Can You Cash in on a Term Life Insurance Policy?
Shopping for term life insurance tin mean being overwhelmed with options.
Do y'all need $250,000 in coverage or $1,000,000? What term length do you demand? And how much should it actually cost?
Understanding what options are available and what yous actually need is important. Thankfully, we'll requite information technology to you directly.
At PolicyMe we believe term life insurance is the best fit for almost people and we have decades of feel in the life insurance industry to back it up.
In this article, we'll explain what term life insurance is, who should purchase information technology, how much coverage yous might need and what it's going to price you. Let's get to it.
What is term life insurance?
At its core, life insurance is a fiscal lifeboat for loved ones in instance of an individual'south decease. Term life insurance is i of the types of life insurance bachelor.
Term life insurance is coverage that lasts for a fixed time menstruum, usually 10 or 20 years.
New to term life insurance? This quick explainer video is a great intro.
If the policyholder passes abroad during this term, the policyholder's family receives a single taxation-costless payment, also known equally a expiry benefit. The expiry benefit will be equivalent to the coverage you signed up for--$500,000, $1,000,000 etc.
Some other good matter to know: your family can utilize the lump sum for whatever they want.
They can comprehend mortgage or rent payments, relieve for college tuition, pay off debt, keep upwards their standard of living or annihilation else.
You can buy an individual policy or a joint policy with a significant other. Some term policies offer boosted coverage or optional benefits (riders) which will increase your monthly premium.
Who'due south eligible for term life insurance?
Age is the major gene that determines eligibility when you're looking for a term insurance policy.
You must exist 18 years old or older, and younger than 65 (usually) to qualify for term life insurance in Canada.
In some cases, term policies may allow for coverage until age 69, only this isn't always the case.
PolicyMe offers coverage up to the age of 85, with policies that can be started every bit tardily every bit age 75. Nosotros provide life insurance in Alberta, Ontario, B.C. and 8 other Canadian provinces and territories.
Discover out if you lot're eligible today.
Who should buy term life insurance?
The best part about term life insurance is that you're merely paying for coverage while you really need it.
Life insurance coverage is supposed to provide a security blanket and then that if something happens to you, your dependents don't struggle financially.
If you're below 45 years of age, with income earning potential, term life insurance could be exactly what you lot need.
You should buy term life insurance if any of the following applies to y'all.
1. You lot take dependents
- Children who won't rely on y'all financially forever
- Aging parents who are probably going to pass away first
- Spouses or partners who aren't income earners and won't go back to work if you lot pass away, such as:
- Stay-at-home parents
- People with a chronic illness
- People who do work and want to maintain the same standard of living
2. You have a mortgage
If yous're over 30 years old and a nonsmoker, it's cheaper to get term life insurance rather than mortgage insurance.
3. You lot accept large loans
Debt tin be role of life, but information technology's non forever. If you accept any of the following loans, yous'll want coverage for it until it's paid down.
- Business organisation loans or lines of credit
- Home renovation loans or other personal loans
- Line of credit against the equity of your house
- Student debt
Existent-life example: Rukmini
Rukmini is a 35-year-old high school math teacher living in Brampton, Ontario. She has a spouse and a mortgage and two rambunctious boys who are constantly destroying the business firm her mortgage pays for.
She buys a xx year term life insurance policy with $1,000,000 of coverage at $25.44 per calendar month. This means that her family unit receives a payout if she passes away within the adjacent 20 years.
For the duration of her 20 twelvemonth term, her monthly premiums will remain the aforementioned ($25.44), fifty-fifty if new applicants have to pay more (or less) for an equivalent program.
Rukmini will likely outlive her 20-twelvemonth life insurance coverage, at which point her policy will expire.
At that betoken, Rukmini's mortgage payments are lower and her kids are out of the house, paying their ain expenses and living their own lives.
At present she can put the toll of her monthly premiums towards things like retirement savings, that European river cruise she'south always dreamed of, presents for those grandkids that amend come along soon--whatever she wants.
