Term Life Insurance
Table of Contents
What Is Term Life Insurance?
In Canada, there are two types of life insurance: term life insurance and permanent life insurance. Even though whole life insurance is the main type of permanent life insurance available today, it is frequently referred to as such. See our page describing the various types of life insurance for a primer on the various types of life insurance.
Term life insurance provides fixed premiums for set periods of time. The ‘term’ is the length of time. Most of these policies feature premiums that climb to a new level at the conclusion of the term period, then return to their original amount for another term.
For example, premiums for a ten-year term life insurance policy would be fixed for ten years before increasing.
How It Works?
When you take the time to discover how term life insurance works, it is extremely simple and easy to grasp.
Term insurance is a sort of life insurance that covers you for a set number of years, known as the term. In Canada, the smallest term length available is ten years. Typically, you will strive to match the term length with the amount of time you require life insurance.
Assume you die before the term is completed. In that instance, the death benefit will be paid to the policy beneficiary (usually your spouse, children, or estate). The death benefit is provided to the beneficiaries as a one-time, tax-free lump sum. Many Canadians should be aware that life insurance is completely tax-free.
If I still require life insurance at the end of the term (e.g., 10 years), what I can do?
- If you no longer require life insurance at the conclusion of the term, you can cancel the policy.
- Most life insurance companies you the opportunity to renew your coverage at the conclusion of the term. This means that the insurance company will continue to provide you with coverage without needing you to complete a health questionnaire or undergo a medical checkup. They must offer you another term of insurance regardless of your health. The problem is that the cost is prohibitively expensive. You must decide whether it is worthwhile to pay the price rise. If you are in bad health and cannot qualify for a new insurance, it may be prudent to keep your current policy.
- If you are in good health, you may apply for an entirely new insurance application and complete a health questionnaire (and, if necessary, a medical examination) to receive the best rates. Most people do this if they still require life insurance at the conclusion of the term. Once authorized, you will be able to terminate your existing coverage and avoid the costly renewal premiums stated above.
- Many life insurance companies allow you to switch your coverage at any time. This means you can convert a term life insurance policy to a permanent one without having to complete a health questionnaire or undergo a medical examination. We recommend chatting with one of our certified brokers about this option because it can be somewhat complicated.
Benefits
Term life insurance has numerous advantages, which is why it is the most common type of life insurance in Canada.
- Affordability. It is the cheapest sort of life insurance offered in Canada. Most life insurance companies offer very competitive rates.
- Tax-free. It gives you piece of mind knowing that your beneficiaries would get a tax-free lump payment if you die.
- Rates are guaranteed. The policy rates (cost) are guaranteed to remain constant during the policy term (e.g., 10 years, 20 years, 30 years, etc.).
- Policies are highly customizable, allowing you to tailor your insurance to your specific needs and those of your family.
- Flexibility. In most cases, you can transfer from a 10-year term policy to a 20-year term policy within the first five years of the policy. Other choices are also available.
- Renewable. The majority of life insurance providers include a policy renewal option.
- Convertible. The majority of life insurance providers include a policy conversion option.
Types Of Term Life Insurance
There are several terms available for term life insurance. The most prevalent terms are 10-year, 15-year, 20-year, 25-year, 30-year and term-to 65 year.
The optimal term length to buy is one that best reflects how long you plan to maintain the insurance. For example, if you expect to keep the insurance for 20 years, a product with a 20-year term should be considered.
Cost
Term Life Insurance Cost
As previously stated, term life insurance is the most economical sort of life insurance in Canada. Furthermore, expenses are quite competitive nowadays as life insurance firms modify rates as people live longer lives and more companies enter the market.
The expense of the policy increases as the term length increases. A 20-year policy, for example, costs more than a 10-year one. A 30-year policy is more expensive than a 20-year coverage.
We propose that you reach out one of our representatives to obtain an instant term life insurance quote to determine the cost of this life insurance.
Do you need it?
Life insurance is not suitable for everyone. It is dependent on your circumstances. If you have someone financially reliant on you, life insurance is a no-brainer. This could be a spouse, a child (or children), a parent, a grandparent, a friend, a business partner, or someone else.
