Question 1

What is Whole Life Insurance?

Accepted Answer

Whole life insurance is a permanent life insurance product which means that it lasts your entire life (it never expires). It has two main attributes which are the death benefit and the cash value. The death benefit starts at a specified number chosen by the policy owner (e.g. $100,000). This is the amount that is paid out to your beneficiaries, tax free in the event of death. The cash value starts at $0.00. As you fund the policy premiums over time, the death benefit and the cash value will both increase (for most policies). Whole life insurance premiums in the early years of the policy exceed the actual insurance costs of the company. Later in life whole life insurance premiums (the cost that the policy owner is paying for the policy), because they typically remain level, will actually be lower than the insurance costs of the company on an annual basis. What you are effectively doing is overpaying the true annual insurance cost in the early years of the policy. This over funding of premiums is then saved up or reserved inside the policy (called the cash value). In the later years of the policy when the costs exceed what you’re paying in premiums, there is money from the early years to make up that cost differential. Pay more now to pay less later. Now, if you cancel the policy after a period of time, the insurance companies will typically refund you a portion of that over payment in premium. This is known as a cash value or cash surrender value. It is important to note that most of that cash value will be a refund of over payment in premium, especially in the early years. In past years, many insurance companies were mutual. Mutual companies typically declared a non-guaranteed dividend to participating whole life insurance policy owners. These dividends were then used to automatically create various other options including small units of paid up insurance, or increasing cash value, or one of 2 or 3 other options. Dividends were projected as being used to pay up premiums in later years. In the 1980’s and later, dividends being paid out did not meet earlier projections and as a result many policy owners had policies, they had assumed would have premiums that became paid up but in reality, did not. Consumers then launched various ‘vanishing premium’ lawsuits against insurance companies and were successful with these suits.

Question 2

What is Universal Life Insurance?

Accepted Answer

Universal life insurance is from the family of permanent life insurance products. It’s intended for use if you want life insurance for the rest of your life. Universal life consists of two basic parts to the policy- the insurance and cost portion of the policy, and the investment portion. These two sections of the policy are mostly discrete. The insurance portion of your policy is generally available in two basic formats- level for life or increasing every year. The investment portion of a universal life insurance policy looks similar to many mutual funds. They are not actually mutual funds, but conceptually they are very similar. For example, you will find a wide array of investment options from different companies and many of these options are actually tied to specific and well-known mutual funds. Other common investment options are similar to GIC’s, equity and stock type options and various indexes. The investment portion of most universal life policies does behave like a mutual fund in another very important aspect. The investment options are typically not guaranteed, just like a traditional mutual fund. And that means, like a traditional mutual fund, investments inside your universal life insurance policy can crash and burn. Many universal life insurance policies investment options crashed by 30-40% in 2008-2009 right alongside the rest of the markets. You can have a universal life insurance policy and not take advantage of the investment options. Doing so reduces your insurance policy to something that is similar to a term life insurance or term to 100 policy (e.g level or increasing insurance costs, no cash or investment options). It’s important to note that your annual premiums are not necessarily the same as your insurance costs – money going into and out of the investment options can have an affect. You should be very, very clear on how your premiums are actually being divided inside the policy – what portion covers insurance and what portions covers investments. Many life insurance advisors will sell universal life insurance policies with annual increasing costs of insurance to convince their customer to purchase the policy because the premiums appear to be very low. Every year the cost of the insurance policy increases and gets to the point where it becomes unaffordable, resulting in the policy owner to cancel the policy and lose out on having life insurance. This is why you want to be very aware to see what the cost of insurance is with a universal life insurance policy. Two other cautions when considering universal life insurance… First, even using a conservative interest rate may not be reflective of the actual policy. Let’s say you use 0% interest – can’t get much lower than that, can you? Well, as noted above, many universal life investments performed at -20%–40% in recent years, quite a bit below ‘0%’. Secondly in terms of investments options, most consumers will be better served by RRSP’s and TFSA’s than starting to invest inside a universal life insurance policy. Universal life insurance can be an attractive insurance product for those looking for permanent insurance. All universal life insurance polices we recommend have the following features… Fully guaranteed costs of insurance. Level costs of insurance (we typically do not recommend products with level premiums but increasing insurance costs inside of the policy). Minimal to no investments. Treat your insurance policy as insurance, not as an investment. You can quote guaranteed, level costs of insurance using our online quoting system. When purchasing any type of life insurance, it is very wise to seek out independent, unbiased advice from a life insurance broker who represents all of the life insurance companies in Canada.

Question 3

What is Term to 100 Life Insurance?

Accepted Answer

Even though the word ‘term’ is in the name of the product, Term to 100 is actually not a term life insurance product and is in fact a type of permanent life insurance designed to last your entire life. Term to 100 use to be a very popular product, but now since Universal Life Insurance (LINK) pricing is basically the same, most consumers will purchase a Universal Life Insurance (LINK) product instead because of the added flexibility. With that being said, Term to 100 life insurance is a very easy product to understand. The premiums of the policy (the cost) are level for your entire life. The death benefit (coverage amount) is also level for your entire life. The premiums on the policy are required to be paid until age 100 at which point the policy would be paid up and no future premiums are required. If you are still living at age 100, the policy would still be in force, no premiums would be required to be paid and the death benefit gets paid out at death. As Term to 100 does not have any cash values so premiums are typically less expensive than other permanent insurance products that do have cash surrender values, such as whole life insurance. Term to 100 is commonly used if you are looking for low cost life insurance for the rest of your life for such needs as creating an estate, burial expenses or covering taxes at death.