Equally you can see, term life insurance has a lot of positives, especially when you compare term life to whole life, every bit this chart shows.
Who shouldn't buy term life insurance?
Whole life insurance, every bit opposed to term life insurance, is beneficial in a few specific situations.
1. You have permanent dependents
Permanent dependents means you accept someone who will rely on your income for their entire life, fifty-fifty if they outlive you.
This could be a child who requires permanent care or a dependent with a terminal illness.
2. You're ultra-wealthy
Wealthy Canadians that take valuable assets to pass downwards to their families may find these assets would exist heavily taxed later on they pass away.
In this specific instance, whole life insurance can be an effective investment vehicle as it allows for revenue enhancement-deferred wealth.
Meaning: when your dependents receive a death do good from your permanent life insurance, the money won't be taxed. So you lot avoid paying taxes on the premiums y'all pay on the policy over the years.
3. You've maxed out your TFSA contributions
A TFSA is by and large a better place to put your coin to avoid taxation.
That said, some wealthy Canadians may max out their TFSA contributions and cull to use their whole life insurance policy as a identify to put remaining money they want to laissez passer on eventually to their beneficiaries.
This strategy has its own risks and it;s against regulations for insurance providers to actively promote whole life insurance as an investment vehicle.
4. You've run out of time to build your wealth
Allow'south say you don't have much time left to build up your wealth. For example, if you're already over the age of 65 and yous don't take equally much saved as y'all had hoped, yous might opt for whole life insurance to protect and support whatever permanent dependents.
Still confused? Here's a bully dominion of thumb
If yous have $500 to spend monthly on whole life insurance, you would be better off spending $50 on term life insurance instead and investing the remaining $450 for boosted peace of mind.
One time your children grow up and get financially independent you lot may non need life insurance anymore. Then why continue to pay for coverage?
Instead, y'all can use term policies to build up your liquid assets, rather than paying more than for whole life insurance.
What does PolicyMe offer?
At PolicyMe, nosotros but sell term life insurance. This is because we believe that's what almost people really demand, not permanent or mortgage insurance.
We only recommend a permanent policy if you actually need it. If you don't, nosotros'll always tell you upfront.
And if you don't demand term life insurance either, we'll tell you that as well! Transparency and honesty is baked into who we are.
How much does term life insurance cost?
With any term life insurance policy, you know you'll pay less than you lot would for a permanent life insurance policy. This means yous're already starting ahead.
Since each life insurance policy is highly personalized, the monthly premiums vary.
Use the table below to compare average prices for different life insurance companies.
Hither's what volition determine your monthly life insurance premium:
- Length of the term
- Corporeality of coverage
- Age
- Biological sex/sexual identity
- Smoking status
- Health status
The first five factors class the base rate for your monthly premium. Wellness condition is what tin can cause your premium to go up, sometimes significantly.
Your health status can increase your monthly premiums 50%, 100%, or 200% depending on your diagnosed disease.
Life insurance policies that are not fully underwritten may be cheaper, just they are risky. With fully underwritten term life insurance, information technology's very rare for a merits not to be paid out.
Underwriting ways the visitor fully assesses the chance you may pass away prematurely. So in that location's less risk your payout volition exist denied if you pass abroad.
Real-life instance: Alfonso
Alfonso is a 35-yr-sometime Fishery Officer who lives in Dartmouth, Nova Scotia. He has a spouse and his new baby boy is his whole world.
As a 35-twelvemonth-old male nonsmoker, his base charge per unit would exist $25.17 per month (at least with PolicyMe).
But, he has blazon two diabetes. Thankfully, information technology's well-controlled. He takes his prescribed medications regularly, and so his premiums would probably go upward 50 percentage.
His cousin has type ii diabetes and high blood pressure, so his premium may double or triple. Or he could exist declined outright, especially if he's not taking his medications, his diabetes isn't well-controlled and/or he's non seeing a doctor regularly.