Term life insurance is an excellent way to give you and your loved ones the peace of mind that if you are not here tomorrow, there would be no financial difficulties. Grieving the loss of a loved one is difficult enough. However, it is prudent to have adequate life insurance coverage in place.
Examples
Scenario 1:
A young couple in their late twenties has recently purchased a property with a mortgage and has two children. A young family in their late twenties has recently bought a property with a mortgage and has two little children. They are looking for life insurance to safeguard their family financially in the event of death, as well as to cover their mortgage obligation. They want coverage until the kids are financially self-sufficient and the mortgage is paid off.
Recommendation
A life insurance policy with a term of 20 to 30 years should be considered by the family.
Scenario 2:
A family in their late thirties with small children is looking for life insurance to offer financial security for the surviving husband and children in the case of death. They want to be covered till they both retire.
Recommendation
The family should think about a 20-year term. They could also think about getting a coverage with fixed premiums until they reach the age of 65.
Scenario 3:
A couple in their early fifties is looking for life insurance coverage until their mortgage is paid off, their children have completed post-secondary education, and they are nearing retirement.
Recommendation
The pair should think about getting a 10- or 15-year term insurance policy.
Scenario 4:
A husband and wife in their 60s is looking for life insurance to pay a short-term obligation like a line of credit or a small mortgage balance.
Recommendation
The pair should think about getting a 10- or 15-year term insurance policy.
Main Features
Exchange Option
During the first five years of coverage, you can exchange Term insurance for longer term life insurance coverage without providing additional evidence of insurability. Term 10 can, for example, be exchanged for Term 20 or Term 30. At the time of the exchange, the client must be 60 or younger, and certain age limits may apply.
A co-first-to-die Term 10 can be swapped for a longer joint first-to-die term insurance policy, after which a new policy with a longer term length will be issued.
The Exchange option can only be used once and is not applicable to the new term coverage.
A sum less than the whole insurance amount can also be exchanged (minimum $ 25,000).
Renewable option
At the end of the term, renewable term life insurance plans automatically renew. In the case of a ten-year policy, the insurance will automatically renew for another ten years (albeit at a higher rate) in year 11. Previously, renewability was a crucial element of various insurance types; but, in the last 15 years, it has become less relevant. This option is available from every life insurance company in Canada. The problem is that the renewal premiums are so high that most customers are unwilling to pay them. Renewal prices were substantially cheaper up until the mid-1990s, so it made sense to just renew your term policy rather than start shopping for a new one.
Convertible option
Conversion, on the other hand, remains a significant aspect in today’s term plans. Convertible term life insurance, for example, includes a policy clause that allows you to exchange your term policy for a permanent policy without having to have a medical exam (up to a certain age). Consider this provision a ‘waiver of medical evidence’ option. While you may not want to employ this feature, it is a must-have provision for use in some worst-case scenarios.
For example, if you have a term life insurance policy and later develop a medical condition that makes you uninsurable, a convertible insurance policy allows you to change your term policy to a permanent life insurance policy without having to take a medical exam. The majority of Canadian life insurance firms provide the conversion feature with their term life insurance.
Insurability options (for joint policies)
Joint policies contain Insurability Options, which can be used while still alive or after the first death, without the need for additional evidence of insurability. When exercising insurability choices, insureds have the opportunity to convert their joint coverage for individual permanent coverage, at which point the joint coverage terminates.
- The Insurability Option while living allows you to divide the joint coverage into individual permanent coverages until the eldest insured reaches the age of 65. When exercising the insurability option, the policyholder must select whether to activate the insurability option or cancel coverage for each insured. The available sum insured is equal to the sum insured in force divided by the number of insureds.
- Insurance Capability Surviving insureds under the age of 65 can get individual permanent coverage through the option upon the first death. The total sum insured in force at the moment of death is the sum insured accessible for each remaining insured.
Please refer to the contract’s clause for the maximum age at which the option may be exercised for in-force contracts. Please contact client services if the option is not included in the contract.
Association option (for individual policies)
Individual policies include the opportunity to exchange individual coverage for joint last-to-die coverage up to a certain age (depending on the term time). You can add new insureds to the combined coverage using this option. The products on offer are identical to those available for conversion.
