Insurance which strategy should you choose?

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Anthony TalaricoTHUNDER BAY – Business – Should you buy term life insurance, instead of permanent insurance, and invest the difference in the premiums?  Start by identifying your needs and goals.  Are you looking for protection and financial security offered through life insurance?  Are you looking to enhance the after-tax accumulated value of your assets for future access or your heirs?

Which strategy leaves you with bigger cash value?

In the short term, buying term insurance and investing the premium difference, it’s more likely you build investment assets in excess of the cash value of a permanent insurance policy.  However, in the medium to long term, the benefits of tax advantaged growth in the permanent policy may offer a comparable option.  A lot can also depend on if you’re using your RRSP and TSFA accounts, and whether those investments are at their limits.  If they are and you’re investing in a non-registered account, looking at a permanent policy should be considered.  If you’re looking to tax shelter money with the hopes of using it for retirement or investment growth, a permanent policy can provide you with that tax sheltered growth. 

What strategy leaves you with a bigger estate?

Permanent and term policies are equally effective at leaving your heirs with capital at the time of death.  However, at older ages, term policies may not be available, due to limits on issue age, or you could outlive your coverage.  In this case, permanent policies will leave a much bigger estate than investing the difference as the money avoids all tax implications and probate. 

The Bottom Line

It is always important to have a plan for the future and to know what your needs and goals are.  Part of comparing investment vehicles is looking at tax implications and what allows your money to grow most tax efficient.  Always look to a financial advisor to help with making the best decision for your situation.

Anthony Talarico