LIFE INSURANCE

Life insurance can be critical within a financial plan. Life insurance may be recommended for a number of purposes including:

1.  To provide funds to replace lost income in the event of the life insured;

2.  To benefit individual beneficiaries with a specific bequest which takes effect on the death of the life insured and which does not attract tax;

3.  To provide funds to equalize the distribution of estate assets when some assets are not liquid;

4.  To provide funds for the purpose of discharging debts or capital gains taxes which may arise on death;

5.  To provide funds to facilitate the succession of a business; and

6.  To fund a charitable contribution.

There is an ever increasing variety of life insurance products available on the market. Some products are pure insurance products and others include an investment and savings component. Term life insurance is a pure insurance contract of life insurance that provides coverage for a specified number of years. Typically, if the life insured survives the term of the policy, the policy expires without any value. Term life insurance is typically sold for terms of either one, five, ten, or twenty years. The term life insurance contract must be renewed at the end of the term is coverage is to continue. Usually, term insurance is guaranteed renewable without the requirement to provide evidence of insurability. Renewal premiums however, are usually not guaranteed. Term-to-100 life insurance can also be obtained and is an appropriate option if the goal is lifetime insurance coverage.

Universal or whole life insurance rather than term insurance may be preferred alternative if the purchase of the insurance is for the purpose of assisting in estate planning. Whole life insurance is permanent insurance which provides lifetime coverage for a level premium. The cost of the insurance is spread over the lifetime of the insured with premiums exceeding the cost of insurance in the earlier years of the policy. Whole life insurance typically has features such as guaranteed cash values, the potential for annual dividends and the potential to increase accumulated values by making additional deposits on a tax-deferred basis.

Universal life is a form of permanent life insurance that includes an investment component which provides the opportunity for tax-advantaged investing. Typically, insurance companies offer a variety of features with universal life products such that universal life is viewed as a highly flexible product which allows certain aspects of the policy to be changed, such as the amount of coverage or its features, as the life insured's needs change.  For example, it is possible to add additional temporary insurance to universal life insurance policy to address a short term need for additional insurance coverage.

Critical illness insurance is an increasingly popular form of insurance which pays a benefit not on the death of the insured but upon the diagnosis of any one of a number of specific covered conditions, such as cancer, heart attack, stroke and others, provided the insured survives the diagnosis by a specified period. As Canadians are more likely to experience a critical illness than they are to die before the age of 75, critical illness insurance can be an important to estate preservation and planning as life insurance. Critical illness insurance usually must be purchased before the insured attains age of 65.