What is Term Insurance?
Term insurance is exactly what it sounds like. It’s insurance that will cover you for a term. The three primary terms are term 10, term 20, and term 30. The newly introduced term 30 is probably becoming one of the most popular life insurance Canada products yet because it stretched out for an additional 10 years when you need it most as mortgages take longer to be paid down and kids stay longer in the household.
Term insurance is used primarily for three things: the first being mortgage protection. Secondly, term insurance is also used to protect families or couples with young children, meaning they would want their children to be protected either until they’re 20 or 30. Thirdly, term insurance can also be used to protect a business loans or a credit line that you anticipate paying off in a shorter period of time.
In these instances, I would probably recommend using a term 10 if it was a business loan that you anticipate paying off in the next 10 years as well as any kind of credit line where you have the same financial goal.
Term insurance has several distinct advantages
- Least expensive Life Insurance Product (you can purchase a lot more life insurance for way less )
- It is what we call renewable, meaning that you have the option to renew your term insurance for the set amount period of time; for example, with a term 10, you could renew it for an additional 10 years. However, you will be paying a higher price for the renewal, because regardless, you will not have to do any medical, and any medical changes or health changes will not affect you in any way from being declined. It’s automatic renewal.
- The other option that you have is what’s called a the convertible feature, which allows you at any point in time before your set expired date, to convert your term insurance into something more permanent, meaning something that will stick with you at the same price for the rest of your life. You can exercise this option without any medical.
Term Insurance Disadvantages
- After the renewal your rate jumps up exponentially.
- It’s too hard to keep because of the crazy jumps in premium.
- Its serves its purpose, but if you need insurance later on and your health has drastically changed your renewal rates will be very high.
- If nothing happens in the Term you get nothing back but it did serve its purpose.
- Term insurance also has what’s known as an expiree date, so there is a point in time that it will expire, and that varies upon which company you decide to go with.
The truth of the matter is that I recommend term insurance. We all need ample coverage but have to keep budget in mind. So I usually recommend getting a potion of term insurance and a portion of permanent whole life insurance. In most cases, I do not recommend the term 10. It is just too short of a period of time specifically for protecting your mortgage and children. I would only recommend using a Term 10 insurance can be used to protect a business loan or a credit line that you anticipate paying off in a shorter period of time. This Life Insurance Canada article is very important in educating consumer of possible pitfalls when purchasing term insurance.