Jonathan Mercier

By Jonathan Mercier

May 3, 2021

Financial Security

Life Insurance: Permanent or Term?

There’s a wide range of life insurance products on the market, and they include a variety of options. Would you like to get a better understanding of the insurance offered by your financial security advisor? Let’s start by highlighting the differences between permanent and term life insurance.

What is life insurance for?

Even in this day and age, there are some employers who do not offer their employees access to insurance coverage in the event of death. But even those who hold life insurance through their employers may not be covered adequately. They could be holding coverage that does not meet all their insurance needs. That’s when having your own life insurance enters the picture!

Life insurance is there to make sure your family is taken care of in the event of your death. It will compensate for the loss of income resulting from your death. Your family can maintain its standard of living, despite going through difficult times.

Your life insurance should cover the costs related to your death, i.e. the funeral expenses, and pay off your debts. It can also allow you to leave an inheritance for your loved ones.

Permanent life insurance vs. term life insurance

Permanent life insurance covers your family and your estate during your lifetime. Many products with various benefits are available for you to choose from to help you find the one that fits your needs.

One of the main differences is that permanent life insurance can be redeemed at any time. This means that the contract value which accumulates over the years can be withdrawn as an advance. This advance is a loan however, with an interest rate, so it’s important to at least pay the annual interest. If you are unable to repay the loan during your lifetime, it will simply be deducted from the death benefit payable to your beneficiary.

Meanwhile, term life insurance can be viewed more as a “what if” insurance: What if I die before my children finish their studies? What if I die before paying off my mortgage? And so on.

This type of insurance is for people who would like their priority projects to be completed within a given time frame. It meets specific needs, and allows individuals to be covered for a period of 10 to 35 years, depending on the situation.

Why choose one over the other?

The life insurance product choice is a personal one. It depends on your goals and needs, and what you wish to leave behind for your heirs after your death.

A financial security advisor would ask you the right questions to help you make an informed decision tailored to your specific needs. He or she will analyze your financial situation, do a balance sheet of your assets and liabilities, and ask about your last wishes.

Some people tend to leave a sum of money as an inheritance, while others think that leaving no debt behind for their loved ones is plenty. Everyone has their own opinion on the subject.

Here’s a comparison chart to help you get a better understanding:

Term insurancePermanent Insurance
NeedsCovers short-term needs:
> Children's standard of living
> Debt reimbursements
> Mortgage payments
> Business owners' insurance or a shareholders agreement
Covers long-term needs:
> Expenses in the event of death
> Taxes in the event of death
> An inheritance
> Business owners' insurance or a shareholders agreement
CostFixed or low costs for a set period.Fixed cost for the duration of the contract or payable in a few years (e.g. in 10 or 20 years).
RenewalsCan be renewed at the end of the set period. The cost is then adjusted for a new period.Guaranteed until death, therefore not renewable.
Conversion privilegeConvertible to permanent life insurance.Not convertible.
Surrender valueNo surrender value.> Surrender value guaranteed under contract: reimbursed at the termination of contract
> Advance (loan) on the surrender value with an interest rate
> Reduced paid-up coverage: coverage decreases but no premiums to pay

Read also: Life insurance: an asset that’s protected from creditors

Note: This article is intended for information purposes only and should not be construed as legal, financial, tax or other advice. The circumstances or factors may vary depending on your individual situation. Before taking action, we encourage you to consult a professional. La Capitale Civil Service Insurer or La Capitale Insurance and Financial Services shall not be held liable for any consequences arising from any decision taken based on the content presented in this article.

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