Choosing a Life Insurance Policy That Suits Your Needs

Life insurance is a great tool that allows you to reduce the aspect of pure risk or absolute risk.  This type of risk does not adhere to a win lose scenario.  This is a threat that is beyond human control and has only one possible outcome, if it occurs: loss.  As a financial advisor my job is ensure that my clients financial well being is protected. This is not limited to the risks that they are taking within their portfolios, but also life risk.  The question then becomes well, what type of life insurance best suits your needs?  That all depends on what you want the life insurance to cover for you.  As we progress through life, our priorities change and so do the variables that we need to consider when making this decision.  In this article we will explore the differences between term and permanent (whole life) insurance and review the advantages and disadvantages of each type of policy.  To keep things simple, in my opinion, if there is anyone that is relying on you financially, you need life insurance. 

People have the greatest need for life insurance during the early years of their adult lives.  This is a period in life, where a person generally, would have minimal financial assets and at the same time high costs, whether it's running the household, children’s expenses, or a large amount of debt (mortgage, line of credit, etc.).  At this stage any event that could compromise the ability to earn income would be considered pure risk.  The primary concern at this stage would be income replacement given that the unexpected death of an income generating spouse could be financially devastating.  A term policy, in this scenario, will be able to give you peace of mind providing the beneficiaries with a tax free lump sum.  At the other end of the spectrum, a retiree is likely to have substantial assets, whether it be from a pension that they are receiving, or distributions from investments accumulated over their working years.  Their children are most likely financially independent and their personal debt is at an all time low.  At this stage in the event of a death the main concern is asset preservation.  The biggest threat to a person’s assets are the taxes that come when an estate is deemed to be disposed (sold), this occurs generally when assets pass on to the next generation. Different retirees have different perspectives, and their views on life insurance would reflect that. If you are looking to leave a legacy for the next generation or perhaps even a charitable cause, a whole life insurance policy would serve either purpose.  This type of policy will never expire and will fund the final expenses and any taxes that may be levied so that the accumulated assets flow to the beneficiaries in full. Figuring out whether term or a whole life insurance policy would suit your needs is a decision that should be based on the financial needs of your beneficiaries as well as your financial goals.  Life insurance can be a very powerful financial vehicle as well a flexible tool that can cover multiple financial objectives.

Now in order to choose the right policy that fits your needs we need to highlight the features of both types so we can have a better understanding of how each will cater to different goals. The following table will provide you with a basic break down between the two:

So, what's the best way to protect your family and achieve your other financial goals? Depending on your circumstances, your choice could be either – or both.  Now that you know the differences between term life insurance and whole life insurance, you can make an informed choice to find the best life insurance solution for you and your family.  This article is purely for general information purposes and I would recommend speaking to an advisor to help you understand the full implications of your available options, and to help you make the best decision for your situation.

This article was prepared solely by Omar Baqa who is a registered representative of Manulife Securities Incorporated. The views and opinions, including recommendations, expressed in this article are those of Omar Baqa alone and not those of Manulife Securities Incorporated. Manulife, Manulife Securities, the Block Design, the Four Cube Design, and Strong Reliable Trustworthy Forward-thinking are trade marks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license. Manulife Securities Incorporated is a Member of the Canadian Investor Protection Fund.