A short story on life insurance

After tumbling down the hill, Jack began to think about the future of his kids in the event that he suffered a serious accident or died. He has life insurance but his wife, Jill, doesn’t. What if something happens to her? Would he be able to take care of his family? Could he afford to pay for his children’s education?

Jack (policyholder) turns to his advisor. After analyzing his situation, Jack decides to take out a $200,000 life insurance policy on his wife (insured).

Stipulated in the insurance policy are the terms and conditions of the coverage and that, in the event of Jill’s death, an amount of $200,000 (benefit) will be paid to the couple’s children, Rose and Zachary (beneficiary).

Jack has three options.

He can opt for 25-year coverage that will cover Jill until age 65 (term life insurance). By that time, their children will have completed their studies and will be on their own.

He can also opt for coverage that will cover Jill for her entire life (permanent life insurance). This means that the insurance company will pay the $200,000 amount to Rose and Zachary, upon her death, whenever that may be.

The added bonus is that starting the 10th year, money will begin to accumulate in the contract (cash value) and will continue to increase year after year.

If Jack ever needs to borrow money, he will be able to do so from the policy’s cash value. Plus, if he decides to end or terminate the policy, the insurer will pay him the cash value.

He can also opt for insurance that combines permanent life insurance and savings (universal life insurance). In this case, the money is deposited in an investment account where the gains are accrued, and from which the insurer withdraws the yearly premiums due.

When Jill dies, Rose and Zachary will receive the $200,000 amount as well as all investment gains.

Of the 3 types of life insurance, term life insurance best meets the needs of Jack and his family because the $336* annual premium is perfect for his budget.

Jill was in good health when the insurance was purchased, and she is still healthy. However, since her mother is 65 and has breast cancer, Jill asked to have additional critical illness coverage (rider) added to the policy… just in case! As a result, Jack (payer) will have to pay an additional premium.

Regardless, this investment is perfect for this couple and Jack no longer has to worry about his children’s future because his financial health is protected.

*Premium for a 40-year-old, non-smoking woman (offered by SSQ in September 2017)

Definitions

Policyholder
The owner of the insurance policy, also referred to as the policyowner.

Insurance Amount
The amount indicated in the insurance policy that the insurer agrees to pay the beneficiary in the event of the insured’s death. This is also referred to as the coverage or protection amount.

Insured
The person whose life is insured by the insurance policy.

Insurance Policy or Contract
The agreement signed between the policyholder and the insurer in which are stated the terms and conditions of the insured’s life insurance coverage.

Benefit
The amount paid by the insurer in the event of the insured’s death.

Beneficiary
The person named in the insurance policy to whom the benefit is paid in the event of the insured’s death.

Premium
The amount to pay to underwrite an insurance policy, paid on monthly or yearly basis.

Rider
A modification or amendment to an insurance policy that broadens or limits protection.

Payer
The person who pays the premium.

Term Life Insurance
A type of life insurance that lasts for a specific number of years or until a specific age. It has no cash value.

Permanent Life Insurance
A type of life insurance that covers the insured until their death. In general, it has a cash value.

Universal Life Insurance
A type of life insurance that covers the insured until their death. It combines life insurance and tax-free savings. In general, it has a cash value.

Cash Value
The sum of money that accrues in a permanent or universal life insurance policy that can be withdrawn or borrowed from (if it has value). If the policyholder terminates the contract, the insurer pays out the cash value to the policyholder.

Note: This blog post is provided for information purposes only. It is not a substitute for professional legal, financial or fiscal advice. For advice specific to your personal situation, always speak with your advisor. SSQ cannot be held responsible for any decision made as a result of reading this blog post.