An Overview of permanent life insurance in the form of Whole Life
The fundamental and the purest pricing of life insurance is yearly. How much premium will be required to finance all the death benefits during the year. Well, that depends on a number of factors. In its simplest form, the younger the group the less deaths; the less deaths, the lower the premium needs to be. On the other hand, the older the group the larger the number of claims per year and thus more premiums everyone needs to pay. Clearly, with this needed annual increase in the pricing, the yearly cost becomes extremely high.
A better method was developed. A level premium established for every age. So a 30 year old buying level premium coverage will always pay the rate of a 30 year old as long as the plan is in effect. Now plan owners will know that the premium will remain affordable at this flat annual cost. The consequence of this action was that in the early years you paid more premium than necessary to cover the benefit costs. This left a surplus. This surplus (less administrative and sales expenses) is called a cash value.
Non Par Whole Life.
A non participating whole life policy always pays a flat death benefit. Since it is based on the level premium system the cash value increases the longer the policy stays in force. A $100,000 death benefit policy may have a $25,000 cash value in the 20th year.
If one were to cancel the contract the insurer would present a $25,000 cash value to the owner and end it obligations. If death were to occur in the 20th year the beneficiary would receive $100,000, but the insurer would keep the $25,000. Thus, the amount the insurance company has to come up with is the difference between the face amount of the policy($100,00) and the accumulated cash value.($25,000) One can clearly see that the net amount at risk to the insurance company decreases proportionate to the increase in the cash values.
As a living benefit, this cash value may be borrowed at a charge, or used to pay up the policy for a lower death benefit amount (Paid-Up) or for the same death benefit amount for a period of time less than lifetime (Extended Term).
Participating Whole Life (Par WL)
Par WL overcharges it premiums based on conservative pricing assumptions as to mortality, expenses, investment returns and the rate at which policy owner keep their policies. Every year the insurer reassess the performance of its (par) policies.
These plans are currently out of favour now because of low interest rates, and lower cost alternatives. Universal Life a relatively new product has made a significant dint in the Whole life market share in the last 10 years. ~
LIFE INSURANCE AT WORK
Most Group Plans provide basic life insurance coverage like and even offer you the option of buying additional sums.
This coverage has its place but falls way short of the long term need for coverage on a portable basis. If you leave your employer you leave the coverage behind or convert it at expensive prices. Life insurance at work is a start but not the complete solution.
CREATIVE IDEA!
Remember... death benefits from a life policy are
FREE From
-
income tax
-
dividend tax
-
capital gains tax
.... Used as a planning tool and funding
mechanism life insurance can: convert
taxable revenue into tax free dollars or
pay a tax liability.
CREATIVE SOLUTIONS
that utilize Life Insurance can
- keep the family cottage in the family;
- keep the family business operating into next generation;
- transfer corporate dollars to personal use, tax effectively.
- increase your after tax income during retirement
- transfer unused RRIF dollars to children with $0.00 tax impact.
- make a sizable charitable gift courtesy of Revenue Canada.
We can show you how to maximize your assets, and deflect significant amounts of tax liability. Contact us for a "No Obligation" Needs Analysis
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