Insurance 101
What you need to know.
Do I need Life Insurance?
Income, Mortgage, Debt and Education are all areas of life where you may benefit from insurance coverage. You’ll want to think about your current and future income needs, your outstanding mortgage and debts, and the amount of money you intend to put towards your children’s education. Insurance also plays a role as an investment and tax planning tool in retirement.
What is a Simplified Issuance Insurance?
YAM Insurance offers access to both simplified and traditional insurance policies. Simplified Issuance Insurance offers a streamlined application process that reduces the underwriting requirements providing greater eligibility, especially for those who may have been declined in the past due to health issues. Most plans provide instant approval with no medical exams required. It’s flexible protection that allows you to choose from term protection for 10, 20, 30 years or permanent insurance coverage.
Is Term or Permanent Life Insurance best for me?
It depends on your financial situation and your needs. You should ask yourself if this a temporary need (pay off mortgage, pay for child’s education) or a permanent need (pay taxes upon death, leave a legacy)?
What is a Death Benefit?
The amount of money you want paid out tax-free to your loved ones if you were to pass away.
Will my prices increase if my health declines?
The price of your term insurance will be locked in and will not increase.
Term Life Insurance
Term Life insurance provides coverage during a specific period of time. If the insured passes away during that period of time, the policy will pay a death benefit to the beneficiaries. Term insurance premiums are less expensive than permanent life insurance because the policy expires at the end of its term.
The process is similar to car insurance where often policy holder will seek to renew after the term expires if the need still exists. If you outlive the length of the policy without renewing, the policy expires without a refund.
The two big questions to ask when buying Term insurance are: How long the term should be and how much life insurance will you need?
The annual cost of the insurance remains the same every year for the term period. Once the term period is over, you can usually renew the policy but the rate at renewal will likely have changed to reflect your new age.
Term Life Insurance can be used as an income replacement solution, providing funds for a loved one(s) after a breadwinner passes away. Term Life Insurance is also good for:
- Covering the balance of a mortgage, so that your family can stay in their home.
- Paying outstanding debts.
- Children’s education costs, to make sure there are funds for tuition and living expenses.
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What is Permanent Life Insurance
Permanent Life Insurance, which includes ‘Whole Life Insurance’ works exactly as its name suggests. If the policy is in place when you die (at any age), it will pay a death benefit. These policies serve as a great planning and investment tool as they provide tax-deferred savings options similar to an RRSP. These policies have what’s referred to as a ‘Cash Surrender Value’ (CSV) and you can borrow against this amount, allowing access to a cash reserve while you’re still alive.
Permanent life insurance is very flexible, which can make it more complicated at times. Three of the more common policy types are discussed below:
Whole Life Insurance
Is a kind of permanent insurance where you remain covered for your entire life. The premiums can be paid over a defined period such as 10 or 20 years or for life. The premiums and death benefit stay the same throughout the life insurance contract.
A whole life policy is also an investment tool since a part of the premium that you pay will go into a tax deferred savings account held by the insurer. This is called the policy cash surrender value and there is usually a guaranteed minimum rate of return. You don’t get to choose how this savings account is invested and the rate tends to be a little bit lower due to administrative costs associated with managing the investment.
Universal Life Insurance (UL)
Universal Life Is another form of permanent insurance. Universal Life offers flexibility in choosing how much you want to pay into your policy as well as a range of investment options to enhance the tax deferred growth within the policy cash value.
Participating Life (Par) Insurance
Your premium payments go into a participating account that is professionally managed where you can participate in the surplus earnings of your insurer. You can receive dividends in cash or use them to purchase additional coverage or reduce future premium payments. You can also leave dividends with the insurer and earn interest that grows tax free.
A Notable Feature of a Permanent Policy: Cash Surrender Value (CSV)
The CSV is a cash value that accumulates within your policy. These funds can be accessed at any time for various purposes, such as supplementing retirement income. If you surrender a policy early, you can receive this amount back, however, the growth amount becomes taxable.
What’s the Difference
Term life insurance can be a more cost-effective choice and it makes a lot of sense when you’re young and your liabilities are straightforward and temporary (like a child’s education or mortgage payments). In contrast, Permanent Life Insurance policies provide lifelong protection and can also provide value in terms of investment and financial planning solutions.
The difference in price can be significant, with Term Life Insurance being cheaper than Whole Life Insurance. One way to think of it is like renting versus buying a home. Renting is usually the more affordable option, however, the renter walks away at the end of their term, whereas the home owner retains ongoing value from the equity portion of their mortgage payments.