term life insurance

Term life insurance is the most affordable life insurance product

Learn more about term life insurance

What is term life insurance?

Term life insurance is a type of life insurance that lasts for a set period of time. As explained further below, you choose the length of your term insurance coverage based on your financial security needs.

In the event of your death, a fixed tax-free amount is sent to the people you name (your beneficiaries). Unlike permanent life insurance, the amount of a term life insurance policy does not vary. In fact, it remains fixed for the entire term of the policy, regardless of the term chosen in your contract.

In addition, most term life insurance policies are automatically renewable. However, before you automatically renew your term life insurance, there are many factors to consider and you should ask yourself the following question : Am I healthy enough? If so, contact your insurance company or advisor to make the best decision for you.

Convertible term life insurance

Also, a very important feature of term life insurance is that most policies can be converted to permanent life policy as a permanent coverage for the duration of the contract.

In short, with a more affordable coverage, you can save more money with term life insurance. This is why it is the preferred choice for most people.

To find out how much life insurance you need, you can calculate your needs here.

How does term life insurance work?

First, here are some important things about term life insurance.

  • Term: Term life insurance can last anywhere from 10 to 30 years, depending on what you choose.
  • Price: Typically, the monthly term life insurance premiums cost ranges from $25 to $35 per month depending on your profile.
  • Death benefit: The death benefit payout is guaranteed if your term life insurance policy is still active.
  • Cash value: Term life insurance does not have a cash value.

How much does a term life insurance policy cost?

Because it covers your loved ones for a limited period of time, term life insurance is less expensive than permanent life insurance. It's a temporary solution that allows you to provide financial security while your loved ones are still depending on you.

The price of your life insurance will depend on several factors:

  1. Your health: Like all types of insurance, life insurance is there to protect you in the event of an unexpected death. The more likely you are to die or become ill, the more insurers will increase your premiums. You will need to provide the results of your last medical exam, if applicable. For example, if you are a non-smoker, you will pay less in premiums. This explains why premiums are higher for people in poorer health or who take part in riskier activities at work or in their free time.
  2. Your age: Insuring yourself at a young age will cost you less, as you are less likely to die unexpectedly. Every year you wait to insure yourself, the price of your policy will increase by 8 to 10%.
  3. Lifestyle: Your lifestyle can affect the price of your insurance premiums. For example, if you are a thrill-seeker and go skydiving once a year, your premiums may be more expensive than if you had a less dangerous lifestyle, such as playing chess.
  4. The amount of insurance: The higher the amount of life insurance, the more you will pay in premiums for your life insurance. Likewise, the longer the term of your insurance coverage, the more expensive it will be. That's why it's important to speak with an advisor to determine what's best for your needs.
  5. Riders: Riders are additional coverages that you decide to add to your coverage for an additional fee to your premiums.

If you're wondering when to buy your life insurance and what coverage to get, make sure you understand how your age affects the price of your insurance premiums based on the length of coverage you want.

How much coverage do I need with term life insurance?

To choose the right coverage for you, ask yourself these questions

  • What coverage can you afford?
  • Who is financially dependent on you and for how long?
  • How long do you expect to have debts to pay? (mortgage, student debt)
  • How much would the funeral arrangements cost if I died?
  • How much extra money would I want to leave to my beneficiaries?aa

Since a mortgage is the most expensive debt for most people, it's a good idea to protect yourself with insurance that will last at least as long as your mortgage.

In addition, the amount of insurance should be sufficient to cover the amount of your assets minus your debts.

Permanent or term life insurance?

There are two types of life insurance that you will need to choose from: term and permanent.

While term insurance only lasts for a set period of time, permanent insurance will always remain in effect as long as the insurance premium is paid.

In addition, permanent life insurance has a cash value, a monetary value that will fluctuate over time based on an interest rate. For this reason, permanent insurance generally costs 6 to 10 times more than term insurance. Permanent life insurance is of particular interest to people who want to cover their funeral expenses or just leave a legacy for their loved ones.

