The type of life insurance you need may differ from the type that fits best for your neighbour, your friends, your parents, or your children.

If you’re thinking this is one of those articles that asks a question and doesn’t provide an exact answer, you’re right — and there’s a good reason. Life insurance is an individualized product. The type of life insurance you need may differ from the type that fits best for your neighbour, your friends, your parents, or your children.

Types of Life Insurance

To learn what type of life insurance you need, it’s important to understand the basics. First, let’s discuss the most common types of life insurance, which fit into to groups:

• Term Life Insurance

• Permanent Life Insurance

Term Life Insurance

You can think of term life insurance as a life policy with an expiration date. This isn’t entirely true because a term life insurance policy can often continue, but the rates are only guaranteed for the stated term of the policy. After the term is up, your rates can change — and sometimes dramatically. This consideration makes term life insurance a better fit if your life insurance needs are short-term (think decades) as opposed to a policy that lasts for a lifetime.

Term policies are often used to cover financial obligations that don’t last forever. A mortgage, or the cost of raising children until they are independent, or both, are common reasons to purchase a term policy. These expenses won’t last forever, so you can often purchase a term life policy that matches the length of your financial obligation and with a death benefit that is close to the amount of money you’ll need for that obligation.

Because the rate is only guaranteed for the term you choose, term life insurance often has lower premiums — but only during the guaranteed term. After that, prices can be quite a bit higher.

A term life insurance policy has no cash value and isn’t an investment. Some people describe term life insurance as pure life insurance.

Permanent Life Insurance

We often think of life insurance as being term life or whole life, but whole life is one of several types of permanent life insurance. Some of the more exotic types of permanent life insurance are well suited to estate planning or as investment vehicles. However, the core permanent life insurance types focus on providing coverage with minimal risk and without an expiration date.

Whole Life Insurance: Unlike a term policy that only guarantees a rate for a fixed amount of time, whole life insurance provides a guaranteed premium throughout your lifetime — even as get older or if you become ill. The younger (and healthier) you are when you lock in your rates, the lower your premiums will be even if your health changes later.

A whole life insurance policy builds a cash value as well by investing in safe investments. The cash value can increase the amount of the death benefit left for your beneficiaries or it can even be borrowed against. Be sure to speak with your broker or accountant before tapping into the cash value of your whole life policy though.

Universal Life Insurance: A universal life policy is often grouped with other permanent life insurance policies because it is designed to last a lifetime. Universal life insurance policies are actually an investment account paired with an annually renewable term life insurance policy.

The growth of cash value within a universal life insurance policy can be faster than with whole life insurance, possibly providing a substantially higher amount over decades. However, the premium for the annually renewable term portion of the policy can become pricey in your sunset years.

Discuss Your Needs With Your Broker

Because our life insurance needs can vary so much from one person to the next, the best way to approach the topic is to talk to your broker about your specific goals for the policy.

Are you filling in the gap from a group life policy from an employer? Are you interested in tax-advantaged estate planning? Are you looking for a way to provide replacement income at any age? The answer to those questions (or others) helps to drive the conversation and determine the type of life insurance you’ll need for you or for your family. Your broker can help you design a complete insurance plan that doesn’t just add a life insurance policy — but considers all of your needs.

Have any questions? We can help.

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