Term Life Insurance

What Is Life Insurance?

To be covered under a life insurance policy you make payments that are called premiums, and in the case of the death of the insured person the life insurance company will pay a benefit to the person you choose, called a beneficiary.

The policy must be in effect at the time of death, and the death benefit payment is tax-free under current Canadian law when paid to a named beneficiary that is a resident in Canada.

Life insurance is usually used to insure that funeral expenses, mortgage payments, and living expenses can be met even though the insured person has passed away.  However, life insurance can also be used for estate management and investment (permanent life insurance, not term life insurance).

What is Term Life?

Term life insurance is temporary insurance, which covers a person against death for a limited amount of time (the amount of time covered is called the “term”). A term might be until children are grown, or until a couple retires.  Most policies have a set term in years (e.g. 10 or 20) and may be renewable for a second or third term, up to a certain age.

Premiums are guaranteed for the length of the term.

Premiums are paid until the term ends, at which time the policy may be renewable. No benefits are received at the end of the term, regardless of whether or not any claims were made.

Do I Need Life Insurance?

Life insurance is primarily intended for people who have others who depend on them, and protects those dependents from financial difficulties.

An important question to ask oneself is: do I have people who depend on me, and what would happen if I am gone?  If you do not have a spouse, children, etc., or if you do not have a mortgage or any other debt then you may not need life insurance.  However, this situation is rare, and most people need to know that if they pass away that their loved ones will be taken care of financially.

What Other Situations is Term Life Suited For? Term life is also suited for:

  • Covering a specific debt for a given amount of time (e.g. a mortgage, etc.).
  • A situation where permanent (whole) life insurance is just not affordable. Term insurance is cheaper than permanent insurance, and can also be converted to permanent life insurance at a later date if you purchase a “convertible” policy.

How Many Years are the Terms?

The most common length for terms is 10 years.  However, it is also possible to get a 5-year, 15-year or 20-year term, depending on the insurance carrier.