If there is one thing Canadians do not suffer from it is lack of choice. The average consumer looking to purchase life insurance will find themselves choosing from 100 life insurance companies each offering their own unique take on basic policies. That’s why it is always best to arm yourself with a little education about the different options you have before speaking to a broker.
The two most common types of polices are tterm life insurance and whole life insurance. For specific advantages about term life insurance we suggest our article on the advantages of term life insurance. For those that are already familiar with term life insurance and are just looking for more information about whole life insurance than you’ve come to the right place.
Whole life insurance is a type of permanent life insurance in that it never expires. As long as you continue to pay your premiums you are guaranteed that your beneficiaries will receive a death benefit. It is differs from term life insurance in that it is also an investment tool. With whole life insurance a portion of your premiums are invested by the life insurance company on your behalf. It’s for this reason whole life insurance is referred to as “forced” savings.
Forced savings mean that every time you pay your premiums you are saving a portion of it in what is called the cash value. Over time the cash value amount in your policy which can be beneficial in a number of financial scenarios. For example, you can borrow against your policy as that cash value is available to you anytime. The one catch of collecting on your cash value is that you forfeit your coverage, effectively cancelling your policy. This also means no longer being able to collect dividends if they were to become payable with your policy.
Situations do arise where people no longer require their whole life insurance policy or have a greater need for the cash value. Situations like these include supporting yourself in retirement, or not having any beneficiaries to benefit from the policy. In those instances, opting for the cash value of your policy may be a smart financial choice. It is important that you speak with an professional insurance advisor.