Most Canadians refuse to buy life insurance policies because they consider them complicated and expensive. Not all life insurance types are costly and complex. Term life insurance offers a straightforward and least expensive way to buy life insurance.
If you are looking for a simple type of life insurance that financially protects your family and provides them access to cash when you die, you should get a term life insurance quote.
If something suddenly happened to you, how would your family make mortgage payments, fund your children’s tuition and educational expenses, and cover everyday living expenses? Term life insurance can provide you coverage for a fixed number of years and pays out a death benefit to your loved ones if you die within your policy term.
What Is Term Life Insurance?
Term life insurance is a type of life insurance that offers you coverage for a specific period of time, typically five to thirty years. Term life insurance policies are simple and affordable products that protect your family in the event of your death.
Term life insurance covers you for a fixed number of years or until you reach a specified age, like 65. You pay monthly or annual premiums till your policy expires, and your designated beneficiaries receive a tax-free lump sum payout if you die within the policy term.
Once your policy term ends, your coverage expires, and you stop making premium payments. If you are looking for temporary coverage that is affordable and comes with customizable features to suit your unique needs, you should consider term life insurance plans.
How Does Term Life Insurance Work?
Term life insurance is a contract between you and an insurance company, where the insurance company agrees to pay out a tax-free lump sum death benefit to your beneficiary should you die during the policy term.
The insurer uses detailed statistics and actuarial modes to determine your risk level and set your premiums during the application process. You pay monthly or annual premiums to ensure the policy is in force.
The insurance company uses factors like age, health status, gender, family medical history, and many more to assess your life expectancy and the likelihood of paying out the full death benefit. Your premiums depend on the likelihood. The higher the likelihood, the higher the premiums you will pay.
You have to choose a beneficiary who will receive the death benefit in the event of your death. Your beneficiary can be your spouse, child, or relatives. You can also choose trusts and charitable organizations as your beneficiaries.
In most cases, you may need to undergo a medical examination to prove your insurability and qualify for term life insurance policies. However, if you don’t want to undergo a medical exam, there are no medical insurance options.
Also, term life insurance does not have a cash value or savings component. This makes it one of the most affordable and uncomplicated types of life insurance for Canadians.
What Does Term Life Insurance Cover?
The death benefit payout from your term life insurance is given to your designated beneficiary. Your beneficiary or beneficiaries can use the money for whatever purpose.
The death benefit can be used to cover mortgage payments, outstanding school loans, car loans, or credit card debts, pay for children’s educational expenses, replace your income, or cover everyday living expenses for dependents.
Your dependents can also use your policy’s death benefit to cover your funeral costs and expenses. The lump-sum payment can help your beneficiaries grieve your death and retain their quality of living after your loss.
Some dependents may have to seek medical assistance and therapists after your death, and your death benefit will help them cover the costs.
How Much Does Term Life Insurance Cost?
At 28, Jake, a male who does not smoke, recently graduated from university. He wants to begin his career and start saving up for his first home. He proactively locks in low rates available for his young age, which will stay the same for his lifetime. He applies for a $50,000 term life insurance for a 15-year term. He gets a monthly rate of $9.72 from Manulife.
This shows that term life insurance is Canada’s most affordable type of life insurance. The cost of term life insurance in Canada depends on personal factors like age, smoking status, health status, job, hobbies, gender, etc.
A young and healthy Canadian who is a non-smoker will get lesser rates than a young and unhealthy Canadian. Term life insurance is less expensive if you are young, in good health, and do not smoke.
There is no one-size-fits-all premium payment for everyone. While we can’t give you the exact rate you will be paying, we can help you find the best coverage within your budget.
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What Happens If Your Term Life Insurance Ends?
If your term life insurance ends before you die, you have four options on how you may proceed with your coverage. You may choose to renew your policy, convert your coverage to permanent life insurance, or get a brand new life insurance policy.
Also, if you no longer need the term life insurance policy, you can let the coverage lapse. This means you will no longer have active coverage, and your beneficiaries will not receive any death benefit when you die.
Applying for brand-new coverage is less expensive than renewing your term life insurance policy. Renewing your policy comes with higher premiums. However, you can renew your policy without submitting any proof of insurability.
Term Vs. Whole Life Insurance: Which is Best?
Term life insurance and whole life insurance are two very different types of life insurance. While term life insurance provides coverage for a specific period, whole life insurance offers coverage for your lifetime.
Whole life insurance Canada is a lifelong policy that stays in force as long as your pay your premiums. It is best to cover permanent needs and cover your entire lifetime. You can use whole life insurance to cover final tax expenses and funeral arrangement costs or leave a tax-advantaged inheritance for your children and grandchildren.
FAQs on Term Life Insurance
Does Term Life Insurance Cover Accidental Death?
Term life insurance pays out your death benefit if you die due to natural causes like old age, terminal illness, stroke, cancer, etc. If you also die as a result of accidents which is no fault of yours, term life insurance will payout your death benefit to your beneficiaries.
However, some term life insurance includes exclusions that can withhold your life insurance payouts. These exclusions include suicide, death by illegal activities, death from hazardous jobs not listed in your policy, or if you have misrepresented yourself on your insurance application.
Does Term Life Insurance Cover Disability?
No. Term life insurance does not cover disabilities. However, there are disability riders that you can add to your term life insurance policy to protect you if an injury or illness stops you from earning an income.
If you want more robust disability coverage, you should opt for disability insurance. This type of insurance covers you if you become disabled and unable to work and earn income. It pays out a benefit to you, pending when you can go back to work.
Which insurance companies in Canada offer the best term life insurance?
There are many insurance companies in Canada. It can be challenging to pick which insurance company to purchase life insurance from. Life insurance rates differ from company to company, and you should compare rates before buying your policy.
What is the right age to buy term life insurance?
Many factors affect the life insurance rates in Canada. Your age and health status are the most important factors determining your premiums.
While there is no specific age to buy term life insurance, the earlier you apply for coverage, the less premiums you will have to pay. Applying for term life insurance at a younger age will help you lock in low premiums.
This is advantageous because you are less likely to have health conditions, which could increase your insurance rates.
Can smokers purchase term life insurance?
Yes. Canadians who smoke can also buy term life insurance. However, they would have to purchase term life insurance at a higher rate than Canadians who are non-smokers. Insurance companies in Canada offer nearly two to five times more life insurance premiums to smokers.
Can I cash out my term life insurance?
No. You cannot cash out your term life insurance. Term life insurance does not hold cash or surrender value like permanent life insurance. This is why term life insurance is less expensive than other types of life insurance.
Hi, I'm Adeola Adegoke. I am a licensed Insurance Broker in Manitoba, and I hold a master’s degree in Mathematical Sciences (with a major in Financial Modeling) from the African Institute for Mathematical Sciences (AIMS), Tanzania.
Also, I have a second master's degree in Statistics from the University of Regina, and I am currently pursuing my Ph.D. in Statistics at the University of Manitoba.
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