Why do term life insurance costs vary and so much between unlike people?
Each case is uniquely calculated, so life insurance companies are only able to guess your truthful rate later on you've submitted a full awarding.
The good news: if you were given an increased rate, you can utilise for your policy to be reevaluated afterwards ii years, especially if your wellness status has improved.
More good news: if yous practise receive a college rate than you expected or are declined for coverage, it won't impact your power to authorize for coverage in the time to come.
Why is PolicyMe the cheapest term life insurance choice in Canada?
PolicyMe provides fully-underwritten term life insurance policies backed by Canadian life insurance giants.
We've cut unnecessary distribution costs and underwriting steps and offer a streamlined online application process. Most people are approved instantly, with no medical exam required.
This allows us to offer the most competitive pricing on term life insurance in Canada.
What are the pros and cons of term life insurance?
All life insurance options take both pros and cons. Let's discuss some of the advantages and disadvantages of a term policy.
Advantages of term life insurance
1. Fully underwritten term policies are straightforward and easy to understand, with no subconscious fees or risks.
Generally, underwritten policies are safer considering the life insurance company has fully assessed the chance of covering you, so there'southward less take a chance your dependent'southward claim will be denied. That said, Information technology'southward very rare for claims to be denied.
ii. They're more than affordable.
Term life insurance can be 6 to 10 times cheaper than the same amount of coverage from a whole life policy.
Which is practiced news since 44 per cent of Canadians don't have life insurance, xl per cent of which say it'southward considering they can't beget information technology.
The boilerplate price of term life insurance is virtually $30 per month versus over $150 per month for whole life policies. Hither'south a nifty little comparison:
Hither's another way to wait at information technology:
- A 10-year term life insurance policy is generally 10 times cheaper than whole life policies for the same amount of coverage.
- A twenty-year term is ordinarily five times cheaper than whole life policies.
In the end, information technology depends on your age, as well every bit who is providing you with the term life insurance quote, particularly with 20-twelvemonth term policies.
And people who are xx to 40 years old more often than not pay less, while 40 to lx-year-olds pay more.
three. Policies can be cancelled at any time, without penalty
Term life insurance is more than flexible than other types considering you tin abolish it whenever you want and non pay any penalties.
4. If yous outlive the policy, the cost is minimal
Term life insurance is much cheaper than permanent life insurance, then the investment is much less.
If you employ as a xxx-twelvemonth-old nonsmoking woman, your rate of $fifteen per month is locked in--for a twenty year term with $250,000 coverage.
Your rate for whole life insurance at the same historic period, same policy, would be about $121 per month. And so at age 50, you lot're paying $3,600 for term life versus $29,040 for whole life.
With term life, you save a whopping $25,440.
That'due south money yous can put towards your retirement, your mortgage, whatsoever you lot want. The cost really is minimal, compared to the alternative.
5. Peace of mind that you're protecting your loved ones
It's unlikely anything could happen to you. But if it does, term life insurance is at that place in an instant to cushion your family against fiscal stress.
6. Fix it and forget information technology.
You apply once, and it runs in the background; no maintenance required.
7. Once you have a policy, no one can take information technology abroad.
Equally long every bit y'all pay your premiums, your life insurance provider cannot go back on their agreement, even if your health declines later on.
eight. If your life insurance needs change, you can swap your policy any time within the first five years.
For example, you could extend your term to 20 years, or switch to a whole life programme.
Don't worry about making the wrong decision. Speak with an advisor to go the correct recommendation and then you tin can make changes in futurity to adapt to new situations.
Protect yourself now, and give yourself the peace of listen to know you can modify the plan later based on your needs.
Disadvantages of term life insurance
1. If y'all outlive your policy, it will elapse
This means having to extend existing plans, or register for new ones.
Thankfully, many term life insurance policies allow for policy extensions without having to undergo boosted medical testing or underwriting.
