There are diverse types of life insurance available in the market, but term life insurance is one of the most popular options for people. Term life insurance, within a certain time frame, guarantees a policyholder various death benefits to their beneficiaries – hence the name.
When buying an insurance policy, you need to note that different insurance companies offer different benefits. But as a rule of thumb, the two major factors that you should consider when buying insurance are the length of the term and the cost of the insurance.
How Does Term Life Insurance Work?
Term life insurance is straightforward. The beneficiaries will receive a cash benefit if the policyholder dies within the agreed term.
The cash benefit is non-taxable and can be used for distinct reasons such as paying debt, mortgage, funeral costs, and more. Apart from the death benefit, term life insurance does not have a savings component or any other cash value, just like whole life insurance.
The premiums of term life insurance are fixed for the entire term. Insurance companies will determine the amount of the premiums you need to pay, which will be based on numerous factors such as the policy value, age, and health.
Some companies would even require medical exams and a thorough background check about your hobbies, family health history, driving record, and current medications.
Policyholders cannot avail of the death benefits beyond the term’s expiration date. If a policyholder dies even just a day after the term’s expiration date, the death benefits will no longer be valid, and there will be no refund of the premiums paid. However, term life insurance can be renewed, but the rates usually increase as you get older.
By now, you’re probably wondering if you should get one or not. Don’t worry because here are five reasons why term life insurance is essential.
The simplicity of term life insurance is what makes it immensely popular. You need to think about two things when shopping for insurance: term length and the coverage amount. Just pay your premium on a monthly, quarterly, or annual basis, and you will be covered for the entire term.
Just remember that renewing a term increases in price even if you choose another company. The older you get, the more prone you are to illnesses that can lead to death, so that is why premiums increase along with age.
Term life insurance is less expensive because it only provides coverage for a predetermined time. It’s different from whole life insurance that provides coverage for a policyholder for life as long as premiums are being paid.
Term life insurance is cheaper because of the probability of policyholders outliving their terms, which will result in the policy expiring worthless. Shorter terms mean more affordable premiums, and longer terms mean expensive premiums.
Perfect For Younger Families
Since term life doesn’t build cash value and only provides coverage for a certain number of years, young families can afford its prices. It can give you peace of mind knowing that you are insured if anything terrible happens to you.
Your beneficiaries can use the money to pay for your kids’ education, pay off a mortgage, buy a car, or do whatever they want.
The best thing about term life insurance is that you can choose a term for as short as one year or as long as 30 years (or even more). Of course, rates become cheaper if you lock in longer terms.
Determining the length of your term would depend on the type of expenses that you have. For example, it would be a good idea to lock in a five-year term life insurance if you have kids going to college. This would help pay off school debts and tuition fees if anything happened to you while your kids are still in college,
Term Life Insurance Policies Can Be Combined With Other Types Of Insurance
Whether you have a level, decreasing or increasing term life policy, you can always combine it with other types of permanent life insurance. A lot of people do this to get the most value at the lowest price possible.
Whole life insurance can be expensive if you avail of premium insurance packages. You can get a cheaper insurance package and then combine it with term life insurance with the benefits you want.
For example, you can get cheaper whole life insurance at an early age, so it will build up cash value when you get older; then, you can add term life insurance somewhere in the future if the need arises, such as paying a mortgage, loans, and other expenses. This method saves you money paying for an expensive permanent life insurance package that you might not even fully benefit from.
Who Needs Term Life Insurance?
The benefits have been mentioned above, so if you’re asking who might need term life insurance, the answer is EVERYBODY!
Any dependents should consider getting term life insurance because it eases the burden (at least financially) on your family members. Not to mention, the cash benefits are typically tax-free so that the beneficiaries can get most of the money without cuts.
Here are some situations where your beneficiaries can use your cash payout after you’ve passed.
- Pay existing debts you left behind
- Pay for rent, mortgage, car loans, and day-to-day expenses
- Pay for your funeral costs to ease the financial burden on your children
- Fund your children’s college tuition
- Settle unpaid medical bills
- Leaving a financial legacy
Always remember that every person has a different situation, so the type of term life insurance that you will get will also vary. Make sure to consult your financial adviser first before you buy one. If you need help acquiring term life insurance in Canada, let our professionals assist you via here or over here at Insurance Direct Canada.