We Analyzed Whole Life Insurance and This Is What We Learned

Are you insured? Did those words just send a chill down your spine? Finding the right life insurance policy can seem a little scary—there are a lot of different options that are buried under cryptic terms, and often the breakdowns of all of the different types of policies can feel a bit confusing. We wanted to simplify the process for you by making life insurance easier to understand, and thus (hopefully) a little less scary. We’ve taken a closer look at whole life insurance. Let’s take a look to see what it is and who it can help best.

What Is Whole Life Insurance?

Whole life insurance is a form of permanent insurance. Unlike many term insurance policies which expire after a specified length of time (5 years, 10 years, 30 years, etc.), whole life insurance covers you to age 100. It does have higher premiums than term insurance policies—even the term policies that likewise provide coverage for 100 years (Term 100)—but those higher premiums come with two benefits: first, your premium is guaranteed to remain level for as long as you own the policy; and second, whole life provides you with a death benefit as well as a cash value, both of which are also guaranteed for as long as you keep the policy in force.

Glossary of Terms

But before things get too confusing, let’s take a quick look at some of the terms you need to know so you can properly understand what whole life insurance is all about:

• Insurance Premium: the pre-determined amount of money you pay (usually monthly) to keep your policy in force. This amount is determined via an underwriting process that takes into account your risk variables—that is, how likely you are to require a payout.
• Death Benefit: the guaranteed amount that is paid out to your beneficiary in the event of your death. This can be set up as either one lump sum payment, or as a monthly payment. Either way, it is designed to be used to supplement the money you brought into the household to support and protect your family and dependents financially once you’re gone.
• Cash Value: Cash values are particular to whole life insurance policies. Where a cash value is available, you will be able to pay a higher premium each month in order for some of the money you pay to go towards a cash value that is then available for you to borrow against in the event that you ever need some extra cash or an extra income source after retirement.
• Dividends: Some whole life insurance companies are essentially owned by their policy holders, which means that, when the company is doing well and produces excess earnings, the policyholders get to benefit from the excess. This benefit comes in the form of dividends; however, it is important to note that dividends are not a guaranteed benefit like cash value, and they are not the same as holding stock in the company.

What Types of Whole Life Insurance Are There?

There is more than one type of whole life insurance policy, so you do have the option to choose whichever variation suits your needs best.

• Non-Participating Policies: offer coverage to age 100 with a guaranteed premium and cash values, but they do not participate in dividends.
• Participating Policies: are involved in the experience of the life insurance company (with any expense, investment, or mortality), which means they do earn both cash values and dividends.

When Is Whole Life Insurance A Good Thing?

Whole life insurance isn’t always the best investment. It is a good thing to have a life insurance plan that also allows you to invest in a savings option; however, the higher premiums may not be manageable or desirable for everyone. There are times when the whole life insurance option is a good option, though. For instance, let’s say you are using your life insurance plan for your buy-sell agreement (when one of the business partners or shareholders dies, a buy-sell agreement allows that partner’s beneficiaries to use the proceeds of the policy to purchase the shares and maintain control of the company), a whole life insurance policy is a good idea because it is the most permanent option available.

Whole life insurance is also a good idea for those who know they will always need insurance coverage. While most policies should be designed to ensure your beneficiaries have financial protection while you are still working, prior to their entry into the workforce, there are some cases where your beneficiaries will still need protection after you retire. One example is if you have a disabled child. A whole life insurance policy can help you ensure that your child received a death benefit regardless of when you pass.

Finally, whole life insurance policies actually offer a significant new benefit for seniors. Recently, the Equitable Bank launched a new line of credit product that allows Canadians over 50 to borrow as much as 90 per cent of the cash surrender value of their participating policy. This allows them to fund their retirements—without affecting the growth of their policy, and without having to make ongoing payments.

Conclusion: How Can You Get Whole Life Insurance?

Are you ready to get your life insurance policy? There are different sources you can go through: some employers offer life insurance as a workplace benefit, although you may still want to top up their coverage with a policy of your own. You can also apply for life insurance through individual insurance companies or through insurance marketplaces/exchanges. Just remember to compare policy features and prices between companies before you make your final decision. Or visit LSM, a dependable source for information and expertise on whole life insurance policies and other types of policies in Canada.