Term Life Insurance
What is Term Life Insurance?
Term life insurance is a type of life insurance that provides coverage for a specified period or “term.” It is designed to offer financial protection to the policyholder’s beneficiaries if the insured person dies during the term of the policy.
Why should I buy it?
Peace of Mind
Term life insurance can help provide security to your loved ones, knowing they will be financially supported in the event you pass away.
Flexibility
You decide how long you want to be covered for. Pick as short as 10 years to as long as 40. You choose the insurance coverage that suits your needs and financial situation.
Affordability
Pay as little as $10 a month to insure that you are covered as a young individual or as a family on a budget. Term life can be 5 – 15x cheaper than a permanent policy.
How does Term Life Insurance work?
An RRSP is a retirement savings and investing vehicle for employees and the self-employed in Canada. It offers tax benefits to encourage retirement savings, such as tax deductions for contributions made.
Your RRSP contribution limit for 2024 is 18% of your 2023 earned income or $31,560 (whichever is lower), plus any unused contribution room from previous years. An RRSP can include a variety of investments like stocks, bonds, GICs, and
Policy Term
When purchasing a term life insurance policy, you choose the length of the coverage period. Common terms include 10, 20, or 30 years, but other durations may also be available.
Premiums
To keep your policy active, you must pay “premiums”, or regular
payments, monthly, quarterly, or annually, depending on the policy
terms and your preference.
The amount you pay in premiums will vary based on factors such
as the insured's age, health, lifestyle, and the length and amount of
coverage. In general, younger and healthier individuals pay lower
premiums.
Death Benefit
The death benefit is the amount of money that will be paid to the
beneficiaries if the insured person dies during the policy term.
The policyholder chooses the death benefit amount when
purchasing the policy, and it remains fixed for the duration of the
term. The beneficiaries receive this payout tax-free, providing them
with financial support.
No Cash Value
Term Life Insurance does not have cash value. Meaning, the policy does not accumulate savings or investment value over time. The premiums solely pay for the death benefit coverage.
Expiration of Term
If the insured person out lives the term length of the policy (10, 20, 30 years.etc), the coverage ends and no death benefit is paid out. Some policies offer options to renew the policy for another term or to convert it to a permanent life insurance policy.
Conversion Option
Some term life insurance policies offer an option to convert your
term policy to a permanent life insurance policy (whole life or
universal life), before the end of the term or at a specified age.
The conversion can be done without an additional medical
examination to ensure you do not pay additional premiums if the
insured’s health declines.
Let's Compare
Feature | Term Life Insurance | Whole Life Insurance | Universal Life Insurance |
|---|---|---|---|
Duration | Specified Term (e.g.: 10, 20, 30 years) | Lifetime | Lifetime |
Premiums | Fixed for the term | Fixed for life | Flexible |
Cash Values | None | Yes, grows at a
guaranteed rate | Yes, grows
based on
interest rates |
Investment Component | None | None | Yes, tied to
interest rates |
Death Benefit | Fixed, payable if
death occurs
during term | Fixed,
guaranteed | Adjustable |
Cost | Lower cost
premiums | Higher cost
premiums | Can be lower or
higher Depending on options |
Policy Loans | Not Available | Available | Available |
Flexibility | No flexibility | Limited (Cannot change premiums/death benefit) | High (Can adjust premiums and death benefit) |
Coverage Purpose | Temporary needs (e.g., mortgage, income replacement) | Lifetime
protection,
estate planning | Lifetime
protection,
flexible for
changing needs |
Coversion Options | Often convertible to permanent policy | Not applicable | Not applicable |
When should I buy it?
Young Adult
Buying term life insurance early on can enable you to lock in lower premiums as you are in good health
Starting a Family
You can provide coverage for your family in the case of your death
Buying Real Estate
Term life insurance can help keep your family financially secure by helping you pay off your mortgage and protect your property
Note: Failure to pay for your premiums and inability to cover your insurance with cash value will terminate your policy.
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