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Life Insurance
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Understanding Insurance by FCAC (PDF)542.69 KBapplication/pdf

Life insurance is a financial safety net one provides his/her family or business in the event of your premature death. It doesn't have to be confusing or complicated.

What is personal life insurance?

Life insurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a designated beneficiary a sum of money upon the occurrence of the insured individual's or individuals' death.

Why should I buy life insurance?

Many financial experts consider life insurance to be the cornerstone of sound financial planning. It can be an important tool in the following situations:

  1. Replace income for dependents

    If people depend on your income, life insurance can replace that income for them if you die. The most commonly recognized case of this is parents with young children. However, it can also apply to couples in which the survivor would be financially stricken by the income lost through the death of a partner, and to dependent adults, such as parents, siblings or adult children who continue to rely on you financially. Insurance to replace your income can be especially useful if the government- or employer-sponsored benefits of your surviving spouse or domestic partner will be reduced after your death.

  2. Pay final expenses

    Life insurance can pay your funeral and burial costs, probate and other estate administration costs, debts and medical expenses not covered by health insurance.

  3. Create an inheritance for your heirs

    Even if you have no other assets to pass to your heirs, you can create an inheritance by buying a life insurance policy and naming them as beneficiaries.

  4. Make significant charitable contributions

    By making a charity the beneficiary of your life insurance, you can make a much larger contribution than if you donated the cash equivalent of the policy's premiums.

  5. Create a source of savings

    Some types of life insurance create a cash value that, if not paid out as a death benefit, can be borrowed or withdrawn on the owner's request. Since most people make paying their life insurance policy premiums a high priority, buying a cash-value type policy can create a kind of "forced" savings plan. Furthermore, the interest credited is tax deferred (and tax exempt if the money is paid as a death claim).

How Much Is Enough?

How do you figure out how much life insurance you need? A ballpark measure sometimes used is between five and seven times current net income. But to work out the specifics of your own situation, you'll want a financial needs analysis.  It gives you a picture of the capital your survivors need when you die.  It looks at assets that would be available to them, liabilities they would have to deal with, and continuing family or business needs for income.

An Advisor can help you work out a more comprehensive financial needs analysis. Let us help you, contact your Advisor or our office for assistance. 


Accidental Death & Dismemberment Insurance

Accidental Death and Dismemberment Insurance pays a death benefit if the insured dies in an accident. Also, a specified amount would also be paid to the insured or the beneficiaries if the insured loses his or her eyesight, speech, hearing or a limb as the result of an accident. To receive the benefits, the death or injuries must be proven, direct results of the accident. Also, the injuries or death usually must occur within a certain period of time after the accident.

Guaranteed / Simple Issue Life Insurance

Guaranteed Issue Life Insurance offers coverage with no medical tests and little or no health questions. This type of coverage generally has a limited death benefit and often restricts payout in the first two years of the policy. If the insured dies by non-accidental means in the first two policy years, the death benefit is generally limited to a return of the premiums paid plus interest. This coverage is usually very expensive and may or may not accumulate cash values.

Limited Permanent Life Insurance

Limited Permanent Life Insurance is a policy contract that builds cash values and becomes a long term savings plan.

To select a Limited Permanent Life Insurance plan, you must be committed to higher premium payments for a set period of time.   Budgeting for the Limited Permanent Life Insurance policy while you are working, allows you to budget for lifetime protection while building cash values in your policy.

Non-Participating Whole Life

Whole Life policies provide a death benefit and an accumulating cash value. By definition, it has a fixed premium and a level death benefit to age 100. Whole life is generally one of the most expensive types of life insurance. The premiums don't increase with age, which averages the cost of the policy over your life. The cash value increases with time until it equals the death benefit at age 100.

Participating Whole Life

If a policy is ‘participating’, the policyholder is eligible to participate in the surplus of the insurance company through dividends.  The amount of the dividends is not guaranteed.  It is calculated annually and is based on several factors including interest rates, mortality, expenses and taxes.

In a low interest rate environment where guarantees are scare,  a ‘participating’ policy provides stable investment options while offering tax-sheltered growth.

Term 100 Insurance

Term 100 Insurance is permanent coverage that covers you for your lifetime.  Your premium is based on your age at issue; premiums remain level for the whole term.  Term 100 life insurance coverage does not expire and will stay in force as long as the premiums are paid.  Term 100 Insurance typically does not accumulate cash values; however, some may have a cash surrender value (CSV) at a particular policy renewal date. 

Refer to your Term 100 policy contract for details before considering cancellation or redemption.    

Term Insurance

Term Life Insurance, known as Temporary Life Insurance, covers a specific need for a certain period of time. A term life insurance policy may be low cost and may be renewable; however, coverage will expire at the end of the life insurance term policy contract. There are no cash values available with a term coverage policy contract.

Universal Life Insurance

Universal life (UL) insurance combines permanent life insurance coverage with investment options.

Universal Life insurance plans offer an investor flexibility to choose whether insurance premiums will be level or increase yearly; whether the death benefit will remain level or increase; and whether or not an investor would like to contribute additional premiums to utilize the many investment options in the plan. If an investor utilizes the investment component of the policy, there are options available to access or use the accumulated cash value.