There are three types of Life Insurances that are used in Canada.
Term Life Insurance
Term life insurance is temporary life insurance that provides a lump sum tax-free benefit to beneficiaries on the death of the life insured. Premiums are guaranteed but will increase at renewal, such as every ten years.
Term life insurance is inexpensive. This is especially attractive to younger investors who have a smaller net worth. Term life insurance may be convertible to a permanent policy without insurability. Term insurance provides no retirement benefits or cash value later on. Premiums rise with age and may eventually become unaffordable. Term Insurance can be the best product for the short term needs.
Universal Life Insurance
Universal life insurance is permanent life insurance that provides a lump sum benefit to beneficiaries on the death of the life insured. Premiums can be level and cash values can be used as an eventual source of cash or can be added to proceeds after death.
The cash value of permanent universal life insurance grows tax deferred. You have the option of investing a minimum premium up to a maximum premium each year. Any premium above the minimum premium can be invested into various options such as equity link investments or index funds or even into a simple investment account.
Whole Life Insurance
Whole life insurance, as the name implies, is permanent insurance protection for the whole of life in exchange for a guaranteed level premium. Premium payments for whole life policies can be offset using dividends to pay premiums.
Guaranteed level premium for life with guaranteed cash value. Participating dividend and non-participating dividend polices are available. The cash value of a participating whole life policy grows tax deferred. Receive in cash, leave on deposit with interest, apply to future premiums, purchase additional permanent death benefit insurance or use dividend to purchase small amounts of term insurance.
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