Every 30-year-old has a 12% chance of dying in the next 30 years. However, only 10% of millennials have sufficient life insurance. A 12% chance of dying doesn't seem like much but think of the consequences.
It's these unlikely events that do the most damage. How? Well, unlikely events have the highest probability of catching you unaware.
Many people look at life insurance as an investment they'll never cash in. That's the wrong way to look at it. Consider life insurance from these two angles:
- If your loved ones never receive a death benefit, that's good news. It means you're still alive.
- In the event that you die, your loved ones will still be cared for.
Both ways, you win. In other words, life insurance gives you peace of mind. That's one more thing you can't put a price on.
Life insurance is available in two broad categories:
- Permanent life insurance: This type of insurance guarantees a death benefit to your survivors, no matter the time of death. Permanent policies cover you for the extent of your life.
- Term insurance: Term life insurance only covers you for a specified period of time. Your survivors are only eligible for a death benefit if you pass away within the insured period.
Let's now look at 12 things you should understand about term life insurance:
Term Insurance: What You Need to Know
Term life insurance is also known as temporary life insurance or pure life insurance. It's a life insurance policy in the strictest terms. That's to say that it ensures your life and nothing else.
The policy is only valid for a specified term. Terms usually vary with the bundle selected but 30-year-terms are the most popular.
Term Life Insurance: Types of Insurance
Term life insurance is available in two policies:
- Decreasing term: Under this policy, the death benefit decreases with each passing year. However, the premiums will usually remain the same through the entirety of the term.
- Level term: Under level term insurance, the death benefit remains unchanged through the entirety of the policy.
Term Insurance vs Permanent Life Insurance
Permanent life insurance is available as whole life insurance, universal life insurance, variable insurance, and variable universal life insurance. All these policies cover you your whole life.
As long as you honor your premiums, your survivors are entitled to a death benefit when you cash in your chips. Understandably, the premiums for these policies are higher than term insurance premiums.
Term vs Whole Insurance
Whole life insurance is easily the most popular life insurance policy. It offers a tax-deferred cash value account on top of the death benefit. Portions of the premiums are siphoned off to the cash account.
Under this arrangement, you pay your policies to the insurer who in turn kicks back a small amount into your cash value account. The premiums here are also fixed, unlike term insurance premiums which change with each renewal.
So, why would anyone pick term life insurance over whole insurance?
Well, all permanent insurance is term insurance bundled with some other policy. In other words, you can get better value by settling for a term life insurance policy and investing the difference.
Read more reasons why to avoid whole insurance.
What Happens After Term Insurance Policies Expire?
So, what happens when the years fly by and your term comes to an end? What are your options? Well, it all depends on how your policy was written.
If you bought a renewable policy, you get to renew the plan every year. This convenience, however, comes at a price. Premiums increase with every renewal.
You also get to enjoy the privilege until a specified age. Insurers are usually reluctant to sell terms that cover insureds past their 80th birthdays.
The next option is available for policies written as convertible. You reserve the right to convert such a policy to a permanent policy. The good thing with this move is that you don't have to provide extra proof of insurability.
How to Get the Most out of Term Life Insurance
The biggest set back of a term policy is that it doesn't cover you infinitely. If you should pass when your term has expired, your survivors get nothing. This is probably the chief reason why some people prefer permanent life insurance to term insurance.
In its raw form, term insurance works like homeowners insurance or car insurance. However, the policy can be modified to ensure that you get something even if your term expires.
Before we look at how this policy can be modified, let us clarify one thing: Just because your term expired doesn't mean that you got nothing. For the length of the period, you were insured. The fact that your loved ones didn't suffer the misfortune of losing you shouldn't be considered as a loss.
There are two effective strategies for getting the most out of term life insurance:
- Return of premium: These are term policy riders that add a savings functionality to term insurance. However, the privilege comes at the cost of steeper premiums.
- Change of lifestyle: Adopting a healthier lifestyle will lower your premiums significantly. Drop a bad habit (read smoking) and request for a health re-evaluation. You will find that you'll be paying lower premiums for high benefits.
Term Insurance: Who Needs It Most?
Everyone benefits from a term policy. It's best suited for the most money-demanding times of your life. I am talking about when you're paying off a mortgage, the kids are going to college, and the like. Choose term insurance to cover your survivors in times when losing you would prove most devastating.
This policy is also excellent when you are young and healthy. You get to pay very low premiums for very competitive coverage.
The Cost of Term Life Insurance
The cost of term insurance will differ from provider to provider. It'll also depend on how the policy is written. For example, a policy with a return of premium rider is more expensive than traditional policies.
The length of the insured term also influences the premium you'll pay. The longer the term the higher the premium. How does that work?
Premiums are proportional to the risk of insuring you. The longer the term of insurance, the higher the chance that the insurer will part with a death benefit. That's why longer-term premiums are high.
The matter of risk is also the reason why unhealthy habits like smoking will make you pay higher premiums.
Term Life Insurance: How Do You Choose a Policy?
The term policy you settle for must be sufficient to keep your family going in your absence. Before settling for a policy, consider the needs of your survivors? How much would they need to weather the storm that follows the death of a provider?
Choose a policy that matches or exceeds their needs. On the length of the insured term, choose a term that covers the period you're servicing loans. If there's one surety of what happens after death, it's that bills remain.
Another trick is to buy policies offered by an insurer you're already buying from. Bundling insurance policies is highly encouraged by insurance firms. You'll get significant discounts.
Is Term Insurance Enough?
Insurance is a game of risks. You can never be too careful. You need as much cover as you can afford, within reasonable limits of course.
Buy other policies to complement your term insurance. On its own, a term policy only insures your life. However, not all disasters are fatal.
When shopping for policies, remember that even non-fatal events can lead to a great financial strain on your loved ones.
The Best Term Life Insurance Cover
The best cover is a very abstract concept. A cover is only as good as the benefits it provides. The benefits, on the other hand, are only as useful as the needs they meet.
That's to say your needs determine the best cover for you. Therefore, to choose the best term insurance cover, you must first understand your needs. That's easier said than done.
For a clear picture, imagine your survivors living for one year without you? The challenges they'll face are the needs your term policy needs to address.
Choosing the Best Term Life Insurance Provider
As it was stated earlier, premiums differ from provider to provider. To find the best provider, you'll need to weigh different providers against each other. If you're thinking that is too much work, you're right!
What if I told you there was an easier and faster way of identifying the best term insurance provider in Canada? Read on to learn more:
In a Nutshell
Term insurance is an appealing life insurance option. Picking the best policy is, however, is not easy. We are Canada's leading insurance quotes comparison site.
We've gathered all that information so that you can compare policies from different providers hassle-free. Contact us and find out which insurer is best for you.