When the topic of life insurance comes up, many people have strong opinions. For decades, conventional wisdom said to steer clear of whole life or permanent life insurance. The premiums are much higher than term life insurance. People tend to be suspicious, as larger commissions may be coming in for insurance salespeople who get their clients to buy certain financial products.
As an independent business owner myself, I get it. We need to make sure that we’re getting the most value out of the money we invest and save for our future.
While there certainly are murky insurance products out there that don’t end up benefitting the insured as much as the insurer, there are quality products and plans that are worth the upfront costs and higher premiums. At Black Spruce Financial, we are committed to helping you find a plan that best suits your goals, needs, and interests.
I want to clear up any misconceptions about whole life insurance policies, as these are sometimes the best possible plan for our clients!
Term Life Insurance Vs. Whole Life Insurance
Both types of life insurance are financial products put in place to provide for your loved ones in the event of your death. Both products require a monthly premium.
Term life policies have lower monthly premiums with the same amount of coverage. Typically, these plans are well suited for younger individuals, or for people with lower or unstable incomes. However, term life insurance policies cover you only for a specific number of years – the term of the policy. When the term expires, so does your coverage, usually at a significantly higher rate, unless you have a renewable or convertible plan.
Whole life, or permanent life insurance, is what it sounds like. They provide coverage for your whole life. In addition to the life insurance, there is an investment component to the premium the insured pays. While whole life insurance policies can cost up to eight times more than the premiums for term life insurance, the policy cannot be revoked, or the premiums changed. (1)
Factors To Consider
There is no perfect policy for everyone. Each person’s individual situation factors into the life insurance policy that works best for them. However, a lot of people dismiss whole life insurance because of their higher premiums before considering some of the long-term benefits.
Certainty: One of the most appealing benefits of this form of life insurance is that it gives a certain peace of mind. You can be assured that your coverage will not expire, change in value, or be revoked, as long as you are able to pay your premiums.
Guaranteed Death Benefit: Unlike a term policy that won’t mean anything if you outlive your term, your beneficiaries will receive a total coverage amount when you pass.
Built-In Cash Value: You can also benefit from your whole life insurance while you’re still alive. Once you’ve accumulated enough money through your premiums, you can use the cash value to your benefit. Because a part of your money is being invested, you can borrow against your whole life insurance or use it as collateral for a third party loan. Or you can eventually use the money to pay your premium or as supplemental income in retirement. (2)
Tax-Sheltered Investment: The Canada Revenue Agency doesn’t tax money in life insurance policies, as it is eventually intended for your beneficiaries. This allows you to accumulate wealth and pass on a larger portion of your legacy to your heirs.
Safer Investing: If you’re smart with money, there’s no question about whether or not you’re going to invest some of your wealth. The benefit of a well designed whole life insurance policy is that you aren’t subject to the risks of an unstable financial market. Your money gets compounded in a tax-free, sheltered program.
A Case Study
We advised one of our clients, Darcy to put a whole life policy in place over a decade ago. The software program we use to help create a personalized plan for clients showed that the term life insurance policy he had wasn’t enough to cover his estimated costs. By adding another whole life policy into their strategic plan, they were able to bolster their retirement funds in a way that lessened tax burdens.
Today, Darcy and his wife Donna are happily retired. With the cash value component added to this plan, they were able to not only pay for their two children’s post-secondary education but were able to enjoy a comfortable retired life.
This isn’t the solution for everyone. But it might be an option to consider. Our Three-Step Process of Life Planning can help identify your needs and project a plan that truly works best for you. Let’s start a conversation today about what type of life insurance you need. I’m available at 416-553-5004 or you can email me at gino@blacksprucefinancial.com.
About Gino
Gino Scialdone is a financial advisor and the owner of Black Spruce Financial, an independent wealth management firm serving independent business owners. Having grown up in a family business and owning a business himself, Gino has a unique understanding of the challenges and needs business owners face. Offering a comprehensive array of wealth management and financial planning services, he strives to provide sound and creative strategies that meet a business owner’s short and long-term needs. Based in Toronto, Gino serves clients throughout the greater Toronto area and southern Ontario. To learn more, connect with him on LinkedIn or visit www.blacksprucefinancial.com.
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(1) Blyskal, J. (2015, April 6). Is whole life insurance right for you? Retrieved November 15, 2016, from http://www.consumerreports.org/cro/news/2015/04/is-whole-life-insurance-right-for-you/index.htm
(2) Addessi, F. (December 8, 2015) Who Needs Whole Life Insurance Coverage? Retrieved, from http://www.thesimpledollar.com/whole-life-insurance/