Consider this common sequence of events that plays out in Canadian households all the time:
A person sits down with their loved ones to discuss how best to prepare for a worst-case scenario. Having considered their options, they decide – as many Canadians do – that the best answer is a life insurance policy. They want assurance that their family won’t suffer financially if they pass away unexpectedly.
They’ve heard about term life insurance from friends, but they’re a little hazy on the details. And with a decision this consequential, they would like to know as much as possible before entering an agreement.
If this scenario in any way describes you, you’ve come to the right place. Below, you’ll find answers to a few frequently asked questions about term life insurance.
What Is Term Life Insurance and How Does It Work, Exactly?
The first question most people ask is a straightforward one: what is term life insurance in Canada?
Like other life insurance types, term life insurance involves paying monthly premiums to an insurance company. In exchange, the insurance company commits to paying your (the policy owner’s) beneficiaries if you pass away. It’s a common form of insurance in Canada, helping give peace of mind to couples, families, and even single people with debts and/or dependants.
Term life insurance is notable because the policy has a fixed term – generally between 10 and 30 years. You select a coverage amount (let’s say, “your annual salary times ten”). You answer questions about your health, age, gender, etc. And then you pay an actuarially calculated amount each month. If you pass away during your policy term, the insurance company pays your beneficiary a death benefit equals to the coverage amount.
How Is It Different from Other Life Insurance?
Term life insurance encompasses several types of policies: single life insurance, joint life insurance, combined single life insurance, etc. But they’re all held together by the fact that their agreements exist within a set time period.
By contrast, you can also find whole or universal life insurance. As you might guess, whole life insurance policies cover your entire life. Whole life insurance policies can cost five to ten times more than their term counterparts, so they often do not make sense for younger adults with financial dependents (though exceptions obviously exist).
If you’re curious which type of life insurance fits you, speak with a trusted life insurance advisor through a company like PolicyMe.
What Happens When the Term Ends?
So, what happens when your term ends? Is that it – you’re back to living without a safety net?
No, you can always reapply for term life insurance. Alternatively, you can apply for “convertible life insurance,” which allows you to convert your term policy to a whole life insurance policy.
What Are the Benefits of Term Life Insurance?
Many Canadians prefer term life insurance because it’s affordable. Paying the relatively high monthly cost of a whole life insurance policy when you’re young (and inherently less likely to pass away) doesn’t make sense for a lot of people. Instead, they get term life insurance when they’re young(ish) and revisit whole life insurance when they’re older.
Moreover, people like the predictable premiums associated with term life insurance, as well as the flexibility (the coverage lasts only as long as they need it).
Hopefully, this article answers a few of your burning questions about term life insurance. Remember, you can always speak to trusted experts if you have specific questions or concerns.
