Natalie and Ted, who are both 40, meet with an insurance agent to discuss their life insurance needs. They have four major concerns. Their first…

The tax liability on the family cottage is a permanent need. This liability arises from the deemed disposition of the property at the death of the second spouse and must be paid by the estate. Since death is certain but its timing is unknown, a permanent life insurance policy is the only product that can guarantee the availability of funds to cover this tax bill, regardless of how long Natalie or Ted lives. Term insurance is temporary and could expire before the death of the surviving spouse, leaving the estate unfunded and potentially forcing the sale of the cottage to pay the taxes.

A. Replacing Natalie's income is a temporary need that exists until her planned retirement age or until the children are financially independent. This can be effectively covered by a term policy.
B. Paying for childcare is a temporary need that exists only while the children are young. A short-duration term policy (e.g., Term-10 or Term-20) is a suitable and cost-effective solution.
C. Paying off the mortgage is a temporary need tied to the loan's amortization period. A term insurance policy, often a decreasing term policy, is specifically designed for this purpose.

1. IFSE Institute, Life Insurance (LLQP) Module, Chapter 5: Permanent Life Insurance, Section: "Uses of Permanent Insurance." This section details that a primary use for permanent insurance is estate preservation, which includes providing liquidity to pay for taxes due at death, such as capital gains tax on a second property like a cottage.

2. IFSE Institute, Life Insurance (LLQP) Module, Chapter 4: Term Life Insurance, Section: "Uses of Term Insurance." This chapter explains that term insurance is best suited for temporary needs with a defined endpoint, such as income replacement during working years, mortgage repayment, and funding for a child's education.

3. W. Jean Kwon, Principles of Risk Management and Insurance, 13th Edition, Pearson. Chapter 11, "Life Insurance," discusses the fundamental differences between term and permanent (cash-value) life insurance, identifying term insurance for temporary needs and permanent insurance for lifelong needs like estate liquidity.