The concept of life insurance in Vaughan is quite confusing and challenging to some. You may ask yourself some questions like, What is term life insurance? What is whole life insurance? What is the difference between term vs whole life insurance? How to choose between term and whole life insurance?
There’s no one answer to any of these questions. Instead, there are different pieces that fit to make the picture clearer. In this blog, we will discuss these pieces. It also includes an overview of the differences between term and whole life insurance. Using this information, residents in Toronto can make the decision between term vs whole life insurance.
Term vs Whole Life Insurance in Ontario
When choosing between term and whole life insurance, there are several variables to take into consideration. A knowledgeable life insurance agent can assist you in evaluating your circumstances to determine the best for you.
But first, you have to understand what these forms of insurance mean. Knowing the differences between term and whole life insurance is essential as it can help you decide which insurance plan is best for you.
What is Term Life Insurance?
Term life insurance from the word itself “term” only provides coverage for a certain period. It’s also called “pure life insurance” because this plan only protects your dependents when you die prematurely. If you have a term life insurance and die within the term, your beneficiaries will receive the payout. Aside from that, the policy plan has no other value.
You have three categories to choose from the term insurance. The standard terms are 10, 20, and 30 years. With most policies, the payout (or the death benefit) and the premium cost stay the same for the entire term.
When you choose term life insurance, you should:
- Choose a term (year) that covers the period you’ll be paying the bills.
- Buy coverage that caters to your family’s needs even if you were no longer there to provide for them financially. Your payout can replace your income and help your family pay for some services you perform now, such as childcare.
Ideally, the purpose of your term life insurance will end around the time it expires. After that, your kids will be on their own. They’ll also have plenty of savings to serve as a financial safety net.
What Is Whole Life Insurance?
Whole life insurance offers lifelong coverage. It also includes an investment component called the policy’s cash value. The cash value grows slowly in a tax-deferred account. It means you will not pay taxes on their gains while they’re accumulating.
You can borrow money against the account. Also, you can surrender the policy for cash if you don’t want to borrow. However, if you don’t repay policy loans with interest, your death benefit will reduce. Furthermore, if you surrender the policy, you’ll no longer get the coverage.
Whole life is more complicated than term life insurance. However, it is the most straightforward form of permanent life insurance. Here are the reasons:
- The premium cost remains the same for as long as you live.
- You can guarantee a death benefit.
- Your cash value account grows at a guaranteed rate.
Some whole life policies can also earn yearly dividends. These dividend payments come from the insurer’s profit. You can leave the dividends in your account for interest-earning or take it in cash. Also, you can use them to minimize premium payments, repay plan loans, or purchase additional coverage. However, dividends are not guaranteed.
How to Choose Between Term and Whole Life Insurance
If you and your family need life insurance, term life is already sufficient. However, if you prefer life insurance with permanent coverage for various situations, whole life insurance is the right one. Between term vs whole life insurance, you have to choose what best works for you and your family.
Select Term Life if You:
- If you need life insurance to replace your income over a certain period. For example, say you want to cover your mortgage payment.
- Between term vs whole life insurance, the costs of term life insurance in Ontario are more affordable. So go for term insurance, if you want the most affordable coverage.
- If you want to have permanent life insurance, but can’t afford it right now. The term life plan is convertible to a permanent plan.
- If you plan to invest your money on other essential things. When you purchase a cheaper term life policy, it lets you invest what you would have paid for whole life insurance.
Select Whole Life if You:
- If you’re planning to financially provide your heirs to pay estate taxes or state inheritance.
- If you have a child, especially one with special needs, choose whole life insurance. It can fund a special needs trust to provide care for your children after your death.
- Want to equalize inheritances. If you’re planning to leave a property or business to your children. Whole life insurance can equalize your inheritances.
Deciding what to purchase between term vs whole life insurance is a personal decision. You should take into consideration your financial needs and the needs of future beneficiaries.
If you are looking for life insurance in Canada, visit Life Insurance Direct today. We provide various life insurance policies, be it a term or whole life insurance. Contact us today at 1-844-922-1392 or send us an email today!