The Basics
Term Life Insurance is the purest form of insurance. It is simple to understand and affordable. For a few dollars a month you can purchase a tonne of risk protection.
Term 10
The most common type of insurance and what most clients start with, Term 10 insurance is a 10 year contract you have with an insurance company. You agree to pay a fixed premium (monthly or annual fee) to the Insurance company and in exchange, they promise to pay a lump sum death benefit in the event you pass away. The cost of the contract varies depending on some material facts about you. Your age, gender, smoking status, and medical history are the main factors that go into calculating the premiums.
Term 20
Term 20 is exactly the same as Term 10, except it is a 20 year deal with the insurance company. It is more expensive however. This is because the insurance company is on the hook for longer, and you are buying protection for older years. As people age, their mortality risk naturally increases so the Insurance company needs to charge more to cover their costs. The cost generally starts increasing significantly when you are buying coverage for years into your 60s.
The Cons
It expires. Once the term of your contract is over, the coverage will either expire or increase so drastically in price that it is usually not sensible to continue paying the premiums.
Contestability. In most Insurance contracts, there is a two year window at the start called the Contestability period. This period exists so that an Insurance company can do an in depth review of the contract before paying out the death benefit. Common reasons a benefit would not be paid out include a customer misrepresenting material facts on the application (ie, a smoker listing themselves as a non smoker) or if the cause of death was suicide.
The Pros
You’re protected. Fundamentally when you purchase a Term Insurance contract, you’ve protected what matters most.
You’re in control. Life comes with risk, but with coverage in place you and your family or business are prepared for any scenario.
It gives you peace of mind. With the contract in place, you can focus on what matters without having to worry about what could happen to your legacy if you weren’t there to take care of it.
It’s affordable. Especially in your younger years, Term Life Insurance can usually be purchased for just a few dollars a month. From a cost perspective, this is the most accessible form of insurance.
You can buy a lot. Because of the affordable cost, you can apply for a large death benefit. This means that you’re able to insure every asset, present and future.
Guaranteed Insurability. Once you’ve locked in your Term policy, the Insurance company is mandated to offer a renewal on the Insurance you have purchased. This means that if there is a significant change in your health status throughout the course of your term, you will still qualify for insurance in the future.
The benefit is tax free. Because of how the tax system works in Canada, Life Insurance death benefits are paid out to the beneficiary tax free. As long as the beneficiary is someone different that the insured, the moneys will be paid out without having to go through the taxation that applies on your estate at end of life.
Conversions
Another key benefit of Term Insurance is an aspect called convertibility. Many Insurance companies offer an option where you can convert or upgrade your policy. A common example of a conversion would be moving a Term 10 to a Term 20, or converting Term Insurance into Permanent Insurance.
How much do I need?
The short answer is that it depends. The long answer is usually determined through what is called a “Needs Analysis”. Together with our team we sit down and work to determine what might be right for you. We look at factors like who your dependents are and what their needs will be in the future. We also look at risks such as outstanding debts, and the potential need for income replacement. Once done, we are able to make a recommendation on what amount of coverage best fits your situation, and let you decide how to proceed.