what is term life insurance?

Term life insurance is life insurance that provides coverage at a guaranteed premium  for a limited period of time, the relevant term (usually 10, 20 or 30 years). After that period expires, the cost of the insurance policy increases dramatically (often 4-7 times the original cost).

Understanding what you own

Life insurance that is medically underwritten at the time of application is NOT the same as the following:

  1. Life insurance provided by your employer
  2. Life insurance provided by the banks (ie. mortgage or creditor insurance)
  3. Life insurance offered by associations (ie. CAA)

If you  have any of the products listed above, you should consider replacing with a privately owned life insurance policy with any of the Canadian insurance companies.

How much coverage do you need?

Younger families should have enough term life insurance to eliminate all debt (including a mortgage), education costs for their children and enough capital to replace the lost income from the deceased spouse.  

The need for term life insurance often reduces as you get older because savings increase and your debt reduces.

What term should you purchase?

The lowest cost option is 10 year term.  If cost is a driving factor, purchase the correct amount of 10 year term life insurance to keep costs low.  Often the term of life insurance should closely match the duration of the need.  For example, a mortgage that is amortized over 20 years should have a 20 year term life insurance policy.

There are many factors to determine the term required that is discussed during the needs analysis process.

Am I insurable?

Don't assume that you're not insurable.  Many individuals who have had cancer in the past or are living with diabetes are still insurable.  Medical treatment and medicine has improved dramatically.  If you're not sure that you can get life insurance, apply and find out.

If you have a pre-existing medical condition, there are contracts that are available that require no medical evidence.

Other tidbits about term life insurance

  1. The policy can be converted to a permanent life insurance policy without providing medical evidence
  2. If you no longer want the term life insurance (often because of costs), advanced tax planning strategies exist that could create a significant tax credit (instead of simply canceling the policy).  Don't cancel life insurance without knowing your options.

Life Insurance Costs

Term life insurance is very inexpensive and relatively easy to implement.  Typically, if you are 50 or under and purchase $1,000,000 or less of coverage, vitals, blood and urine are not required.

what is life insurance