We saw in part one of this video series that from an insurance perspective, all life insurance policies are the same. A death claim cheque from one type of life insurance is exactly the same as a death claim cheque from another type of insurance. And therefore, the way we get different types of life insurance is to focus on the cost structure or the premiums over long periods of time.
There’re two basic or fundamental types of life insurance in Canada, term life insurance and permanent life insurance.
Term life insurance has premiums that are based on your age so it’s very cheap when you’re young but becomes prohibitively expensive or unaffordable when you’re older.
Permanent insurance however has premiums that are level for your entire life. That means that permanent insurance when you first purchase it, will have a much higher premium than term insurance, but because the premiums never go up as you get older eventually, permanent life insurance will actually become cheaper.
So what’s the best type of life insurance? And the answer is if you need life insurance when you’re younger, but don’t need it when you’re older, then term insurance will be cheaper – presuming you’re going to cancel it eventually. If you need life insurance forever, no matter when you pass away, then over your entire lifetime permanent life insurance will be cheaper.