 400,000 yuan, if you have term life insurance with an insured amount of 500,000 yuan during the repayment period, even if the insured dies, the family does not need to experience unnecessary financial difficulties.
Whole life insurance provides lifelong protection. The premium will be more expensive than the term when the insured is young, but the premium will remain the same, so after a certain period, paying for whole life insurance will be cheaper than buying additional term life insurance (some whole life insurance premiums, then changes over time). Participating in life insurance is also a whole life policy and offers policy dividends. You can use the bonus to increase your coverage, take it as a cash payment, reduce your annual premium, or save it with an insurance company to earn interest. In the long run, buying whole life insurance may be better than constantly renewing term life insurance.
Universal life insurance is more complicated. In most cases, it provides consumers with lifetime (or at least long-term) protection. Meanwhile, consumers may be able to make tax-deferred savings. Some policies have a constant premium, some increase it over time, and some combine the two approaches. Premiums that exceed the cost of the insurance can be invested, while savings can be kept tax-deferred.
These are just a general introduction to how these policies work, please review the options available and contact a financial advisor.
Back to the original question, I don’t think it’s really a choice between term life insurance or whole life insurance. For me, whole life insurance plays a fundamental role in family financial planning. I am fortunate to have group life insurance and have purchased additional individual life insurance myself to supplement the group life insurance. After buying our first home with lovely Lisa, we also took out term life insurance that doubled our mortgage.
In other words, I have never had term or whole life insurance. The only question is how much term insurance and how much whole life insurance.
Why so much life insurance? Partly because I experienced firsthand what it would be like to have a family without a parent at 20 (my mom had a heart attack and died at 44). Still, it mostly depends on how I view and manage risk.
