10 reasons why permanent life insurance is better than term insurance.
If you are on a budget, term life insurance today is your only choice for maximum coverage. If you're more of an average person, you have other options. Permanent life insurance is a cover that is gaining a lot in popularity, let's see why.
1. An asset that grows in value
Permanent life insurance increases in value because the estimated date of your death is getting closer and closer. Term life insurance expires or is canceled before the death of most people. The insurance company therefore “wins” by not paying a claim. With permanent life insurance, your beneficiaries “earn” because a claim will be paid (provided you continue to pay your premiums).
2. Prepayment options
You save packages of interest charges on loans by paying off your mortgage early. Life insurance is similar. With permanent plans, you can often prepay all life insurance costs over a short period of time. This period can even be guaranteed, for example with 20-year life insurance. This will likely give you guaranteed cash values as well.
3. Build up capital
As you build up cash value, you build up equity. As with your home, you can borrow against this capital for tax-exempt income. You are not required to repay the loan or the interest. The interest on the loan may increase, within certain limits. The tax-exempt death benefit then pays off the loan balance and the remainder is paid to your beneficiaries.
4. Get permanent peace of mind
With permanent life insurance, you don't have to worry about losing your coverage. Term life insurance often expires at age 80 or 85, when many people are still alive. This allows the insurance company to reduce claims for reimbursement. As your premiums increase at the end of each term, your insurance becomes less affordable with each renewal. The insurance company makes money by getting rid of you while you are still alive.
5. You don't bet against yourself
With term life insurance, the “jackpot” is paid if you die before a specific date. You “lose” if you live and the insurance company “wins”.
With permanent life insurance, you bet you will die one day. It's a safe bet. There will be a payment.
6. Your wealth grows
Your need for life insurance doesn't end when you retire or pay off your mortgage. As you get richer, you have to pay higher taxes when you die on investments like your RRSPs and a cottage. Life insurance is often the cheapest way to preserve your wealth, as the death benefit is tax exempt and the premiums are usually much lower than the tax bill – especially if you buy when you're younger.
Term life insurance is not enough. You could easily be alive when coverage ends. Most term insurance allows you to convert your insurance into permanent insurance, regardless of your state of health, up to the age of 65 for example. However, the products you can transform may not be as good as those offered to new customers. The premiums will be higher than if you had converted them years before.
7. Your future health doesn't matter
Suppose you buy Term 20 and find you need insurance for longer. The renewal rates after 20 years might shock you. One solution is to buy new term life insurance instead of renewing it. This solution is risky. You do not know if you will be entitled to it because:
- Your future health is unpredictable
- The conditions for obtaining the qualification are increasingly sophisticated
With permanent life insurance, your future health doesn't matter when you choose an affordable lifetime plan.
8. Protection against creditors
Well-structured life insurance is protected against creditors. Your non-registered RRSP, TFSA, house or wallet? You might be surprised.
Creditor protection is less valuable with term life insurance because only permanent cash value life insurance has equity.
9. Inflation protection
When you buy term life insurance for $ 1,000,000, the death benefit remains at $ 1,000,000 per year. After inflation, the real value falls. It may not matter for a short time, but it does for decades. Some permanent plans have a death benefit equal to the face amount plus increasing equity.
10. Premium leave
If you miss a premium in term life insurance, you lose your coverage after a short grace period. Permanent life insurance with cash value allows you to stop paying premiums, possibly for years or forever, depending on the amount of equity accumulated. This gives you flexibility if you are unemployed or need money for other purposes.
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