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Life Insurance

Insurance, Written on Glass

There are two basic choices when it comes to Life Insurance:
1. Term Life Insurance
2. Permanent Life Insurance.

In order to make it easier for our clients to decide which Type of Coverage is suitable for them we have given a brief explanation of these two different types of Life insurance Coverage below;

Types of term insurance

Term Life Insurance provides coverage for a specific period, ranging from 10, 15, 20, 25 to 30 years. Most Term Life Insurance coverage are renewable and/or convertible at the end of each policy (term) period until a certain age. (Mostly till Age 80 or 85 depending on the insurer). The premium (Monthly cost)for a term life insurance increases at each renewal period while coverage amount either remains the same or diminishes in the case of a decreasing term insurance policy.

On the other hand assuming your Term policy comes with a conversion option you can convert it to a Permanent Life Insurance coverage. Generally, you can only exercise the option to convert to a permanent plan before your 65th birthday.

Permanent Life Insurance includes Whole Life and Universal Life. Permanent Life Insurance is designed to provide lifelong financial protection as long as the policy is in force. Both premium and coverage amount remain unchanged for the life of the policy, coverage does not expire unless the life insured expires at which point the coverage amount is paid out to the beneficiaries.

Cost of coverage;
Initially, term life premiums are generally lower than permanent life premiums. However, term life premiums typically increase upon each renewal, while permanent life premiums stay the same.

Cash accumulation/Cash surrender value CSV
With most types of permanent insurance, there is a savings component known as cash value; the longer you pay into your policy, the more its cash value grows. You can choose to cash in or borrow against your permanent life policy and use the funds as needed. You can also surrender your permanent life policy and the insurer will refund you the balance of the accumulated cash value (after deducting expenses and taxes). This is called Cash Surrender Value (CSV)
Most Term insurance policies do not accumulate cash value because they do not have a savings component. However, there are some participating Term products that do have cash accumulation but that is beyond the scope of this conversation.

Death benefits;
Both types of insurance provide life insurance protection and pay out for death claims made by beneficiaries. In cases where the policy term expires before the insured person dies, a claim would not be paid. There is lifelong financial protection with permanent life insurance, so beneficiaries will receive the death benefit as long as the policy was in force when the insured person passed away.
Life insurance is meant to provide a tax-free lump sum to your beneficiaries in the event of your death. Your beneficiaries can use the funds to pay for your funeral expenses, pay off your Mortgage, provide for your Children or Grandchildren that you left behind, make a charitable donation to your place of Worship or Community, pay off your Final tax obligations etc.

In summary, Term Life Insurance can be appropriate for needs that are short term in nature. For example; paying off your Mortgage in the event of your sudden death. Most Mortgages have a 25-30 year ammonization so buying a 25 or 30-year Term insurance to cover that particular need is not a bad idea. Also you can purchase a Term life insurance to provide protection while your children are still little, for example if your youngest is 5 years old we do recommend that you buy a 20 or 25 yr. term coverage. This will ensure that there will be financial protection until he/she is at least 25 or 30 years old at which point hopefully they would be financially independent.
On the contrast we do recommend Permanent insurance for anyone looking a lifetime of coverage, most people buy permanent insurance to cover their final expenses when they die at a later age in life. Others buy it for the certainty/guarantees it provides. They do not want to worry about losing the coverage when they get older (renewal is not possible after 80 or 85) or having to pay more at each renewal period as is the case with a Term policy.

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