With your clients potentially living longer, it is important for them to have insurance coverage that lasts them for a lifetime. Compared to traditional term insurance, which typically can't be renewed after they turn 80, permanent insurance provides lifetime protection. It also provides other benefits, such as level premiums, guaranteed values, and tax sheltered gains.
Permanent insurance "provides certainty to people," says Jeff Woolley, president of Global View Capital Advisors in Burlington, Ontario, "certainty for tax planning, to pay their final expenses, and to leave a legacy."
There are three basic types of permanent insurance: whole life, universal life and Term 100. They each have different features but the important thing to note is that the policyholder will be insured until they die, provided the premiums are not allowed to lapse. And the coverage provided by this type of insurance is guaranteed.
Clients need to look at permanent insurance as part of their total financial plan, advises Woolley. "It should be seen as a separate asset class," he suggests.
Here are some considerations about permanent insurance that you should share with your clients:
> Lifelong coverage
Many clients buy less expensive term insurance to cover the loss of their income during their working years, up until retirement or perhaps a decade or more longer. However, they may find that they require coverage for a longer period. Unlike traditional term insurance coverage, which can run out from anywhere between ages 70 and 80, permanent insurance coverage remains in force throughout the client's life.
> Value is guaranteed and predictable
The face value of a permanent insurance policy is guaranteed and facilitates planning, says Woolley. So, if the face value of a policy is $100,000, that is the amount paid to your beneficiaries after your death. In addition, there may be growth in the cash or investments held in the policy: term insurance policies do not have this growth feature. A type of whole life policy, called a participating policy, may receive dividends from the insurer which can left on deposit to earn interest. This increases the amount paid out on death. The investment features of these types of policies are subject to market conditions: however the face value of the policy does not change.
> Premiums are fixed
The premiums of whole life policies never change, they are fixed. In some cases, you can choose to pay up the premiums for a policy by paying higher premiums over a shorter period of time. This strategy is more popular among younger individuals who may prefer to make all their payments early. You can also choose to pay a higher premium in a universal life policy, with the difference in the cost of insurance and the higher premium going to the investments portion of the policy.
> Tax free growth
Some of the growth in the cash values in a policy or growth in investments, accumulates tax free in a permanent policy. However, new tax rules which come into force on January 1, 2017 will impose greater restrictions on the amount of growth that can be sheltered tax free in policies issued after December 31, 2016.
For more, see: A permanent choice, a web-exclusive series on permanent life insurance.
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