LIFE INSURANCE
There are two types of plans-viz. permanent and temporary (term).
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PERMANENT INSURANCE is value as it always pays. There are plans with guaranteed limited premium payment periods--10, 15 or 20 years--and plans where the premium is payable for life. The premium for a guaranteed payment plan would, as expected, be higher than a plan where premiums are payable for life. Most permanent plans have cash values.
TAX ADVANTAGES OF PERMANENT LIFE INSURANCE
1. All earnings are tax sheltered until actually received.
2. In the event of death, the beneficiary receives the entire amount, free of any income taxes.
3. In the event of disability, the insurance company waives payments on behalf of the policyowner. There is no tax on those payments.
IS A LIFE INSURANCE POLICY THE BEST GIFT FOR OUR CHILDREN?
1. Teaches foresight and thrift
2. A gift for which you will always be remembered
3. If you die or become disabled the policy pays for itself
4. Increasing policy values are tax sheltered
5. Lower premium than would be available later
6. Protects insurability equal to many times face amount
7. Provides collateral for future plans: college, marriage, business
TERM INSURANCE expires at a certain age, mostly 80 or 85 years. It is the most inexpensive form of life insurance in the short run, but the most expensive in the long run.
Premiums increase steeply every 5, 10 or 20 years, and they do not have any cash values.
Term insurance is generally purchased when the need is of a temporary nature--eg.: to cover a loan or provide coverage to parents until the children are of an independent--usually around 20 years.
Mortgage insurance generally takes the form of term insurance. It is advisable to purchase Mortgage insurance from an Insurance company rather than the Bank as the Insurance company offers better terms and rates. There are some aspects of the bank plans you should be aware of:
1. Insurance coverage decreases as your mortgage balance declines--yet the premium remains the same.
2. The insurance can be used early for the mortgage, as the bank is the beneficiary. Your family never receives the money.
3. The Insurance company controls the policy--you do not. The policy is automatically terminated if you pay off the mortgage.
In contrast, individual policies directly purchased from an Insurance company have some distinct benefits:
1. You can purchase a policy with a level death benefit, so that the coverage does not decrease as the mortgage decreases.
2. You can designate a beneficiary to receive the proceeds and use the funds as they see fit.
3. You control your policy--even if the mortgage is paid off, you may choose to continue the Insurance coverage. This is particularly advantageous when the Insured has become uninsurable and cannot qualify for new coverage.
ESTATE PLANNING
Upon death, it may be possible to transfer certain assets to a spouse without triggering taxation. However, on the death of the surviving spouse, assets will normally become fully taxable to the estate, plus there are a number of expenses associated with processing a will.
Permanent life insurance enables you to pass on your assets to your loved ones in the most effective and economic manner. It guarantees that the fruits of your labour are enjoyed by your loved ones, instead of CRA (Canada revenue agency). Insurance companies have devised special policies to look after the tax-bite at death. They are known as joint and second-to-die policies. |