Choosing a term length and coverage amount
Determining the all-time term policy and the amount of coverage for y'all volition depend on your personal and fiscal circumstances.
For example:
- If y'all accept children, you'll desire to cover their childhood years and academy tuition.
- You'll also desire to protect your spouse until their retirement.
- If you have a mortgage, you'll desire coverage until it'due south completely paid off.
The older you are, the shorter the term yous'll require.
That's because you'll likely be cocky-sufficient by the time of your retirement, assuming yous're regularly contributing to your registered investment plans, like RRSP or TFSA.
Plus, your kids will probably be out of the nest and financially contained by then (thank goodness).
How much term life insurance do I demand?
You'll want to guarantee that your coverage will supercede your income.
This involves considering all of your family'southward needs, avails and liabilities. Some experts recommend having 10 to 15 times of your annual income covered.
Alternatively, you can calculate all of your liabilities and the lengths of time they require fiscal protection in order to come up upwards with the death benefit amount that all-time suits your needs.
At PolicyMe, we believe it'southward worth consulting either a fee-only fiscal advisor or a non-commissioned counselor to get an honest and detailed estimate.
You can also take our recommendation quiz online to see exactly how much coverage and what policy length you lot need.
Can I reduce or increase my term life coverage?
Aye, you tin can alter the length of your term, or abolish your term policy at any time.
You tin increase the term of your coverage without providing additional medical testify.
However, if yous adjust the terms of your policy, such every bit reducing your term or increasing your death benefit, your premium payment corporeality may modify as well.
Are there any exclusions for term life insurance?
Term life insurance plans may non comprehend certain types of deaths, including:
- Suicide in the first 2 years (all companies in Canada). For a fully underwritten term life insurance policy, all other causes of death are covered.
- Acts of war or terrorism are sometimes seen as exclusions, but not through PolicyMe. Always bank check your policy's fine print!
What happens when term life insurance ends?
If you don't extend your policy term, when your unabridged term ends, your life insurance will elapse.
There'south no activity required from you when this occurs, only you will no longer have a term life policy.
You can foreclose this by extending your existing policy or signing upward for a new one. You can as well consider convertible term life insurance, which lets y'all convert some or all of your term life insurance policy into a permanent life policy.
How to choose a term life insurance company
At present that you know more than virtually term life insurance, it'southward fourth dimension to start exploring your options.
Determining the all-time life insurance in Canada for your needs isn't easy. It ever helps to become the advice of an practiced, such as a noncommissioned advisor or a financial planner.
They can help you figure out your most efficient and affordable coverage options, as well as what length of term insurance makes the most sense for you lot.
With that said, it'south of import to keep a few things in mind when shopping around for a policy.
1. Check how prices are calculated
How much coverage are you paying for? Whether it's $250,000 or $ane,000,000, coverage volition exist the aforementioned across the lath, no thing where yous get your insurance. Still, the monthly premiums may differ betwixt providers.
It's of import to ask how the costs of a life insurance plan are calculated and whether actress fees hateful extra benefits for y'all.
Some traditional life insurance companies have inflated premiums because of unnecessary expenses and processes involved in the process.
At PolicyMe, we've cut these unnecessary steps and expenses to offer the most affordable term life policies in Canada, with the backing of Canadian insurance giants.
two. Make sure the policy is fully underwritten
Some providers will offer a no-medical term life insurance. In this case, your premiums will be higher because the insurer doesn't have the complete details of your health history, and so they'll just assume you're a higher risk.
Applying for a fully underwritten term life insurance policy ways you may demand a physical exam, peculiarly if you have ongoing health issues.
That said, it's always worth having a medical exam performed. Here's why:
- Companies like PolicyMe cover the toll of the medical exam. You get an update on your overall health, which you can share with your doctor for further review.
