Like most Canadians, you probably don’t think much about life insurance because you assume it is complicated and expensive. That’s not entirely true.
There is a type of life insurance that is straightforward and very affordable. Term life insurance offers a safety net for Canadians who want to cover financial obligations while staying within their budget.
Canadians looking for life insurance that provides financial protection for their loved ones at affordable rates will find term life insurance as their top choice. It is inexpensive and easy to understand.
This blog post will help you understand the basics of term life insurance and how it can provide financial protection for you and your loved ones. It will also cover the types of term life insurance, how it works, and their role in your financial security.
Continue reading to find out more.
What is Term Life Insurance?
Term life insurance is a type of life insurance that provides coverage for a specified time, typically 10-30 years, or till you reach a certain number of years, maybe 65.
You pay monthly or annual premiums to the insurance company throughout the policy’s lifetime until it expires. The insurance company pays out a death benefit to your designated beneficiary if you die within the policy’s term.
Once the term expires, your coverage expires, and you stop paying premiums. However, when the term expires, the policyholder can renew the policy at an increased premium, convert the policy to permanent life insurance, or let the policy lapse with no further coverage.
Insurance companies in Canada usually offer term life insurance for 10, 20, or 30 years. Sometimes, till specific ages like 65. However, some insurance companies might allow you to pick your preferred term, in which case, you can pick a term that meets your financial needs and goals.
The main advantage of term life insurance is that it is typically much cheaper than permanent life insurance, making it an affordable option for those on a budget, which is why most Canadians opt for it. However, one downside of term life insurance is that it does not build cash value like whole life insurance, so if the policyholder does not die during the term, they will not receive any death benefit payout.
Moreover, because the death benefit is only paid out if the policyholder dies during the term, it can be a good option for those with temporary financial needs or who are not yet ready to commit to a permanent life insurance policy.
How Does Term Life Insurance Work?
Term life insurance is one of the most common insurance policies. It is simple to understand and provides coverage for a set period, making it an affordable option for many people.
Term life insurance is a contract between you and an insurance company. The insurance company agrees to pay out a specified death benefit if you die during the policy term.
The insurer uses detailed statistical and actuarial models to determine the risk involved in insuring you and offering death benefit coverage to your beneficiaries. The actuarial models consider the life expectancy of various ages and genders, health profiles in the population, interest rates, and future expenses.
You make periodic payments of insurance premiums, monthly or annually, to the insurance company for bearing your risk and making the benefit payment. The insurance company determines your premium based on your specified coverage amount and policy term: the more your coverage and policy term, the higher your premiums.
The insurer considers your age, gender, health status, family medical history, and smoking status. They may also inquire about your current hobbies, occupation, and driving record. You may need a medical exam to prove your insurability and qualify for the best rates.
Benefits Of Term Life Insurance
Term life insurance comes with several benefits over other types of life insurance. It is a top choice for most Canadians. Here are some benefits you will get when you buy a term life insurance policy.
- Affordable: Term life insurance is usually cheaper than all other forms of life insurance. It offers coverage for a specific time and doesn’t have a cash value component.
- More flexible: Term life insurance allows you to pick the term and coverage that fits your needs. If you want to cover a long-term debt, like a mortgage, you can buy term life insurance for 20 or 25 years and lock in low rates.
- Suitable for younger families: Because of its affordability and flexibility, term life insurance is better for young families in Canada. Term life insurance allows young families to protect their loved ones without financially stressing their accounts.
- Simplicity: Term life insurance is easier to understand. You only decide on your preferred insurer, the coverage amount, and the policy term length.
- Term conversion rider: Term life insurance comes with a guaranteed conversion rider that allows you to convert to permanent life insurance without any proof of insurability.
Types Of Term Life Insurance
Every family is unique, and your term life insurance should match your family’s needs. Before you start looking for term life insurance to buy, consider the type of term life insurance that fits your unique needs.
There are four types of term life insurance.
1. Level-Premium Term Life Insurance
Level-term life insurance provides coverage for a set period of time at a fixed rate. The premiums and death benefits remain the same throughout your policy term.
2. Decreasing Term Life Insurance
Decreasing term life insurance provides coverage for a set period of time at a decreasing rate. It is often used to cover a mortgage or other loan, as the death benefit decreases over time along with the loan balance.
3. No-Medical Exam Term Life Insurance
With the no-medical exam coverage, you don’t need a medical exam to get coverage. You may have to only answer a few health-related questions.
4. Annual Renewable Term Life Insurance (ART)
This type of term life insurance only lasts a year but can be renewed at the end of each year. Each year you renew the policy, you will pay more than the previous year.
How Much Does Term Life Insurance Cost?
Term life insurance is more affordable than whole life insurance because it has an end date and no cash value component.
The cost of term life insurance in Canada depends on factors such as your age, coverage amount, health status, policy term length, occupation and hobbies, smoking status, family medical history, and gender.
It is better to buy term life insurance at an early age and lock in low premiums. Buying insurance while you are young and healthy can save you premiums when you get old.
Most term life insurance premiums are level, meaning they won’t increase over time. However, when you renew your policy, the insurance company may charge higher premiums for renewal.
Final Thoughts on Term Life Insurance
Term life insurance is a valuable tool for anyone with dependents. It provides peace of mind in knowing that your loved ones will be taken care of financially if something happens to you.
If you haven’t already purchased term life insurance, now is the time to do it. You can get a free quote in just minutes, and there are no obligations. Don’t wait – protect your family today!
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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