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Learning About Life Insurance

Take a look at the information below to find out more about each type of life insurance.

Term Life Insurance
Term life insurance provides insurance protection for a specified period of time. Usually, you can choose between 1, 10, 15, 20 or 30-year term periods or coverage to a certain age.

With most term products, premium payments are level for the initial term period and are paid monthly, quarterly or annually depending on the policy. Typically, term insurance does not produce a cash value; however many policies allow for extension of the term or conversion to a permanent or flexible premium adjustable life policy (universal life). Premiums for certain products may increase after the initial term period.

Since it typically costs less than permanent insurance, term life is a simple and affordable way to meet your family's short-term needs. Primarily, term insurance is designed to provide a death benefit to loved ones, which passes money income tax free, should you die while your policy is in force. In the event of your death, the benefit can provide financial resources to reduce debt, pay for college, provide for your spouse's retirement needs, or supplement your spouse's income.

Whole Life Insurance
Whole life insurance provides permanent insurance protection for your long-term goals and your family's financial security needs. A whole life policy extends for the lifetime of the insured, as long as all payments are made to keep the policy in force. These premium payments remain the same for the life of the policy and are paid monthly, quarterly or annually depending on the policy.

Whole life policies utilize life insurance tax advantages:

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Life insurance death benefits are generally income tax-free

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Guaranteed death benefits1 paid to a named beneficiary other than the insured's estate may avoid the cost and delay of probate

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Proper planning can allow the transfer of death benefits free of estate taxes

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Cash values grow inside the life insurance policy on a tax-deferred basis

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In most cases, cash values may be taken through loans on a tax-favored basis2

Whole life insurance may include a savings element called cash value. You can use your policy's cash value to purchase paid-up insurance with a lower face amount or take a loan at an affordable interest rate. You may receive your policy's cash value if you decide to surrender the policy.

Indexed Universal Life Insurance
Indexed universal life is flexible premium adjustable life insurance that provides a death benefit along with cash value accumulation in exchange for premium payments. Indexed universal life also gives you the flexibility to change the death benefit and vary the amount or timing of premium payments to fit your financial needs, as long as the minimum premium and underwriting requirements are met.

The main difference between indexed universal life and other universal life products is the way interest is credited to the policy. With traditional universal life, the policy earns interest based on a fixed interest rate declared by the issuing insurance company. Most indexed universal life policies offer a traditional declared interest rate, as well as the option to earn interest based on the performance of a stock price index (the index used does not reflect dividends paid by the stocks underlying the index). Because you don't directly participate in the stock market, your cash value is protected against loss. With the indexed crediting option, you won't have to trade in protection to benefit from the ups of the market, but at times the credited interest rate could be 0%. This guaranteed floor of 0% protects you from market downturns and loss of value.

Indexed universal life features:

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Death benefit protection

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Cash value accumulation

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Flexible premiums3 

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Tax-deferred growth

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Interest credit based on the performance of stock price index with downside protection

RBC Insurance does not currently offer universal life insurance or variable universal life insurance, but these are other types of life insurance you may want to consider.

Universal Life Insurance
Universal life coverage, designed to last the insured's lifetime, not only provides flexible life insurance protection, but also helps build money for the future, tax-deferred.

Like whole life policies, universal life policies utilize life insurance tax advantages. More flexible than some other insurance options, universal life insurance may provide lifetime protection while allowing you to change the death benefit and vary the amount and timing of premium payments.3 Universal life insurance relies on the cash value of the policy to account for adjustments in premium amounts and payments. Cash value is accumulated through premium payments and interest (minus mortality charges and expense charges). The policy's cash value earns interest at a rate declared by the insurance company. This rate may change from time to time but is guaranteed to never fall below a certain rate.

As long as the cash value is sufficient to cover insurance costs, policyowners may choose to skip a payment. In addition, policyowners can choose to make additional payments at any time to increase the cash value and grow assets tax-deferred.4 You also have the option to borrow5 from your policy's accumulated cash value for your own future needs, such as supplementing retirement income, funding college education, purchasing additional insurance, paying for emergencies and other general expenses.

Variable Universal Life Insurance
Variable universal life insurance draws upon the features of two types of cash value insurance - universal life and variable life. Like universal life, variable universal life incorporates flexible premium payments, an adjustable death benefit and death benefit options. Paired up with the variable component, variable universal life allows the policyowner to take on the investment risks of the product.

Variable universal life insurance, which is regulated as a security, gives policyowners control of how premium payments are invested. Policyowners can select from a number of underlying investment options and allocate premium payments toward these subaccounts. The cash value of the policy is then dependent on the performance of the subaccounts selected. With variable universal life insurance, policyowners give up the guaranteed return on their cash value for the hopes of achieving greater growth with subaccount performance. Policyowners, however, also bear the risk of poor subaccount performance, which can lead to slow growth of cash value or even loss of money.

As with universal life, the cash value inside variable universal life can be accumulated, tax-deferred, to build financial security for later in life. The cash value can be borrowed to supplement retirement income, fund college education, purchase additional insurance, pay for emergencies and for other general expenses.6

Regardless of subaccount performance, the death benefit will not decrease as long as the cash value is still sufficient to cover the cost of the policy. The death proceeds are passed to the beneficiary income tax free.

1 Guarantee based on the company's claim-paying ability.

2 Tax-favored access to accumulation values is protected under IRS regulation. Taxation may occur if the policy lapses or is surrendered. Loans reduce the death benefit and cash surrender value. Please consult a tax advisor regarding your financial situation.

3 Policy provisions may include limitations on timing and amounts. Additional charges and underwriting may be required. Consult your agent for advice prior to making changes that may affect the death benefit.

4 Subject to IRS limitations.

5 After the first policy year, the policy cash value may be accessed. Loans and withdrawals reduce the death benefit and cash surrender value. Withdrawals and surrenders may trigger surrender charges and tax obligations.

6 Taxation may occur if the policy lapses, is surrendered with loans outstanding or becomes a modified endowment contract. Loans and withdrawals reduce the death benefit and cash surrender value. Withdrawals and surrenders may trigger surrender charges and tax obligations, and they may cause you to receive less than the original premium amount.

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