- If the additional insured already has our company coverage with a conversion option:
– No proof of insurability is required.
– The amount available is the lesser of the insured’s in force sum insured and the amount available.
- If the additional insured does not have our company insurance coverage with a conversion option:
– The additional insured must submit proof of insurability.
– The available amount is equal to the existing insured’s in force sum insured.
For existing contracts, please consult the conversion clause to determine the maximum age at which the option may be exercised. Please contact client services if the Association Option is not included in the contract.
Coverage options
– Individual
– Joint first-to-die (2 to 5 insured)
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FAQ - Life Insurance
Life insurance is essential for various reasons. It can replace lost income, cover outstanding debts like mortgages or loans, fund children’s education, and provide financial stability for your family in the event of your untimely death. It offers peace of mind and ensures your loved ones are protected financially.
There are several types of life insurance, including term life insurance, whole life insurance, universal life insurance, and variable life insurance. Each type has unique features, benefits, and premiums. It’s important to understand the differences and choose the policy that best suits your needs.
Term life insurance provides coverage for a specified period, typically 10, 20, or 30 years. It offers a death benefit if the insured person passes away during the policy term. Term life insurance is often more affordable and straightforward compared to other types of life insurance.
Whole life insurance provides coverage for the entire lifetime of the insured person. It offers a death benefit and accumulates a cash value over time. Whole life insurance policies also allow for policy loans and potential dividends, providing long-term financial protection and savings.
The amount of life insurance coverage you need depends on various factors such as your income, outstanding debts, lifestyle, future financial goals, and the number of dependents you have. It’s advisable to assess your financial situation and consult with a life insurance advisor to determine an appropriate coverage amount.
Yes, many life insurance policies offer customization options. You can tailor your policy by choosing the coverage amount, policy duration, additional riders (such as critical illness or disability riders), and premium payment options. Customizing your policy allows you to address specific financial needs and priorities.
Life insurance premiums are based on several factors, including your age, health condition, lifestyle habits (such as smoking), occupation, coverage amount, policy type, and duration. Generally, younger and healthier individuals with lower-risk factors tend to have lower premiums.
Yes, life insurance policies can often be updated or modified to reflect changes in your circumstances. You can typically increase or decrease coverage, change beneficiaries, add or remove riders, or adjust premium payment options. It’s important to review your policy periodically and make updates as needed.
When a policyholder passes away, beneficiaries need to file a claim with the insurance company. They usually need to submit a death certificate and any other required documents. Once the claim is approved, the insurance company will disburse the death benefit to the designated beneficiaries.
Term life insurance provides coverage for a specific period, while permanent life insurance offers coverage for the entire lifetime of the insured. Term life insurance is typically more affordable and straightforward, whereas permanent life insurance accumulates a cash value over time and provides lifelong coverage.
Yes, you can buy life insurance for someone else, provided you have insurable interest in their life. Insurable interest usually exists between spouses, immediate family members, business partners, or individuals who would suffer a financial loss due to the insured person’s death.
Medical exams may be required depending on the type of life insurance and the coverage amount you’re applying for. Insurers often request medical exams to assess your health condition and determine the risk. However, some policies, like no-medical-exam life insurance, may be available for smaller coverage amounts.
If you miss a premium payment, your life insurance policy may enter a grace period, usually 30 days, during which you can make the payment without coverage lapsing. If you fail to pay within the grace period, the policy may lapse, and you may lose coverage. It’s important to make premium payments on time or explore flexible payment options.
With certain types of permanent life insurance, such as whole life or universal life, you can borrow against the cash value of the policy. Policy loans allow you to access funds for various purposes, such as paying for education or emergencies. However, it’s crucial to understand the terms, interest rates, and potential implications before taking a policy loan.
Individual life insurance is purchased by an individual to cover their own life and offers personalized coverage based on their needs. Group life insurance, on the other hand, is typically provided by employers or organizations to a group of individuals. Group policies often offer lower coverage amounts and may not be portable if you leave the group.
Yes, it is possible to have multiple life insurance policies. Some individuals choose to have a combination of term life insurance for temporary needs and permanent life insurance for lifelong coverage and cash value accumulation. It’s important to consider your overall coverage needs and ensure you can afford the premiums for multiple policies.
