Term Life Insurance – Explained
Watch Canada Life – My Term Life Insurance – explainer video (example of Term life)
Term insurance provides coverage for a set period of time and normally only pays out if you die during that time. Term lengths normally range from five (5) to fifty (50) years, with the most frequent term length being twenty years. The amount and length of coverage depends on the insured age.
Advantages. One of the most significant advantages of term insurance over permanent insurance is its lower initial cost. Why is it less expensive when you first get it? Because with term insurance, you’re usually only paying for the death benefit, which is a lump sum payout made to your dependents if you die during the policy’s term. Your premiums help finance the death benefit and can accumulate cash value with most permanent policies
Term insurance is a fantastic choice for those starting a family, especially if they’re on a tight budget, because it lets them to get high levels of coverage at a time when they’re most vulnerable. Term insurance is also an excellent choice for covering short-term needs. For example, if paying for college is a major financial issue but you’re confident you won’t need life insurance coverage until the kids graduate, it would be a good idea to purchase a term policy that will protect you during the college years.
Affordable. Term life insurance only provides a death benefit, which is the amount of money paid to your beneficiaries if you die during the policy’s term. This makes it, at least initially, the most cost-effective sort of life insurance coverage. Many people are pleasantly surprised when they discover how inexpensive term life insurance can be. A healthy 30-year-old, for example, can buy a $250,000 20-year level term policy for roughly $15 per month.
Flexible. You have the option of choose how long you want your coverage to last based on your requirements. Many people choose a date to discontinue coverage, such as when their children graduate from university/college or when they retire. Your term can span anything from a year to 5 years or more.
Simple. Term life insurance often requires only two decisions: the amount of coverage desired and the length of coverage desired. A certified insurance agent can assist you in determining the amount and length of coverage. Check out our Life Insurance Needs Calculator to obtain a broad estimate of how much term life insurance you’ll need.
May not require Medical Exam. Some forms of term life insurance policies do not require a medical exam, but not all of them do. There are choices available today that do not require you to undergo a medical examination. They usually provide coverage right away if you fill out an online application and qualify. However, the coverage level may be limited, and it may be more expensive than typical life insurance that needs a medical assessment on a dollar-for-dollar basis.
When the Term Is Over. But what if you buy a term policy only to discover that you still need life insurance at the end of the term? Well, it’s a mixed bag of good and bad news. The good news is that many policies will allow you to renew your insurance when your current one expires. The bad news is that, because age is one of the primary characteristics used to determine life insurance premiums, you’ll almost certainly pay substantially more. You may also be required to provide evidence of insurability (insurance jargon for “do another medical exam and answer a new round of questions about your lifestyle, health condition, and family health history”) in order to renew the policy.
So, if you’re thinking about getting a term policy, make sure you think about how long you’ll need it. If you’re confident that your needs will be temporary, term insurance is likely the best option for you. If you think you’ll need coverage for a long time, keep in mind that if you want to renew your term policy after it expires or purchase a new term policy at that time, your age, health status, and other factors may make coverage prohibitively expensive.
Consider the following analogy to better comprehend term insurance. It’s similar to renting a house when you get term insurance. When you rent a house, you receive full and immediate access to it, as well as all that comes with it, but only for as long as you keep paying rent. You must vacate as soon as your lease expires. You have no “equity” or worth in the house even though you have rented it for 30 years.
Important Policy Provisions. When contemplating a term policy, keep in mind that not all term policies are created equal. Some policies may include certain provisions as standard features, while others may require you to pay extra to add these clauses as “riders.” When comparing term insurance, keep in mind that pricing isn’t the only thing to consider. Inquire with your agent about clauses such as:
Accelerated death benefits — permits a terminally ill person to receive a substantial percentage of their policy’s death benefit while still alive.
Disability waiver of premium – waives premiums when a policy owner suffers a long-term disability, typically one lasting six months or longer
Accidental death benefits – in the event of an accidental death, the benefit is doubled or tripled.
Convertibility. Convertibility is a crucial feature. Some insurance policies only allow “conversion” during the first few years of coverage, while others allow it at any time during the policy’s duration. This useful feature enables you to convert your term policy to a permanent policy (e.g., whole life insurance) without having to present proof of insurability.
Converting to a permanent policy is an excellent alternative to have in the event that events in your life change, such as failing health or just realizing that you need coverage for a longer amount of time than you thought.
That’s why, before buying a term policy, it’s always a good idea to see what kinds of permanent coverage the firm you’re contemplating offers. Some companies may specialize on term insurance only, while others may provide products that are competitive in both categories.