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Insights & advice

What are the main types of life insurance?

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You’re not alone in thinking about life insurance. For many Canadians, it’s an important part of a comprehensive financial plan. It can help your named beneficiary, such as your family, replace your income and fulfill their plans – such as going to university or retiring – in your absence. 

But do you know what type of life insurance is right for you? And are you aware of what life insurance can do for you, beyond helping pay for a funeral and related expenses? 

Let’s find out together. 

Term life insurance 

Term life insurance is a lower-cost product that protects you for a set period of time, like 10 or 20 years. When that time’s up, your coverage is renewed at a higher cost if you don’t cancel your coverage. You can also convert it to permanent life insurance without having to answer questions about your health. 

It also has a lower initial cost than permanent life insurance, and it’s a popular way for those just starting out to protect themselves and their families. Term life insurance is usually less expensive than permanent life insurance, so you may be able to purchase more coverage. 

Participating life insurance 

Participating life insurance, sometimes called permanent life insurance, gives you lifelong insurance coverage as long as you pay your premiums. 

It’s called participating life insurance because the premiums you pay for your coverage, along with premiums from other participating life insurance policyowners, go into a participating account. The insurance company’s professional investment team manages this account, investing to increase its value. 

It’s from this account that your death benefit and any potential dividends are paid. While dividends are not guaranteed, any you may receive can be used to buy additional coverage, reduce your annual premium payments or be taken out as cash (though any cash values withdrawn from the policy may be taxed).  Footnote 1

Universal life insurance 

Like participating life insurance, universal life insurance is permanent, meaning it lasts the rest of your life - as long as you pay the premiums. Universal life insurance combines the advantages of a permanent, lifelong policy with a tax-advantaged investment component. 

So, what may make universal life insurance right for you today? The short answer: flexibility. This kind of insurance typically lets you to select your preferred premium schedule, the amount you want to pay (within limits) and an investment mix that matches your unique risk profile. 

What’s right for you today? 

Term life insurance is the lower cost option in the short term. But while participating and universal life insurance tend to be more expensive initially, the growth potential of the cash value of these types of policies could make them better value in the long run. 

Footnote 1
1 If you borrow or withdraw money from your policy, it will reduce the policy’s cash value and how much money the person (or people) you’ve designated will receive (called a death benefit).

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