This text is taken from the Courrier de l’économie of November 21, 2022. To subscribe, click here.
In a previous Courrier de l’économie, mention was made of “permanent life insurance”. I’ve heard of term life insurance before. How to find it? What is the difference ? Should you take out permanent life insurance and term life insurance? wonders Elodhya Cyr, a reader.
Yes, two major options are available in life insurance. Here are the main lines, the guarantees may vary from one contract to another.
Term life insurance offers insured capital for a specific, pre-established period. The protection can cover 1, 10, 15, 20, 25, 30 years and even 100 years. For its part, whole or permanent life insurance guarantees lifetime protection as long as the insurance premiums are paid. We are talking here about lifetime protection. Premiums are generally guaranteed and fixed or level.
You guessed it, for the same insured capital, the premiums are lower in the case of a term. They can be at least 5 times higher in the case of a perm. On the other hand, for the temporary, they normally increase with each renewal. Depending on age, the more renewals there are, the more this differential fades. It may even reverse in the long run. It should be specified that this renewal is done taking into account the age, and not the state of health.
Another factor to bring into the comparison game is the fact that most permanent life insurance products have a cash value. A percentage of the insurance premium contributes to this cash value, which can, however, grow more slowly and at a lower interest rate than other investment options. But it becomes in a way a forced saving.
Remember that insurers offer different products payable over a specific period, such as permanent life insurance payable for 10 years, for example. Also remember that most term insurance contracts can be converted into a permanent insurance contract, but the reverse is not true.
In addition to its more affordable price, the term will generally be chosen to cover a need for shorter-term protection. In the event of death to provide financial support to the family in the presence of dependent children, for the duration of a mortgage loan, to cover the repayment of the debts of the deceased, the financing of studies or inheritance taxes to be paid… But the interest of combining the two options cannot be ruled out depending on the financial capacity and the need for protection sought.
You want to know more ? Here are two links to the website of the Autorité des marchés financiers.
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