In Part 4 in this series on Life Insurance we are going to explore the basics of WHOLE LIFE insurance. (You should read Part 1, Part 2, and Part 3 if you have not already.)  There are certain costs that people would like paid for when they die, but if they are older we know Term Life insurance is too expensive.  In fact many companies will not even offer Term Life once you get to around 80.  But of course, even 80 year olds have some life insurance requirements – namely: funeral costs (if they don’t want to burden their loved ones), inheritances (if they want to make a larger estate available to their heirs), taxes (if they have a large tax liability when they die, they may want to have enough insurance that will pay the tax bill).

The top reason cottages go for sale in Muskoka (Canada’s cottaging hotspot) is that the owner has died and the next generation cannot afford the tax bill that has to be paid.  The only way to pay the tax bill, is to sell the property!

So the solution for these permanent insurance needs is known as WHOLE LIFE insurance (which is a type of PERMANENT insurance; Universal Life – which we will cover later – is the other form of permanent insurance). Whole life insurance never expires (so long as you keep paying your premiums) and the premiums never increase.  It is much more expensive than Term Life at first simply because you are averaging the costs of insurance out over your entire life (as opposed to averaging it out for only the next 10 years) – but while it is much more expensive when you are younger, it looks like a real bargain when you are older.  Let’s look at a graph to get a visual idea:

So as you can see from the graph, you are overpaying the cost of insurance when you are younger in order to be able to afford insurance when you most need it – when you are very old.  Again, this is why the cost of these permanent insurance policies is initially much higher. There are a few more ideas we need to discuss about Whole Life before we get to Universal Life – and we will explore these in Part 5 – in fact this is where it starts to really get interesting!

Click Here to go to Part 5. 

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