If you’re concerned about the long-term financial security of your family, you need to ask yourself the fundamental question:
What will be the fate of my family when I’m gone?
Even if you have built an emergency fund and invested in diversified assets, you can’t be sure of the fate of your family when you’re gone.
That’s where term life insurance comes in. With this type of life insurance, you’re guaranteed that your family will be covered when you’re no more.
But since this is a critical investment, you don’t want to make mistakes in the process of buying term life insurance in Canada.
Here I work you through everything you need to know about term life insurance in Canada using my personal experience.
Understanding Life Insurance in Canada
It’s essential first to understand what life insurance entails before discussing term life insurance.
So what is life insurance? This is a type of insurance that covers your family financially upon your demise.
With life insurance, you’re guaranteed that your family will maintain their standard of living when you’re no more.
This is so important because even if you have built an emergency fund or invested in a diversified portfolio, it can’t guarantee your family’s financial stability when you’re gone.
Like other types of insurance, you need to register for life insurance and pay monthly premiums for your dependents to get benefits upon your demise.
However, how much coverage your family gets depends on the type of life insurance you registered.
Generally, three are two types of life insurance in Canada: whole or permanent and term life insurance. The two are the opposite of each other.
So when it comes to choosing between the two, you need to be very careful in order not to make costly mistakes.
Since this post focuses on term life insurance, we’re not going to discuss much about permanent life insurance. But you can read this comprehensive guide to learn more about the two.
What is Term Life Insurance?
Term life insurance is a type of life insurance that covers your dependents for a set period upon your demise.
This type of life insurance helps your family maintain their standard of living even when you’re no more.
Accordingly, term life insurance benefits can be used to pay off your mortgage and other debts, bury you, and finance your children’s education. This limits the financial burden on your family when you’re no more.
Unlike permanent life insurance, term life insurance is affordable and flexible as you can choose a coverage that suits your current budget and convert it when your budget improves.
However, term life insurance varies by duration and coverage. As a result, you want to choose a term life insurance that suits your situation and needs.
What are the Types of Term Life Insurance in Canada?
There are many types of term life insurance in Canada. For the purpose of this guide, we shall limit our discussion to the major ones, which are:
1. Level Term Policies
Level term life insurance is a type of term life insurance that offers the same amount of death payout from the beginning to the end of the policy. The policy duration often ranges from 10 to 30 years.
2. Yearly Renewable Term (YRT) Policies
Yearly renewable term (YRT) insurance is an annual term life insurance with no terms. However, the premiums change annually and increase as you get older.
3. Decreasing Term Policies
Decreasing term insurance is a type of term life insurance that reduces coverage monthly or annually. This type of term life insurance has fixed premiums covering the policy duration.
4. Convertible Term Life Insurance
As the name implies, convertible term life insurance is the type of term life insurance that can be converted to permanent life insurance without medical tests upon expiration.
How Does Term Life Insurance Work in Canada?
As mentioned previously, term life insurance is based on a set period, often from 10, 15, 20, 25, 30 or 65 years.
So after choosing the type of term life insurance that suits you, you need to pay monthly premiums for your dependents to get a death payout when you die.
But if you choose a decreasing term life insurance, you will make only a one-time fixed payment that covers the whole policy duration.
On the other hand, if your term life insurance is convertible, you can convert it to permanent life insurance when it expires.
That said, renewable policies allow you to renew your coverage after expiration. But if your term life insurance is non-renewable, your dependents will not get any benefits when you die once the coverage expires.
What are the Pros and Cons of Term Life Insurance?
Like permanent life insurance, term life insurance has its good and ugly sides. Here are the major pros and cons of term life insurance in Canada:
- Low Premiums: When you’re young, term life insurance premiums are low. This means protecting your dependents without breaking the bank.
- Large Death Payouts: With low premiums, your dependents will receive larger death payouts from term life insurance when you’re gone.
- Convertible: Unlike other types of insurance, term life insurance can be converted to whole life insurance, giving you the flexibility you need.
- Temporary Coverage: Unlike permanent life insurance, term life insurance offers temporary coverage. This means your dependents will not receive any death payout when the policy expires.
- Strict Requirements: If you smoke or have a severe health condition, your application may not be approved, or your premiums may be high.
- Premium Increase: The more you renew your term life insurance, the more your premium goes up.
- No Cash Value: Unlike whole life insurance, term life insurance generates no cash value. This means you can’t withdraw or take a loan from it.
Term Life Insurance vs. Permanent Life Insurance: Which to Choose?
When choosing a type of life insurance policy in Canada, it’s easy to get confused between term life insurance and permanent life insurance.
However, there should not be any cause of confusion since the two types of life insurance mean different things.
As mentioned previously, term life insurance is temporal coverage. On the other hand, permanent life insurance is lifelong coverage that never expires so long you keep paying the premiums.
