Thinking about getting life insurance? Term life insurance is considered to be among the best life insurance options in Canada. Here is an overview of why, along with a few tips for helping you get the right policy.
What is term life insurance?
Term insurance allows you to buy life insurance coverage and guarantees your premium payments for the length of time you specify (i.e.: 5, 10, 15 20, 25, 30, up to 100 years). This makes it the most economical life insurance option—and one that is well-suited for high-level and short-term protection needs.
However, you don’t just need to use your term life insurance to provide for your family after you pass. It’s also a great option for:
- Funding buy-sell agreements to plan who will take over your shares in a corporation following your death. You can ensure that your term life insurance equals the amount it would cost to purchase your shares from the company so you can control who takes over those shares—especially if you want them to stay in the family.
- Paying off a mortgage. You can make sure your policy takes care of the remaining mortgage on your home so you won’t have to leave your loved ones with extra bills and expenses.
- Providing for dependents and loved ones. Do you have dependents who are currently in care? Or perhaps you want to ensure your kid can still go to her choice university should the unexpected happen. You can make sure your death benefit will cover those costs so you can keep contributing to your loved ones’ lives after you’re gone.
- Protecting your small business—and your employees. You can invest your death benefit into your small business so it (and the revenue stream your family may be depending on) doesn’t feel the pressure of losing an owner. You can also use term insurance policies to cover key employees so the financial compensation can help buffer the business in the event of an unexpected death.
Finding Flexibility with Term Life Insurance
The biggest benefit of term life insurance is that it allows you the flexibility to make changes. Has something big happened five years into your policy? With a 5-year term policy, you have the opportunity to make adjustments when you renew. More importantly, most term policies are renewable or convertible—that means you can easily convert all or part of your coverage to permanent insurance without having to provide further evidence of insurability.
There are three categories of term insurance products you can choose from:
1) Yearly Renewable Term Insurance, where the premium is paid for one year of coverage. Premiums will increase with each renewal period as the insured ages (and thus increases in risk). This type of policy becomes very expensive at a later age, but it may be useful for those who want short-term coverage while they decide what their long-term protection should look like.
2) Level Term Insurance, where the premium paid each year is guaranteed and remains the same for the term of the contract (ie: 10, 15, 20, 25, 30 or 100 years). One of the most popular forms of term insurance, level term plans usually include a renewal option that allows the insured to renew for a maximum period should the policy need to be extended.
3) Mortgage Insurance, which compensates lenders or investors for the rest of your mortgage if your death or injury causes you to default on your loan. It can be either public or private, depending upon the insurer.
Term vs. whole life insurance: which is better? It depends a lot on your specific needs, but for the most part, term insurance is better than whole life insurance because it allows you to purchase insurance for only the time you need it. You can still get life-long coverage without getting a whole life policy. A T-100 or minimum funded universal life insurance policy will cover you from birth until death.
Tips for buying cheap term life insurance
There may be a lot of variables that are going to influence the type of insurance you should choose, but there is one main reason why you want insurance: you want to protect your family financially if you die prematurely. Your family can use the proceeds from your life insurance policy to replace income, pay off debts, or even to create or add to an estate. However, you need to make sure the policy you choose offers the benefit you need to cover those bases while remaining affordable enough to be economically feasible while you are still alive. How can you make sure you are finding the best deals at the best rates? By comparing term life insurance quotes in Canada to ensure you are getting the policy you need at the rates you can afford.
Here are a few other tips that can help you get the best term life insurance quote:
1) Invest in your physical health: good scores in BMI, blood pressure, and cholesterol can help get you into a company’s best underwriting category, as can avoiding drug use, steering clear of risky sports/hobbies, and avoiding regular travel to dangerous countries.
2) Compare term life insurance rates among providers. While most major term life insurance companies in Canada have similar prices on term rates, they constantly re-price to undercut the competition (in the past 20 years, many term prices have dropped by ~35-45 per cent as a result). Keep an eye on which company (i.e.: Manulife, Industrial-Alliance, RBC Life, Transamerica Life, Equitable, Canada Life, etc.) offers the most competitive rate for you.
3) Pay annually instead of monthly and save approximately 8 per cent with almost any Canadian life insurance company by cutting out the processing fees.
4) Buy a 20-year term instead of a 10-year term that you will have to renew. It will be cheaper to pay the guaranteed premium for 20 years than it will be to be re-evaluated for a higher rate in 10.
5) Plan your insurance with your spouse. Joint-first-to-die insurance is usually 5+ per cent cheaper than buying two policies separately.
How life insurance is purchased
Canadians can either buy individual life insurance (through an agent, an advisor, or by direct mail or on-line marketing) or group life insurance (usually through an employer or as a member of an association). Currently, investment in individual life insurance is growing as a faster rate (accounting for 60 per cent of the total over group insurance), largely because of its ability to provide insurance solutions that are more specific to the insured’s risk level and the amount (and type) of coverage needed.
How do you know how much life insurance you need? You first need to consider the variables in your life to ensure you purchase enough life insurance to look after all of your needs. For instance, you should consider your income level, marital status, desired level of income to support dependents, outstanding mortgages and debt, etc. Age and income level are two factors that tend to have the highest influence on amount of protection. Typically, the higher the income level, the higher the insurance coverage. Once you know how much you need to protect, you can determine your protection amount—as well as which type of policy (term, permanent, or whole life) is going to best provide that protection.
Life insurance protection by product
Term insurance provides cost-effective temporary coverage for the prime earning years; premiums increase over time as terms get renewed, but most term policies can be converted to permanent insurance.
Permanent insurance offers life-long death protection, with the additional accumulation of cash values that can be used for financial emergencies or to supplement retirement income.
Whole life insurance, the traditional form of permanent insurance, allows the insurer to take on the risk related to death and the underlying investment risk.
Universal life insurance is a form of whole life insurance where the insured takes on the investment risk and the insurer assumes the risk related to death.
We hope this information breakdown has helped ease a bit of the confusion involved in choosing the right insurance policy.