This article was generously provided by Marie-Josée Riffon, Business Development Consultant, Financial Horizons Group, Quebec Region.
A permanent contract is one that a client signs for life – which underscores the importance of making the right choice! Several permanent products are currently available, including T100, universal life and participating life. In some cases, the price difference between each type of insurance is not significant.
Additionally, it is not necessary to seek out the absolute best permanent product. With that said, it is very important to ensure that a lifetime contract offers flexibility should any unforeseen events arise. After all, we never know what life has in store for us.
T100 with or without surrender value
If a client opts for 100-year term (T100) insurance and is no longer able to pay the premiums, the policy will lapse and all the money paid into it will, so to speak, be lost. However, if the contract consists of securities, there are certain options for keeping it in force. For example, if the client fails to pay a premium, the company may offer a premium loan, which is an interesting option.
With a universal life policy, the client has the option to build up funds on a tax-deferred basis. There will, of course, be tax impact when the funds are withdrawn, but the advantage is that the client has access to the funds for emergencies or to supplement retirement income. There are very good personal and professional reasons for wanting to take out an advance or withdraw money. This surrender value can be accessed in the form of advances or withdrawals or through collateral assignment. Clearly, it is important to consider the benefits and disadvantages of each solution.
Participating life is another excellent product in that it pays out dividends based on the insurer’s profits. It offers guarantees, long-term growth opportunities and tax-preferred growth of its surrender value.
Overall, in your role as an advisor, whenever you recommend a permanent contract over a term policy, your clients need to understand clearly that they are purchasing life insurance to meet insurance needs at time of death as part of a longer-term vision. However, why not offer them solutions they can also benefit from during their lifetime?