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Market and Investment Insights

Insurance can get complicated, so today let’s just look at the basics. There are two types of life insurance, ‘term‘ and ‘permanent.’

Term insurance remains in place for a specified period and then can be renewed but with higher premiums. The term is typically 10 or 20 years and is put in place to cover some sort of time-based need (paying off a mortgage or other debt or providing income replacement to the family while kids are young). Using a 20-year term policy as an example: after those 20 years, if everything goes well and you outlive the term, your policy is automatically renewed at a much higher rate – but if you’ve chosen term insurance it’s probably because you felt that after 20 years you would no longer need that insurance policy; your mortgage has been paid off or your kids are now grown, so income replacement isn’t a necessity anymore.

Term insurance is the most cost-effective way to protect your loved ones standard of living, and cover a cash need if something unforeseen happens to you. You have flexibility too, if your financial situation changes and you no longer have a need for insurance, you can cancel it at any time, at no cost.

A permanent insurance policy will be more expensive than a term policy. There are a few reasons for this but most importantly, permanent insurance has a guaranteed payout; with a temporary (term) policy, you’re paying for peace of mind for a finite period and a likely chance (we all hope) that the policy will not have to pay out because you will outlive the term.

Some trigger points that cause people to start considering their insurance needs include material changes to their financial situation like purchasing a home, getting married, having dependents, or forming a business. These are the motivating factors we see most often but it could be any significant life event that has kick-started somebody to start thinking about, “What would happen if I was gone?”

For example, maybe you have loved ones you want to take care of financially if something happens to you. If you’re in a partnership or marriage and both incomes are required to maintain the life you’ve built together, you’ll want to have insurance in place to cover the shortfall should something happen to either one of you.

In a business scenario, you may have a critical team member the company relies upon, and without whom the business would suffer financially. Key person insurance can help manage the risk of losing that person.

So is it time you started thinking about insurance?