Permanent life insurance is just that. It's life insurance, insuring your life, and it will pay out to your selected beneficiaries upon your death WHENEVER that may occur. If you beat all odds and live into your 90's or 100's the insurance will still be there for you. You WILL get something for your money (keeping in mind you have to die to win and someone else always benefits!)
So why Permanent? There are a number of reasons people buy permanent life insurance. Here are my top 5:
1. Taxes During Life. Section 148 of the tax act (please confirm with your accountant) allows for any money inside your permanent life insurance policy to grow tax-free. As a bonus you can also access some of that money tax-free. And most death benefits are tax-free to the beneficiaries as well. So life insurance has some very generous tax features.
2. 'I know I will get a return on my money'. There is a reason term insurance is cheap. Simply put it usually ends before you do. Based on the stats most of us will live to our early 80's. Most term insurance ends at age 80. Funny how that works. So most clients have an issue with spending money on term insurance when they kind of 'know' they won't get a return on that money. With a permanent life insurance policy as stated above, there will always be a payout.
3. Taxes after Death. At death, all you own is considered 'sold'. Other than your primary residence there isn't much that isn't tax-free. So clients will purchase permanent life insurance to assist in paying taxes on property, shares of a business, taxes on RRSP funds etc.
4. Giving to others. We can of course help others after we are gone. For those of us that feel generous and willing to assist others, permanent life insurance is a great way to pass on your hard earned wealth. It can go to the next generation or a place of your choice, in a very tax-efficient manner, i.e. usually tax-free! Going a step further there are numerous charities that are more than willing to be the benefactors of a life insurance policy either during life or after. Whether it be a charity, a hospital, religious institution etc. they are all options for permanent insurance. And (not to beat the tax thing to death, sorry couldn't resist) but one key benefit of donations is the great tax-benefits to the estate after you are gone or even during your life.
5. Insurance can be a good investment. There are two primary rates of return when it comes to insurance policies. Return on Investment for Cash Values and Death Benefits. I'm not going to say these returns will compete with equity returns but they can compete with fixed income returns. Often times clients will use the fixed income portion of their investments and put those dollars towards life insurance premiums. After all it's a guaranteed return!
There are other reasons you might have an interest in permanent insurance but these are some of the top ones I see on a daily basis.
Soon I will go over the various types of permanent life insurance including universal life, whole life and term to age 100.
Keep in mind of course, this is just my opinion!