What “flavour” of Life Insurance should you buy?

Almost everyone likes ice cream. But some people prefer chocolate; others prefer strawberry or soft vanilla. Maybe chocolate or butterscotch dipped!

Life insurance comes in a number of “flavours” too. Picking one is not just a matter of taste like your ice cream choice, it is a matter of serving the need you have.

In last week’s article, we explained a bit about life insurance and that the amount of insurance protection should first and foremost be based on a need calculation that takes into consideration your debt load and your income replacement need to keep your loved ones living in the home and lifestyle that is important to you.

The next decision is about the “flavour” or type and term of insurance. There are two main kinds of life insurance: permanent and term. The decision is based on how long you need the insurance protection, and whether or not you want some of the additional features that are only available with permanent insurance.

Term insurance is the simplest and least expensive type of life insurance. It provides pure insurance protection for a set period of time and if the insurance need extends beyond that time, the term can be automatically renewed up to a certain age, but at an increased premium each term anniversary. The shorter the term, the less expensive the policy is to start, all other things being the same. Typical terms are 10 or 20 years (called T10 and T20), but many different varieties are available. The longest “term” is called Term to 100 (T100). It is a form of permanent insurance but without the bells and whistles of some other permanent policies.  

Here is an example comparing $500,000 life insurance over different terms for a 25 year old male non-smoker in good health:
• 10-year term $22.95/month for the first 10 years (total $2,754) then $55.35/month for the next 10 years (total $6,642) for a total of $9,396 for 20 years of protection
• 20-year term $31.05/month for the first 20 years for a total of $7,452 for 20 years of protection

If you only needed 10 years of insurance, the 10-year term would be the best choice. But if you need 20 years of protection, the 20-year term would be a better choice considering the cost over the full 20-year period: $1,944 less than the 10 year term kept for 20 years.

Or, if you need $500,000 of insurance for 10 years and then your need drops down to a lesser amount, let’s say $250,000 you could “layer” your insurance and have two components to your policy: $250,000 for 20 years and $250,000 for 10 years. At the end of the first 10-year term, you could cancel the 10-year term, and allow the 20-year term to keep running.

There are as many different combinations as there are individuals seeking insurance protection. By working with an experienced insurance advisor, it is possible to structure an insurance solution that meets your unique needs. If the insurance need extends beyond 20 years, there are longer terms available such as 30-year term (T30) or T100. Just remember, the cost is fixed for the stated term, and then the policy “renews” without you doing anything, but at a higher price because you are now older, and a higher risk. You don’t have to reapply or requalify, but the price does reflect the passage of time  If you intend on keeping the insurance in force until you die, then T100 or other flavours of permanent insurance are the long term least costly insurance but will cost more in the early years. By the way, Term 100 insurance stays in force as long as you live, even if it is beyond age 100. In the next article we will talk about Why buy life insurance? Why not just invest the money?

We hope you will find this information valuable and will increase your financial confidence. You can always find these articles on our website www.actionfinancialgroup.com.

Karin Rimnyak, Certified Financial Planner®
Investment Advisor, iA Private Wealth
Insurance Advisor, Action Financial Group Ltd.

David Dryburgh, Certified Financial Planner®
Investment Advisor, iA Private Wealth
Insurance Advisor, Action Financial Group Ltd.

Ian Barrie,
Certified Financial Planner®
Investment Advisor, iA Private Wealth
Insurance Advisor, Action Financial Group Ltd.

This information has been prepared by Karin Rimnyak who is an investment Advisor for iA Private Wealth. Opinions expressed in this email are those of the Investment Advisor only and do not necessarily reflect those of iA Private Wealth. iA private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

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