- Fifty-fifty if you have health problems that you believe could disqualify you, in that location's no manner to know for sure until you lot've completed the application process. It's worth the effort to find out whether there may be a life insurance policy that best fits your needs
- No-medical life insurance means higher premiums.
iii. Consider the approval fourth dimension
If y'all're planning to start a family or thinking about getting a business firm, you'll want to first shopping around for a term life insurance policy. Just don't forget to factor in the application process into your timeline.
From medical exams to groundwork checks, it tin take some time to receive an offer on a policy. Compare providers to run across how long they take on boilerplate to come up upwardly with a quote.
Many providers take weeks, or even months, to tell you lot if you've been approved for life insurance.
At PolicyMe, our approval time works like this:
- No additional underwriting needed: one-2 days
- Medical exam needed: 1-2 weeks
- Medical written report needed: three-4 weeks
Ready to meet your rate for term life insurance? Fill up out our handy quiz below.
What to do when you become your term life insurance policy
one. Pay attention to your nib
In one case you've purchased your policy, brand certain y'all pay your monthly premiums on time and in full.
The final thing anyone wants is a cancelled term life insurance policy, especially since y'all'd have to reapply and would likely face higher premiums.
Most providers, such equally PolicyMe, do offer a grace menses of thirty days earlier ending coverage. Every bit long as y'all catch upwards on your missed premium in the following calendar month, at that place'south no lapse in coverage.
But don't make this a habit. You don't want to accidentally become across that xxx day grace period and lose your coverage.
2. Let your beneficiaries know
Brand sure your beneficiaries actually know that you lot accept a life insurance policy. It's important that they're enlightened that they'll be supported financially in case anything happens to you. You'll also want them to know who they can contact for support.
Talking well-nigh life insurance may be uncomfortable, but a quick chat with them at present will relieve them hours of incertitude and stress subsequently if the unlikely happens.
As well important: keep documents of your term life insurance policy in a identify that'south safe and easy to discover.
In summary
Life insurance is tough to think about. No i wants to contemplate what would happen if the unthinkable happened.
That's why applying for term life insurance should exist unproblematic and straightforward with affordable protection. You should be able to get honest advice virtually how much coverage y'all need (or don't demand), from a noncommissioned counselor.
And you should experience confident that your coverage is running in the background, backed by a trusted provider, at that place if you demand it.
In other words, you should be able to ready it … and forget about it.
Key takeaways
- Term life insurance is a type of insurance that covers the policyholder for a gear up length of time. Ordinarily, these are offered in 10, xx, 25, or 30 year terms.
- For the average Canadian, term life insurance is more than plenty coverage. Permanent life insurance simply benefits a select few and it'due south a lot more than expensive.
- Your term life insurance price is affected mainly by term length and corporeality of coverage, too as your age, biological sex/gender identity and wellness/smoking condition.
Term life insurance FAQ
Does term life insurance cover accidental death?
Yeah, in many cases, a term policy will cover accidental death. That said, if you have risky hobbies such as skydiving, stone climbing or scuba diving that you lot do ofttimes, your rate or policy could exist affected. This is because you're at a higher risk of accidental death than the average Canadian who doesn't take these hobbies.
Does term life insurance cover disability?
No, a term life insurance policy doesn't encompass disabilities. You'll want to go inability insurance or long-term disability benefits to help protect you lot and your loved ones if you're living with a disability.
Is there whatever cash value with a term life insurance policy?
No, there is no cash value associated with term insurance policies. One time the policy expires, the coverage ends. And if you don't die earlier your term expires, you or your beneficiaries don't get a payout either, nor practise you lot get whatever of your premiums back. There are also no refunds in the issue of the policy lapsing or if you cull to cancel your policy early.
How tin can I pay for my term life insurance policy?
You can choose to adjust automatic monthly payments for your term life insurance policy. This prevents you from existence late or missing payments, as long as there are plenty funds in your account to encompass the premium each month.
You can as well choose to pay manually through online banking each calendar month. We don't recommend this option every bit it's much easier to forget payments, which can result in losing your coverage.
Source: https://www.policyme.com/blog/term-life-insurance
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