Universal Life Insurance and Term Life Insurance in Canada
I was talking to a client the other day. He is in his early 30s with a good paying job. As he is starting his family, he expressed his concern in the case of premature death, he will not leave sufficient savings for his family. We started doing a life insurance needs analysis, where I asked him to list out his financial responsibilities, he stated the following:
- He has a 20 years mortgage with the outstanding balance of $450,000.
- His daughter was just born, and he would like to save $50,000 for her post-secondary education in the future.
Although his wife is also working, he is the main income earner of the family. In the case of premature death, his objective is that the mortgage would be completely taken care of, his daughter’s education savings will have enough funding, and he also wishes to leave behind 5 years of income, which is approximately $300,000 to his wife regardless of when he passes away. The idea is to replace the loss of his income, so that his wife would have sufficient money to pay for the daily expenses and of course to cover his final expenses as well.
After reviewing his details, I suggested him with the following:
- His responsibilities for paying the mortgage and to save for his daughter’s education is temporary, a $500,000 twenty years term life insurance coverage would be a good fit. The cost of insurance would stay the same for 20 years. Should his condition changes in the future, he would also have the option to convert this amount into a permanent coverage without further medical underwriting. (Note that different insurance companies have their own terms and conditions in regards to the conversion.)
- As for his permanent coverage needs, he could consider having a $300,000 universal life insurance policy. I further advised him to look into the level cost of insurance and guaranteed paid up options. WIth these options, his premium would always stay the same, he only has to pay the premium for a pre-selected number of years, while the coverage will last for life. This is especially suitable for young families that do not wish to pay premium for the lifetime, while do not mind paying higher premium in the pre-selected duration.
Yet, there are also other life insurance options available, so make sure to understand your needs and current situation. Since term life insurance rider can be added into an universal life insurance policy. In this case, my client could have both permanent and term life insurance coverage within the same policy.
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