Consequently, term life insurance is affordable compared to permanent life insurance since it has a limited duration.
So when choosing between two, it’s essential to consider your:
- Family size
- Income and expenses
If you’re young, it’s cost-effective to buy term life insurance since you can convert it to permanent life insurance later. But if you’re older, you may want to consider permanent life insurance since you will soon retire.
Furthermore, term life insurance is your best option if you’re on tight insurance. But if you’re looking for life insurance with cash value that can allow you to withdraw or take out a loan, consider permanent life insurance.
How Much Does Term Life Insurance Cost in Canada?
While term life insurance is more affordable than permanent life insurance, its cost depends on several factors as:
- Age: The younger you’re, the lower your monthly premiums.
- Gender: Women may pay slightly lower premiums than men.
- Health: If you have a severe health condition, your premium is likely to be high. Some insurers may even decline your application.
- Smoking status: If you smoke, your premium is likely to be high as you pose a high risk to your insurer.
- Length of term and coverage: The longer your term life insurance, the higher the cost. Similarly, the higher the coverage, the higher the cost.
Where to Get Term Life Insurance Rates in Canada?
The best way to get term life insurance rates in Canada is through online insurance brokers.
By partnering with hundreds of insurance companies in Canada, online insurance brokers can help you make cost-effective decisions.
That said, you can compare different policy rates to choose the one that suits your need and budget through an online insurance broker.
But with hundreds of online insurance brokers in Canada, which do you choose?
Unlike you, I didn’t have the opportunity to read something like this when I first bought my life insurance. But from experience, I can tell why it’s essential to look for the best broker out there.
That said, you don’t have to worry about where to find the best online insurance broker in Canada. Bounc3 is one of the leading online insurance brokers in Canada with cutting-edge solutions.
What I like about Bounc3 is that it allows you to compare different term life insurance rates for free. Also, Bounc3 helps you access your chosen policy with ease through using advanced technology.
How to Buy Term Life Insurance in Canada?
After comparing different term life insurance rates and choosing the perfect one, it’s time to buy it.
The following are the step-by-step processes of buying term life insurance in Canada:
Step 1: Apply
Applying for term life insurance is the first step for buying it. While the application process varies from one insurer to the other, you will be required to provide your personal and family details.
Step 2: Signing
After the insurer deems you fit for the policy you applied for; you will be required to sign some documents for the subsequent stage.
Step 3: Medical Test
Most insurers conduct medical tests to evaluate your health status before proceeding with the application: the better your health status, the lower your premium.
Step 4: Waiting for Approval
If your insurer requires a medical test, you will have to wait for the result, which may lead to your approval or rejection.
But if your insurer doesn’t conduct a medical exam and you meet all the requirements, your application will be approved, and you can start making a monthly premium.
Over to You
If you were in the dark on what term life insurance entails, now you’re enlightened.
The outstanding question now is: are you compatible with term life insurance? If yes, what type of life term insurance in Canada is suitable for you?
Even though term life insurance is more affordable than permanent life insurance, you shouldn’t rush to it without answering these two questions.
As mentioned previously, your age, family size, income, and expenses should inform the type of life insurance you need.
Hopefully, you can now take the next step of buying the type of life insurance that suits your situation and budget. But if you’re still in doubt, don’t hesitate to contact me.
FAQs on Term Life Insurance in Canada
Does Term Insurance Really Work?
Yes, term insurance works. So long you continue to pay your monthly premiums, your dependents are covered when you’re no more.
What is the Best Term for Term Life Insurance?
The best term for life insurance depends on your age, budget, family size, income and expenses. This is because what works for you may not work for another person.
What is Better Term or Whole Life?
Both term and whole life insurance are better for different individuals. If you’re on a tight budget or still young, term life insurance may be the best option for you.
But if you are looking for a lifetime policy and can afford to pay high premiums, whole life insurance is for you.
Can You Convert a Term Life Insurance Policy to Whole Life?
Ye, term life insurance can be converted to whole life insurance when it expires. However, not all term life policies are convertible. So it’s essential to choose the convertible policy.
Can You Have Two Life Insurance Policies?
Yes, you can have two types of life insurance policies: term and permanent life insurance. However, it may be costly to meet the monthly premiums. Thus, it’s best to choose one.
Is It Safe to Take Term Insurance Online?
Yes, it’s safe and affordable to buy term life insurance online. This is because the process is simplified, and you can complete your application in no time.
However, it’s critical to use only the best online insurance broker (such as Bounc3) when buying term life insurance online.
What Happens to Term Life Insurance at the End of the Term?
Once the term life insurance duration ends, the coverage ends also. However, you can renew or convert a term life insurance to whole life insurance when it expires.
Have more questions? Kindly drop them in the comment section.