Question 4

What Does Permanent Life Insurance Cost?

Accepted Answer

The cost for permanent life insurance is dependent on the permanent life insurance product and the company. Not all companies offer permanent life insurance and not all companies offer all three types of permanent life insurance. Permanent life insurance products tend to be much more complex when compared to term life insurance so we highly recommend that you speak with one of our experienced life insurance agents to see what is right for you.

Question 5

What is Cash Value?

Accepted Answer

Cash value (also referred to as cash surrender value) is the investment portion of a permanent life insurance policy. Whole life insurance (LINK) and universal life insurance (LINK) policies can both have cash value. You may have heard of someone cashing their life insurance policy in. This means that they had an investment value that had accumulate over years of paying for their life insurance. They may had run into financial issues or just needed money to go towards the down payment of a home they were looking to buy. As a result, they cancelled the life insurance policy and they received the cash value of the life insurance policy back. Beware- you may have to pay tax to the CRA if you cancel your life insurance policy with cash value so be sure to check with your life insurance company before doing so. The cash value of a permanent life insurance policy is an amount that has accumulated in basically what is a side investment account attached to the policy. Every time you pay a premium to the life insurance company the money is essentially divided into three separate categories. Cost of insurance. The insurance company takes the majority of the premium payment to cover the actual cost of the insurance. This is the amount that they charge you to provide you with the insurance coverage. Operating costs and expenses. The insurance company has costs to operate their company and a portion of the premium payment is used to help pay for these expenses. Cash value. The investment account value which accumulates within the life insurance policy over time. Performance is dependent on a number of factors (policy type, company, investments, etc.). The cash value is separate from the death benefit, so your beneficiaries do not receive the cash value and the death benefit at the time of death- only the death benefit is paid out. This is a common misconception with whole life insurance policies as many consumers believe that at death both the cash value and death benefit are paid out. Cash value predominately exists in whole life insurance (LINK) policies. It is the amount of money that accumulates over time and can be accessed in different ways. The main ways of accessing the cash value of a life insurance policy are, Withdrawal. You can request to withdrawal (or cash in) a portion of your cash value or entire amount. If you cash in a portion of your cash value, you will have a reduction in the death benefit. If you cash in the full amount of your cash value, the policy will no longer exist and will be cancelled. Loan from Insurance Company. You can request to take a loan against the cash value and be charged an interest rate which is determined by the insurance company. We typically see interest rates of between 6-8% charged. If the loan amount exceeds the total cash value amount, the policy will be cancelled/forfeited. Loan from Bank. If you have a large amount of cash value, the policy is considered an asset by banks. There are banks that will secure a line of credit against the cash value of the life insurance policy. You can then draw from the line of credit to access money tax free from your life insurance policy. This is a very popular financial strategy for many. Interest rates charged from a bank are typically much lower than what you would pay from the bank. The growth of cash value inside of a life insurance policy is tax deferred. This means that you do not pay any tax on the growth of the investment while it is growing. The tax is deferred until you withdrawal money from the cash value. Even though the tax is deferred, it will still take many years for this amount to grow to be significant. Life insurance with an investment component (cash value) is a long-term financial strategy. Every policy from every company is designed differently so we highly recommend speaking with one of our experience brokers to see what is right for you.

	Term to 100	Whole Life	Universal Life
Coverage for life?	Yes	Yes	Yes
Are premiums level for life?	Yes	Yes	Yes and No (depends on policy)
Does policy expire?	No	No	No
Is there an investment component?	No	Yes	Yes
Does it have cash value?	No	Yes	Yes
Cost rating	Lowest Cost	Highest Cost	Middle Cost
Detailed Information	Click Here	Click Here	Click Here

	$50,000	$100,000	$250,000
Male – Age 30	$33.98	$60.03	$140.85
Female – Age 30	$32.45	$53.55	$126.00
Male – Age 40	$46.85	$84.78	$204.75
Female – Age 40	$42.57	$74.16	$178.20
Male – Age 50	$74.84	$133.92	$327.60
Female – Age 50	$61.79	$114.66	$279.45

	$50,000	$100,000	$250,000
Male – Age 30	$34.44	$55.69	$124.65
Female – Age 30	$30.18	$49.83	$108.21
Male – Age 40	$48.08	$80.12	$181.71
Female – Age 40	$44.08	$73.47	$164.25
Male – Age 50	$73.42	$128.33	$297.50
Female – Age 50	$60.71	$112.33	$261.27

	$50,000	$100,000	$250,000
Male – Age 30	$34.16	$55.53	$125.33
Female – Age 30	$30.11	$49.68	$110.93
Male – Age 40	$50.54	$85.00	$194.71
Female – Age 40	$44.28	$74.58	$168.46
Male – Age 50	$75.08	$127.25	$296.58
Female – Age 50	$61.67	$111.25	$260.33

Permanent Life Insurance