Types of life insurance

Term life insurance is an excellent way to provide large sums of tax-free money in the event of a death that can pay off debts and replace lost income during our working years at a relatively low premium. A term life policy will have a duration for which the premium is locked in, followed by a premium increase when it renews for a new term. You will also have a conversion option allowing you to switch to a lifetime policy without having a medical or going through the underwriting process.        

Whole Life insurance is designed to be in place until death, usually with the premium locked in for life. These policies come with a higher premium than a term policy because the insurance company expects to pay a claim on every policy. Traditional Whole Life policies have a guaranteed cash surrender value and annual dividends. Over time the death benefit can increase in these policies because of dividend accumulation.    

This kind of plan can be customized in many different ways, it can be a lifetime plan or a term plan depending on how a client chooses to set it up. The tax-sheltered investment account within the policy allows for voluntary deposits from the policy owner. Most companies offer a wide selection of investment options in these plans.    

This is a straightforward lifetime policy where the premium is locked in and payable up to age 100. There are two versions of these, one has a guaranteed cash surrender value and the other has no future cash value. The cash surrender value is available to borrow from or is received if you cancel your policy.   

A simplified issue life insurance policy is designed to allow people with past health issues to get coverage. They generally ask a set of yes/no questions and if your answers are all no you are approved. These plans have the premium set slightly higher than a fully underwritten policy. For example, a person who had a heart attack or cancer would be approved as long as it happened 3 years ago.       

These policies have a very high premium because of the risk to the insurance company.  The basic design is that they will insure pretty much anyone even if you have just had a heart attack or cancer diagnosis. If there is a death in the first 24 months of the policy, they will refund premiums paid but no insurance payout. After the policy has been in force for 2 years it will pay it's full insurance amount.