A beneficiary is the person or entity designated to receive the death benefit payout from a life insurance policy. The beneficiary can be a spouse, child, family member, trust, or even a charity. It’s important to keep your beneficiary designations up to date and review them periodically to reflect any changes in your life circumstances.
Yes, you can cancel your life insurance policy at any time. If you cancel within the policy’s free-look period, typically 10-30 days after purchase, you will receive a full refund of any premiums paid. However, canceling a policy after the free-look period may result in surrender charges or a reduced refund, depending on the policy terms.
Choosing the right life insurance company is crucial for financial stability and reliable service. Consider factors such as the company’s reputation, financial strength ratings, customer reviews, policy options, customer service, and claims settlement history. Working with a licensed insurance agent or broker can also help you navigate the selection process.
Yes, some life insurance policies offer the flexibility to increase or decrease the coverage amount in the future. This can be beneficial if your financial circumstances change, such as getting married, having children, or paying off a mortgage. However, certain policies may require additional underwriting or approval for coverage adjustments.
In most cases, life insurance proceeds paid to a beneficiary are not subject to income tax. The death benefit is generally received tax-free. However, if you choose to receive the proceeds in installments with interest, the interest portion may be taxable. It’s always a good idea to consult with a tax professional for guidance on your specific situation.
The contestability period is a specific period, usually the first two years of a life insurance policy, during which the insurer can contest the validity of the application or deny a claim based on misrepresentation or omission of material facts. After the contestability period expires, the policy becomes incontestable, and the insurer cannot deny a claim based on application inaccuracies.
Many term life insurance policies offer a conversion option, allowing you to convert the policy to permanent life insurance without undergoing a new medical exam or providing evidence of insurability. This can be a valuable feature if you decide you need lifelong coverage and want to convert your term policy before it expires. However, there is usually a specific conversion period and limitations outlined in the policy.
An accelerated death benefit rider is an optional add-on to a life insurance policy that allows you to access a portion of the death benefit if you are diagnosed with a qualifying terminal illness or critical illness. This benefit can help cover medical expenses or other financial obligations while you are still alive. It’s important to review the terms and conditions of the rider, as there may be limitations and eligibility criteria.
In some cases, you may be able to reinstate a lapsed life insurance policy. The process typically involves paying any outstanding premiums, providing evidence of insurability, and possibly paying interest or penalties. However, the reinstatement period is limited, usually within a certain timeframe after the policy lapses. It’s best to contact your insurance company or agent promptly if you wish to reinstate a lapsed policy.
If you outlive your term life insurance policy, the coverage will expire, and the policy will no longer provide a death benefit. However, some term policies offer the option to renew or convert to a permanent policy at the end of the term. It’s essential to review your options and consider your insurance needs when your term policy is nearing expiration.
Yes, it is possible to obtain life insurance coverage even if you have pre-existing health conditions. However, the availability and cost of coverage may vary depending on the specific condition, its severity, and other factors. Some insurers specialize in providing coverage for individuals with pre-existing conditions, so it’s beneficial to work with an agent who can help you find suitable options.
The time it takes to receive a life insurance payout, also known as the claims settlement process, can vary depending on factors such as the complexity of the claim, the insurer’s procedures, and the required documentation. In general, insurers strive to process claims promptly and efficiently. Working closely with the beneficiary and providing all necessary information can help expedite the payout process.
The cash value in a whole life insurance policy serves multiple purposes. It grows over time on a tax-deferred basis and can be accessed through policy loans or withdrawals. The cash value can be used to supplement retirement income, pay premiums, fund educational expenses, or address other financial needs.
Yes, you can name a trust as the beneficiary of your life insurance policy. Doing so allows you to control the distribution of the death benefit and provide for specific beneficiaries, such as minor children or individuals with special needs. Consult with an attorney or estate planner to set up a trust and ensure it aligns with your estate planning goals.
If you stop paying premiums for your life insurance policy, it may lapse or terminate after a grace period. Once the coverage ends, the policy will no longer provide a death benefit. However, some policies may offer options such as reducing the coverage amount or using the accumulated cash value to continue the coverage.
