Is it good to combine permanent and term life in one policy?

Question

we are looking around for an insurance policy. we want to invest in it too so we gain something in the future as suppose of just paying monthly and the money is risk protection.

Answer 1

It can be good to combine but not for reasons you are looking for.  If you need some permanent coverage and mostly term coverage, it could cost less by incorporating the Term rider to the Perm policy.  It all depends on if the Term rider is competitively priced in comparison to a standalone term policy with another insurance company.

An insurance policy is an insurance policy, and not an investment vehicle.  While some permanent policies follow under exempt rules, thus avoiding accrual taxation, the main reason you would purchase the policy is for insurance needs.  

It's worth pointing out, only the Permanent portion of the policy can hold the investment earnings under exempt rules.  The Term rider portion does not increase the amount the policy can hold on an exempt status.

Your RRSP and the recently announced Tax Free Savings Account (avail in 2009) should be maxed out.  After that, you can implement some other tax efficient investment strategies.

If you are looking for secure investments, then stick with fixed income/GICs.  If you are looking for higher returns, could could purchase PPNs or Segregated Funds.

Answer 2

A permanent policy has a term part to it.  Many times it is ART (goes up every year, your payments don't).  The money that is "invested" in the policy usually only gains a small percentage.  If you borrow the money, you have to pay it back at a HIGHER rate than what they are getting.  Otherwise they take it out of your death benefit.

Also, in MOST of the whole life policies, you get ONE or the other.  NOT BOTH.

Keep the 2 separate.  You will have greater control. There are investment vehicles available to those that are sensitive to risk.  The key to remember though is wether you are investing long term or short term.