Presentation: Which type of life insurance suits you best?

To make it easier for you to prepare meeting materials, we’ve developed these slides on how to determine which type of life insurance is best for your client.

SLIDE 1

Life insurance is an important part of a complete financial plan.

SLIDE 2

Many risks can be effectively covered by life insurance, including:

• payment of taxes triggered by capital gains
• liquidity concerns
• fair and equal compensation of heirs
• elimination of an estate’s debts
• cash for family security

SLIDE 3

But there are many types of life insurance.

SLIDE 4

Some are suited for short-term needs.

Others are more appropriate for long-term and estate-planning purposes.

To best meet your needs, you need to know what’s available.

SLIDE 5

Term Insurance (Renewable and Convertible)

Term insurance is temporary coverage under which premiums are guaranteed and remain level for the term of the policy (e.g., 10 years, 20 years).

Premiums increase with each new term.

SLIDE 6

Term policies are generally renewable with no medical evidence required.

But this feature is usually dropped once you’re past age 70 or 75.

Since premiums increase with age, at some point costs may make it difficult or impossible to continue coverage.

SLIDE 7

Term coverage typically expires at age 80 or 85.

These policies are initially less expensive than permanent insurance.

They’re best suited to short-term insurance needs or specific liabilities like a mortgage or other household debt.

SLIDE 8

Term policies can be converted to permanent insurance without medical evidence, often up to ages 65 or 70.

A disadvantage of term insurance is if a premium is not paid, the policy terminates after 30 days and may not be reinstated if your health has declined.

SLIDE 9

Permanent Insurance

Permanent insurance offers a number of policy types, including Universal Life, Whole Life and Term to 100.

SLIDE 10

Universal Life

This is permanent coverage that unites a term insurance product with a premium or investment account.

The investment portion receives the favourable tax treatment afforded to life insurance policies – investment earnings within the policy are exempt from annual taxation.

SLIDE 11

Charges for the term insurance portion are usually level and guaranteed not to increase for the life of the policy, regardless of your age or any health problems.

SLIDE 12

Monthly premium deposits may range from the minimum needed to cover the monthly cost of insurance and expenses, to the maximum limits specified in the Income Tax Act.

Amounts beyond the minimum can be invested in fixed income options or directed to a number of separate accounts that operate like mutual funds and are linked to various stock or bond indices.

These investment portions offer more potential rewards but also some risk.

SLIDE 13

The accumulating fund value is added to the death benefit and can be borrowed, used to pre-pay future insurance costs or to cover payments in the event a premium is missed.

They also can be withdrawn if the policy is no longer required.

SLIDE 14

Because universal life initially costs more than term 10 or term 20, it may be most suitable for covering longer term or permanent insurance needs, including estate liquidity requirements and capital gains tax payments at death.

Unless you cancel, coverage is for life.

SLIDE 15

Term to 100

This type of term policy has fixed premiums payable to age 100. There typically is no cash built up in the plan and, as such, no reserves to pay future premiums.

The advantage to Term to 100 is the coverage amount and premiums are fixed. The death benefit is payable to age 100 as long as premium payments are up to date. It is simple but not flexible.

SLIDE 16

Whole Life

This is a traditional policy that fully guarantees the level of premiums you pay, the death benefit and the growing cash values within the policy.

Dividends can be declared representing excess premiums paid over the costs required to fund the policy in a given year.

These dividends are discretionary to the insurer.

SLIDE 17

There are a number of options in structuring a whole life plan, including using the dividends to buy additional coverage, taking the dividends in cash or leaving them on deposit.

The death benefit includes the face amount of coverage plus any dividends or paid-up additional coverage.

Unless you cancel, coverage is for life.

SLIDE 18

This presentation is based on an article by Ted Warburton, CLU, TEP, principal at First York in Toronto.