Is Permanent Life Insurance the Best Choice?

Making decisions for the future, particularly financial decisions, is not something you should do on a whim. Just because you can afford to do something doesn’t mean you should do it.

When you purchase an asset, you look at what that asset’s upfront cost is, what it will cost to maintain, and how its value might accumulate in the future. Will it cost more to maintain than it will be eventually worth later on? Is there a better alternative to this particular asset?

We need to think of life insurance in a similar way. Permanent life insurance is a popular alternative to term life insurance and typically reserved for people with stronger financial health. That being said, even if you can afford permanent life insurance, it doesn’t actually mean you really need it.

In this article, we’ll go into what permanent life insurance is, its benefits, drawbacks, and if it’s really the best choice of a long-term investment for you and your loved ones.

What is permanent life insurance?

Permanent life insurance is a form of life insurance that insures an individual for the duration of their life and offers survivor benefits upon their passing so that their dependents’ financial hardship following the insured’s death may be blunted. There’s many variations of permanent life insurance.

In layman’s terms, permanent life insurance is an alternative to term life insurance, wherein the former offers similar protection as the latter but coverage applies for the entirety of the insured’s life. Moreover, some forms of permanent life insurance offer additional benefits, such as a cash value that accumulates with each payment the insured makes throughout their life. Permanent life insurance policies also feature a locked-in rate, where the premiums are the same for life or until the policy has been paid in full. Permanent life insurance is a bit more expensive than term life insurance, so it’s purchase is something that an individual will want to really consider before making a purchase – because not everyone who can afford it even needs it.

What are some benefits of permanent life insurance?

Permanent life insurance is definitely an option for some, and there’s good reason why it is. Permanent life insurance offers the following benefits:

• When you pay your premiums for permanent life insurance, a portion of that amount goes to a cash value account, which accumulates throughout the duration of the policy at a specific rate. Upon reaching a certain amount, you can borrow money from this amount.
• The cash value amount of a permanent life insurance policies grows tax-deferred and, if you ever surrender your coverage, there are no income taxes (unless what you receive is greater than what you’ve paid in your premiums.)
• If you take out a policy loan, there are no taxes so long as the policy is still in effect.
• Permanent life insurance coverage is for life, so long as you don’t cancel the policy prematurely or stop making payments throughout the course of your life.
• If you have significant financial obligations, permanent life insurance can help cover those for your family upon your death so they wouldn’t be saddled with your debts.
• Permanent life insurance premiums remain the same until the policy is paid out or for life, depending on if your policy has a maturity date. Some versions of permanent life insurance offer a flexible premium.
• They’re a great option for people who need lifelong coverage and have a particularly large investment portfolio.

What are some drawbacks of permanent life insurance?

Because permanent life insurance offers lifetime coverage, its premiums are generally much higher than term life insurance. Some policies may be paid for in ten or twenty years, but all the same – they’re not for people whose financial health is not that great.

If you have a good pension plan that offers survivor benefits, and this will offer sufficient protection to your surviving loved ones (spouse, beneficiaries, etc.) then permanent life insurance is redundant. If your dependents are already adults and financially independent, and if your spouse has sufficient income to maintain their lifestyle, plus their own pension and any RIF/RRSP income, they may not need the benefit they would receive from a permanent life insurance payout.

If you don’t have any children or grandchildren that you want to leave money behind to, or if you already have sufficient savings to grant them an inheritance, permanent life insurance may also not be necessary.

There’s also the possibility that a policy could lapse, and so no benefit is ever paid out regardless. Permanent life insurance policies, unlike term policies, also generally cannot be converted into any other type of policy.

Which is the best long-term investment for me?

Well, that all depends. Here are a few goals which may result in your need to purchase permanent life insurance:

• The desire to leave behind a financial inheritance to your heirs/dependents
• The desire to leave behind a generous donation to a charity of your choice
• The desire to capitalize on a cash value/investment portion of a permanent life policy
• The desire to fund a trust for heirs or dependents
• Wanting to ensure that your family receives the financial support they need to pay any of your final expenses and funeral costs
• The need for lifelong protection in order to support people financially dependent on us

If you have a specific objective that may be paid off in 10, 20, or 30 years, then term life insurance may be a better bet. Ultimately, one of the best ways to finding out which long-term financial investment is best for you and your circumstances it to discuss with a broker and ask their advice.

There’s also multiple different forms of permanent life insurance which are worth looking into as well. Again, talking to a broker is the best way to figure out what option is best for your needs!