Understanding Term vs. Permanent Life Insurance: A Guide for Business Owners and Medical Professionals

Whenit comes to life insurance, the two primary types that business owners andmedical professionals will encounter: term life insurance and permanent lifeinsuranceWhen it comes to life insurance, the two primary types that business owners and medical professionals will encounter: term life insurance and permanent life insurance. While both offer important protection, their differences in cost, coverage, and application can significantly impact how they should be used when financial planning. Let’s break down the key similarities and differences between them and when each is most appropriate.

Term Life Insurance: Temporary and Cost-Effective

Term life insurance is the simpler and more affordable option of the two. It provides coverage for a specific period, typically 10-, 20-, or 30-year terms. If you pass away during that time, your beneficiaries receive a tax-free death benefit. However, if the term expires and you’re still alive, the policy simply ends with no payout.

For most people, especially those with time-limited financial obligations like mortgages or children's education, term insurance is a practical solution. It's much cheaper than permanent insurance because it does not have a cash value component or lifelong coverage. For example, a $500,000 term policy for a healthy 30-year-old might cost around $20–30 per month, whereas a similar whole life policy could be over $400 per month.

Examples of situations where term insurance is an option:

• Covering debts such as a mortgage.

• Protecting your family during your peak earning years when dependents rely on your income.

• Providing affordable coverage while children are still financially dependent

Permanent Life Insurance: Lifetime Coverage with Added Features

Permanent life insurance, as the name suggests, lasts for your entire life, as long as you continue to pay the premiums. The most common types are whole life, universal life, and term to 100. A key feature of permanent policies is that they accumulate cash value over time, which is like an investment account. This cash value grows on a tax-deferred basis and can be accessed later if needed.

Because of this cash value component and the lifelong coverage, permanent insurance is generally more expensive than term insurance. It's often used as part of estate planning, for business succession strategies, or to ensure financial support for lifelong dependents, such as children with disabilities

Examples  Situations where permanent insurance is an option:

• Long-term financial planning, such as estate planning, where the death benefit can help with taxes or asset transfers.

• Providing for dependents with lifelong care needs.

• If you've maxed out other tax-advantaged savings accounts and want an additional investment vehicle.

Choosing the Right Policy: Term, Permanent, or Both?

For most people, a term policy will meet their needs, offering robust protection at a lower cost during their most financially vulnerable years. However, permanent policies can make sense for those with specific long-term financial goals, such as wealth transfer or lifelong care responsibilities.

In some cases, a combination of both types of policies might be the best solution. For example, you might opt for a large term policy to cover mortgage payments and a smaller permanent policy for estate planning purposes.

Final Thoughts

When evaluating life insurance options, it’s crucial to align your coverage with your financial goals. Term life insurance is typically the better choice for covering short- to medium-term obligations, while permanent life insurance offers lifelong security and additional benefits for those with more complex needs. Consulting with a trusted Investment Advisor can help ensure you choose the right policy mix to protect your loved ones and your legacy.

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This information has been prepared by Brandt Butt who is a Portfolio Manager and Investment Advisor for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager and Investment Advisor can open accounts only in the provinces in which they are registered.

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

*Insurance products are provided through iA Private Wealth Insurance, which is a trade name of PPI Management Inc. Only products and services offered through iA Private Wealth Inc. are covered by the Canadian Investor Protection Fund’

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