What Is Term Life Insurance?
When it comes to financial planning, life insurance can be vital in ensuring security for your family. It will give you peace of mind and ensure that loved ones don’t have to worry about financial struggles on top of their grief.
Here at Ron Johnston Insurance, we’ll take a closer look at term life insurance and see if it is right for you. Along with looking at its pros and cons, we’ll see how it compares against other life insurance types.
Understanding Term Life Insurance
Term life insurance will provide coverage for a specific period of time, called a term. These policies typically range from 10 to 30 years and you’ll be protected for the duration of the policy. Crucially, when the policy expires, you will no longer be covered, unlike with whole life insurance.
This is a simple type of insurance and is designed to solely offer a death benefit. This is in contrast to permanent life insurance policies which don’t have an expiration date, and also have a cash value component. Due to this, term life insurance is usually cheaper and easier to get.
Key Features of Term Life Insurance
We’ve looked at a brief overview of term life insurance there, but now let’s take a look at its key features in more detail.
Fixed Term Length – As the policyholder, you’ll be able to select your policy term depending on your needs. This allows you to create a policy that fits in with your circumstances. Once this term ends, your beneficiaries will no longer receive a payout upon death.
Death Benefit – The death benefit is the tax-free lump sum the beneficiaries will get should the policyholder die during the term. This money can then be used for any purpose, such as paying off a mortgage or covering living expenses.
Premiums – Term life insurance premiums are generally lower than with other insurance types. This is because it is only temporary and there isn’t a cash value element. Your premiums generally remain fixed, making it easier to budget.
Adaptability – Once you get to the end of your term, you’ll usually have a few options. This can include renewing the policy (although premiums will likely increase due to increased age) or converting the policy into a permanent life insurance plan.
Benefits of Term Life Insurance
The obvious downside of term life insurance is that it doesn’t offer you permanent protection. However, there are some great reasons why this type of life insurance may be more suitable for you right now.
Affordability – Many people want to get life insurance but don’t think that it’ll be in their budget. Term life insurance is a more cost-effective option and allows you to get life coverage without it burning a hole in your pocket.
Simplicity – Some types of permanent life insurance can get a little complicated. Term life insurance is very simple and understandable. If you’re new to life insurance, this can be a good introduction to this type of coverage.
Flexibility – With term insurance, there will be various term lengths and coverage amounts available. This means you can tailor your policy to your needs. There is also flexibility in how you can extend or convert the policy once it ends.
Covers Temporary Needs – You may wish for life insurance to cover something such as a mortgage, which won’t be a financial burden once paid off. Term insurance can be a great safety net when your financial commitments are at their highest.
Considerations When Choosing Term Life Insurance
When choosing term life insurance, there are a few key considerations you need to think through. The first is the term length. Factors such as the age of your children, length of mortgage, and other financial obligations need to be taken into account.
Another factor is the coverage amount. This is the lump sum that’ll be paid upon death. It’s generally recommended to opt for around 5 to 10 times your annual income. Also, review any policy features such as renewability and convertibility to give you the flexibility you need.
It’s also important to assess your health and lifestyle. Are you a smoker who plans to quit? If so, a short-term policy may be better to improve your health and get cheaper insurance in the future. Consider how your health outlook will change over your insurance term.
Finally, make sure you choose a reputable provider. Compare quotes from different insurers to get the best value. You can also use an expert broker who will not only search insurance quotes for you but also be on hand to answer any questions you may have.
Term Life vs. Permanent Life Insurance
We’ve seen the many benefits of term life insurance, but it’s not always the right type of plan. Permanent life insurance is more expensive but gives you the reassurance that you never need to worry about the term ending.
There are several different types of whole life insurance, including the likes of universal life insurance, that can include cash value or savings components. While these are more complex, they can have significant financial benefits.
It’s also worth considering critical illness insurance. While not a life insurance policy, it will provide you with a lump sum if you’re diagnosed with a covered illness. This can provide financial support while you’re still alive and help you plan for the future.
Final Thoughts
Term life insurance is a brilliant option for many people in Canada, but you shouldn’t go into it blindly. You not only need to consider if the policy is right for your circumstances but also whether you would be better with a different type of insurance.
If you’ve settled on term life insurance, it can be a more affordable and flexible option to provide a vital safety net for your family. If you’re looking to get a policy, then contact Ron Johnston Insurance today and we’ll work with you to find the perfect policy.