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7 Questions to Ask When Buying Term Life Insurance in Canada
Unless you’re already an insurance expert, term life insurance can feel like a bit of a black box. There is a lot of questions to ask when buying term life insurance considering it can be a big commitment. If you find yourself asking, is term life insurance affordable? How much term life insurance do I need? Or even what is the cost of term life insurance? You are not alone.
We are here to make sure you have all the answers you need before you commit to a purchase that will last for decades.
Keep reading as we answer some of the most common term life insurance questions and all the things that you need to know before you make the life insurance leap.
Term life insurance isa type of life insurance that provides coverage for a set period of time when you might have increased financial responsibilities. During this temporary period, known as the “term,” term life insurance provides financial protection for your loved ones if you pass away.
When you buy life insurance, there are two primary decisions you’ll make.
Based on these decisions and a few other factors, you will be given a rate or a premium. You will pay this premium every month (or year) that your policy stays in effect. If something happens to you during that time and you pass away, your chosen beneficiaries receive a tax-free, lump-sum payout, subject to the terms of the policy.
Your beneficiaries can then use this payment to replace your income, cover funeral expenses and burial costs, pay off debt, or anything else they feel is necessary.
If you outlive the term of your policy, your coverage will come to an end. At this point, you can decide if you want to renew or simply let your policy expire.
Nobody likes to think about the worst-case scenario and the hope is that you will never need to file a life insurance claim. But term life insurance can put your mind at ease knowing that if you were to pass away, your family and loved ones would be financially protected.
For the most part, term life insurance is the most affordable life insurance solution for most individuals. It’s one of the reasons why term life insurance is the go-to for Canadians.
So, what makes term life insurance more affordable than other types of life insurance products?
Unlike many other types of life insurance, term life insurance only provides coverage for a limited time, typically for the years that you are most in need of financial protection. This keeps your monthly premiums lower and gives you the flexibility to buy coverage for when you need it.
With permanent life insurance, you can buy coverage that lasts your entire life. But because the insurance provider is guaranteeing a payout when you pass away, the premiums are higher (assuming you have met the terms of the policy). You will have to pay your premiums for the rest of your life to keep your coverage.
We can say this—term life insurance is generally more popular than permanent or whole life insurance and meets the needs of the average Canadian.
Term life insurance can start at around $30 a month, but it will depend on a few factors that will be covered below. The cost of term life insurance is made up of the premium or rate that you will pay throughout the term of your life insurance policy.
Term life insurance rates and premiums are typically determined by different factors including:
While there’s a lot that goes into determining your rates, we do have some good news. With term life insurance, the rate that you get when you buy your policy will stay the same throughout the entire term—yes, even if you have a 30-year term.
This means you can easily budget for term life insurance while enjoying the benefits that come with securing coverage.
Most term life insurance policies last anywhere from 10 to 30 years. Depending on the insurer, you might see options for terms that are shorter or longer.
When you purchase your policy, you get to set your own term and choose how long your coverage lasts. You want to make sure that you have coverage that lasts through any milestones that matter, such as when your children become financially independent, or the number of years left on your mortgage.
There are a few things to consider when deciding on your life insurance term. This includes:
Another factor to consider is your budget. Generally, the longer your policy term, the more you can expect to pay every month in premiums. But on the flip side, the younger you are when you purchase your policy, the lower your rates. This often makes renewing and buying additional coverage in the future more expensive.
Term life insurance premiums stay the same the entire term of your policy. So, if you expect that you might need insurance coverage in the future, it might be more cost-effective to purchase a longer term—even though it might raise your rates a bit today.
The Financial Consumer Agency of Canada recommends that your term life insurance coverage should be at least 7-10x your annual salary. You’ll often see coverage options ranging from $100,000 to $5 million. These might seem like big numbers at first, but as we all know, life can be expensive—especially without an extra income. With life insurance, you should consider all the financial responsibilities you’ll have in the future.
For example, if you pass away, your family will no longer be able to rely on your income. A bigger financial safety net means they’ll be able to offset the loss of your income and provide financial stability for as long as possible. If, for example, you earn an annual salary of $50,000, and it takes ten years for your children to be independent, that’s $500,000 your family won’t have access to during that timeframe—yet mortgages, rents, and other bills still need to be paid.
You want to make sure you have enough insurance to cover your financial obligations and then some. Things to factor in include but aren’t limited to:
While the 10x figure is a great starting point, it’s not always the right amount for everyone. For example, if you have life insurance coverage with your employer, you might need less. Or if you expect to have significant financial obligations in the future, you may choose to purchase more.
There are many other ways to calculate your life insurance needs that factor in details around your specific financial situation. One common calculation is the DIME method that adds up your Debt, Income, Mortgage, and estimated Education expenses.
Want a personalized recommendation for how much life insurance you need? Speak with a licensed life insurance advisor who can help you calculate the right coverage for you and your family.
The best time to buy term life insurance was yesterday. The second-best time? Today.
We know it might sound like a cliché, but it’s true: the cost of term life insurance increases as you age. This means most Canadians benefit from purchasing a term life insurance policy sooner rather than later. Every day you go without life insurance is another day that leaves you and your loved ones financially vulnerable in case the unexpected happens.
Not everyone necessarily needs life insurance, but it can be extremely beneficial for most adults. Here are some reasons you might want to buy term life insurance:
Term life insurance is almost always a worthwhile investment. But every insurance provider will have different rates and policies, so it’s important to shop around for the right policy for your needs and budget.
Some ways to find affordable term life insurance in Canada include:
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For the average Canadian, yes, it’s worth getting term life insurance.
While it’s highly dependent on your unique circumstances, term life insurance can provide your family and loved ones with a financial security net in case something happens to you. A term life insurance payout can be used for anything – from replacing your income to paying off large debts, such as a mortgage.
It can also help put your mind at ease knowing that your loved ones will be financially provided for.
There are many benefits to term life insurance including:
If you’re still living when your term life insurance policy ends, it simply expires. Depending on your life situation when your policy term comes to an end, you may decide that you still need life insurance coverage.
When your policy term ends, you can:
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Term Life and Critical Illness Insurance products are underwritten by Blue Cross Life and distributed by PolicyMe Corp.
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