Yes, you can generally change your life insurance beneficiary at any time if they are not irrevocable beneficiaries. Most insurance companies provide a beneficiary change form that you can submit to update your beneficiary designation. It’s important to review and update your beneficiaries as needed to ensure your policy proceeds go to the intended recipients.
In case the beneficiaries are irrevocable, you need to have their approval to change the name of the beneficiaries.
Remember, the FAQs provided here are for informational purposes only, and it’s advisable to consult with a qualified insurance professional to address your specific life insurance needs and concerns.
In Canada, life insurance companies are regulated by various regulatory bodies to protect policyholders and ensure the stability of the insurance industry. If a life insurance company were to go bankrupt, there are several measures in place to safeguard policyholders and their coverage. Here’s what typically happens:
– Assuris Protection: Assuris is an independent, not-for-profit organization that protects policyholders in the event of an insurance company’s insolvency. Assuris provides protection to policyholders by continuing their coverage or transferring it to another solvent insurance company.
– Assumption Reinsurance: When an insurance company becomes insolvent, its policies and liabilities may be transferred to a financially stable insurance company through a process known as assumption reinsurance. This ensures that policyholders’ coverage remains in force without interruption.
– Policy Continuation: In most cases, policyholders will continue to have their coverage in force and their policy benefits protected, subject to certain limits and conditions set by Assuris. The specific details of the policy continuation will depend on the terms and conditions of the original policy and the regulations in place.
– Coverage Limits: Assuris provides coverage up to certain limits to protect policyholders’ basic insurance benefits. These limits vary depending on the type of coverage, such as life insurance, disability insurance, or critical illness insurance. It’s important to note that coverage limits may apply, and policyholders may not receive the full amount of their policy if it exceeds the coverage limit.
– Communication and Support: In the event of an insurance company’s insolvency, policyholders will be notified by the regulatory authorities and/or the appointed administrators overseeing the insolvency process. They will provide instructions and support to policyholders, ensuring they understand their rights, options, and any necessary actions to secure their coverage.
It’s important for policyholders to stay informed, follow instructions from regulatory bodies and administrators, and reach out to them for any clarification or assistance. Additionally, consulting with a legal or financial advisor can provide further guidance based on individual circumstances.
Please note that the above information is a general overview, and the specific procedures and protections may vary depending on the circumstances and regulatory requirements at the time of the insolvency event. It’s advisable to consult with the relevant authorities or seek professional advice for the most accurate and up-to-date information.
- Contact the Insurance Company: Start by contacting the insurance company that the agent represents. Explain your complaint and provide them with all relevant details, such as the agent’s name, policy number (if applicable), and a clear description of the issue. The insurance company should have a designated department or process for handling complaints.
- File a Complaint with the Insurance Regulator: If your complaint is not resolved satisfactorily by the insurance company, you can escalate the matter to the insurance regulator in your province or territory. In Canada, insurance is regulated at the provincial or territorial level. Locate the appropriate regulatory body responsible for overseeing insurance agents in your region and submit a formal complaint. They will guide you through their specific complaint resolution process.
- Provide Documentation: When filing a complaint, it’s important to provide supporting documentation, such as correspondence, policy documents, or any other evidence related to your complaint. This helps the regulator understand the nature of the issue and assess it appropriately.
- Seek Legal or Financial Advice: If the complaint resolution process through the insurance company and regulator does not provide a satisfactory outcome, you may consider seeking legal or financial advice. Consulting with an attorney or a financial advisor who specializes in insurance matters can help you understand your rights, explore potential legal recourse, or negotiate a resolution.
- Ombudsman Services: In some cases, you can also approach an independent ombudsman or mediation service for insurance-related disputes. These organizations provide neutral third-party assistance in resolving complaints between policyholders and insurance companies or agents.
It’s important to note that the specific procedures and authorities may vary depending on your province or territory. Therefore, it’s recommended to visit the website of your provincial or territorial insurance regulator to access detailed information on how to file a complaint and the steps involved.
Remember to keep records of all communication, including dates, names of individuals spoken to, and copies of any written correspondence. This will help you maintain a clear record of your complaint and any actions taken.