We are fortunate to have two different advisors providing an answer to this question. What I like is there is consistency in their thought. Take what resonates from one or both and make it your own!

First is my Financial Advisors, Warren Blatt (warren@wdba.ca/416-319-8172), to answer these questions.

Term vs Permanent Life Insurance
Most people consider life insurance a necessary expense, but there is a wide difference of opinion over what type to buy. With good reason – the two types, term and permanent, vary widely in coverage, benefits and cost. Permanent life insurance also comes in three distinct flavours- traditional whole life, universal life and variable life. You can also have a combination of both term and permanent policies.
It’s really not as confusing as it may sound.

Term insurance: in a nutshell Term insurance is like paying rent on a home – it’s generally the least expensive option available, especially in the first few years, but the premiums will usually rise over time.
Term policies can last from 1 to 20 years, and are renewable like a lease, but like rental living, you’re not left with any equity, or cash value, in the end. If you don’t die before your policy expires, you don’t get to use the service you’ve paid for, chances are you won’t protest!
Many financial planners feel purchasing term life insurance and then investing the savings between it and permanent insurance provides the best mix. However, you must have the self control to do so.

Permanent insurance: at a glance Permanent life insurance will cost much more at first, but because your premiums are fixed (the $ rate never changes), this option may actually cost less in the end – it all depends how long you pay into it.
Premiums paid on permanent life insurance policies are like mortgage payments – part of the payment allows you to live somewhere, and the other part allows you to own something really valuable in the end.
Permanent life insurance policies can also offer other benefits, such as annual dividends, guaranteed cash value and tax-deferred cash value growth. You can cash in a permanent policy or borrow against it, much like dipping into a savings account or taking a second mortgage.

Permanent choices: Permanent (or whole life) insurance falls into three subcategories:

Traditional Whole Life Insurance. If you are a cautious investor, seeking as many guarantees and as few surprises as possible, traditional whole life insurance will probably appeal to you. The annual premiums are guaranteed not to rise, your cash value and death benefits are guaranteed and you may also earn dividends.

Universal Life Insurance. Universal life insurance offers many of the same benefits as traditional whole life, but is more flexible in many ways. Premiums can vary from year to year, and sometimes they can be skipped entirely. You can withdraw your cash value or borrow against it at any time, but instead of annual dividends, you earn interest at a fluctuating annual rate.

Variable Life Insurance. If you consider yourself a more active or confident investor, choosing variable life insurance can enable you to tie the cash value of your policy to the performance of the financial markets. Choosing from among a variety of investment options, including aggressive growth funds, investors assume risks that can quickly grow their policy’s cash value – or just as quickly shrink it.
Weigh your options

Essentially, the decision comes down to this: Do you want to pay a little right now for financial protection against your accidental death, or do you want to lock in to higher, longer payments that still offer death benefits but can provide dividends during your lifetime?
To answer this question, first ask yourself how long you intend to keep the policy. (Which is really just a polite way of saying, ‘Try to guess the date of your death.’) If it’s less than 10 years from now, then term is almost certainly the way to go. If it’s more than 20, then look into permanent
. But what if it’s somewhere in between? A qualified insurance agent will be able to answer such questions.
There are many factors to consider. Whether or not you choose term, life, or a combination of both, there are still some constants. Your premiums will be based on factors such as age, gender and the dollar amount of the life insurance policy.
Your medical history may also be taken into consideration and you may be required to take a medical exam, although policies are available today that ask nothing more than whether or not you smoke.

The second answer is provided by Anthony Capone and he can be reached at acapone@ft.newyorklife.com:

I am thinking about getting some what is the difference between short term vs. long term?
To be clear I think it’s imperative to explain the difference between Term Insurance ( short term and Long term ) and Permanent Insurance (Whole Life ).

Think of Renting an apartment/house or buying one.
When you rent you only get the benefit of the shelter on a monthly or long-term contractual basis. No equity privileges. The short term contract is lower on a monthly basis but you are exposed to significant increases in the later years. The Long term Contract is fixed for the duration but considerably higher than the short term contract in the beginning. Again, no equity and for a ” TERM “. Meaning that at some point the contract ends. When you buy a house you have it for life, you get to enjoy the Equity and the payments are fixed.

Reasons for either: Short term is for budgetary constraints but very serious family responsibilities. Death Benefit premiums are considerably cheaper than long term but escalate with age. Long term has a fixed monthly premium for the entire duration but is obviously more on account of the extended contract.

THe costs?
The costs are as mentioned above. A yearly contract, also known as an Increasing Premium Term is the most cost effective term policy available for the short term ( 5 years or less ) but can exceed the premiums of a twenty year term in later years. Long term premiums are fixed giving peace of mind but are considerably higher.
( Inside tip: studies indicate that most policies are revised in the first few years due to life changes. Knowing this it would seem unnecessary to pay the higher premiums of a Long term policy. )

The benefits?
You can secure a Larger Death Benefit for a lower premium with term insurance during the most vulnerable years.

When do I choose which one and does this change over time?
I would choose short term insurance over long term as a starter policy. It’s more cost effective, easy to convert into a permanent policy( some companies allow you to upgrade to a permanent policy without need to undergo the medical all over again ) and gets us in the mind set of having proper coverage. Also, some families are still in the growing phase so will require additional coverage at a budget conscious premium.
If you are in a stable career and your family is complete you may want to lock yourself into a Long Term plan with a twenty year term or go with a Mutual Insurance companies Whole Life Policy that pays dividends on your premiums so you can supplement your retirement plan with it’s cash accumulation. This equity can be drawn on in later years on a monthly basis.

Single people usually do not have family responsibilities so can either buy sufficient term to cover their financial obligations and invest the rest or secure a whole life policy to compliment their Retirement plans.

Remember the analogy of renting a home verses owning one. With Term insurance you do not get equity privileges. It is PURE protection in case of the unexpected. It’s like using the shelter of the apartment. With Whole life insurance you also get equity by way of cash accumulation and dividends paid on premiums. Just like owning and enjoying the equity in your home. More expensive than rent but now considered an asset class.

I have assisted clients with a combination of both ( I call them Hybrid policies ) and have even stacked policies so as to have the term policies expire after the initial stages of life are past and then only have Whole Life accumulating supplemental income for retirement, Family inheritance and Estate Conservation.

Every individual is different and should speak to a financial services professional in order to determine the correct amount and type of insurance required to meet these needs. The younger one gets started the lower the premiums so remember ” Age makes a difference “.

Anthony, NYC

I LIKEN IT TO MY WARBRODE — HOW MY NEEDS HAVE CHANGED OVER TIME
When I began working I spent a lot of money on my work clothes. I had no problem buying the more expensive items – suits, shirts, high heels, etc. However when I left the workforce to have children and raise my family – the way I spent money on my wardrobe has shifted. I no longer needed to spend large sums of money on work clothes and started to invest in my casual wardrobe. Although I still needed nicer clothes to go out so I still see spending money on a great sweater or shirt or blouse. And of course, shoes is something that I still will spend however I do not need the high heels as much.
Once again things are shifting. I am looking to get more involved in the workforce and have once again began reinvesting in my work wardrobe.
While this may seem like a trivial example, your needs for different types of life insurance will change as your children get older, go to university, and so on. There may also be a death of a loved one, loss of a job, a diagnosis of a disease. We never know what life will bring us. Today I say I have an “hybrid” type of insurance – some whole life, long term and some term which I want to convert over slowly to whole life. Being divorced I want to make sure my children are taken care of.

Ask your advisor questions and find what is best for you — know that in 5 years this may change!

All our best,

Sandra & Maritza

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