If you are like most people, term life insurance will work best for you. However, permanent life insurance will benefit people with more complex financial situations or estate planning needs.

The best insurance companies for term insurance

The best insurance company for you is the one that best suits your needs.

The insurance company needs to calculate your needs in order to find coverage that will work for you.

If price is the determining factor for most people, you should also make sure that the company offers the customer service you expect and that they offer their services online, over the phone or in person, depending on your preference. Finally, to avoid an unpleasant surprise, be sure that the insurance policy you choose does not contain a clause that discriminates against a particular feature of your file.

See below our comparative table of the different insurance companies we deal with and our article, published on our website, on the best insurance companies.

The different types of term life insurance

As mentioned earlier, term insurance is the simplest type of insurance to understand. However, simplicity does not mean lack of flexibility. Of course, there are plenty of other life insurance options, but let's stick to term life options:

  • Fixed term life: This is the classic term life insurance. Your premium will not change for the specified term of coverage.
  • Yearly Renewable Term Life: A yearly renewable life insurance policy that starts lower than a fixed term policy, but increases each year.
  • Decreasing Term Life: Your premiums stay the same, but your insurance amount will decrease over time.
  • Term Life with Return of Premium: This will allow you to get back the premiums you paid throughout your term insurance.
  • No Medical Examination Term Life: Term insurance for which you do not need to pass a medical examination.
  • Group Life: Group life insurance is a benefit frequently offered by employers. However, group life insurance is not transferable between employers.
  • Mortgage Life: A type of term life insurance where the length of your coverage is tied to the length of your mortgage. The beneficiary is the institution financing your mortgage and your premium generally remains stable even if your mortgage decreases.

SEE AND UNDERSTAND THE "TERM" FACTOR

As mentioned above, term insurance differs in that it is active for a period of time only. Generally speaking, this period can be anywhere from 10 to 30 years depending on what you choose.

During this period, you will pay a monthly or annual insurance premium until you reach the end of the period determined with your insurer. These premiums may stay the same, go up, or sometimes even go down.

SHOULD I BE CONCERNED WHEN MY TERM LIFE INSURANCE ENDS?

Of course, it can be scary to be without life insurance. That's because you've put this coverage in place to avoid embarrassing the people who rely on you financially.

However, your reality will likely have changed by the time your insurance ends. Ideally, you will have finished paying your mortgage, your children will be independent, your debts will have been reimbursed and you will have put money aside in a pension fund.

There is little reason to continue paying for life insurance when financial instability is no longer a part of your life.

YOUR TERM LIFE INSURANCE POLICY HAS EXPIRED AND YOU ARE STILL ALIVE?

WHAT HAPPENS?

If so, you will no longer be covered by your insurance and you will stop paying your monthly or annual premiums.

Still want to be covered by life insurance? You can either purchase a new term policy or convert your term life insurance policy to permanent life insurance. Note that your second term life insurance premium will be more expensive than your first.

If you had a return of premium clause in your policy, the insurance premiums paid during your term insurance coverage will be refunded.

Understanding the term life insurance death benefit

If you die while covered by your term insurance, the insurance proceeds will be sent to your beneficiaries, tax-free. In effect, the insurance amount paid to the named individuals is a tax-free amount of money that can be paid out in a variety of ways.

While most people prefer to have the money transferred at once, it is possible to receive it, for example, in recurring payments over a specific period of time. The death benefit amount can grow in value through interest, but the amount earned in interest is taxable.

Note that insurance policies will not pay out a death benefit in certain cases such as fraud or suicide.

Understanding cash value

Some permanent insurance policies have a cash value. This is a feature that allows the amount of insurance to increase in value over time. Term insurance does not, which keeps this type of life insurance affordable.

Understanding the age limits of term insurance

As mentioned earlier in the article, the length of term insurance is up to you. It varies, in most cases, between 10 years, 20 years and 30 years and will generally last until you reach age 65. However, the legal age limit for term insurance is 85.

It is important to understand that term insurance provides protection for temporary debts such as a mortgage, car lease or other loans. So it's not the kind of insurance we look for in retirement, obviously.

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