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What Is Term Life Insurance & How Does It Work?
Navigating the ins and outs of life insurance can be overwhelming. And we get it! Insurance is one of those things that everyone needs, but most of us do not fully understand. And as a result, we end up putting it off. But when it comes to term life insurance, punting it down the line can cost you in more ways than one.
Keep reading as we break down everything you need to know about term life insurance, including what it is and whether it’s the right choice for you.
Term life insurance is a form of life insurance that provides coverage for a set period of time—also known as the term.
During this time, if you pass away, your family and loved ones can receive a lump-sum payout to help ease any financial burdens. The goal of term life insurance is to help put your mind at ease, knowing that if you were to pass away your family and loved ones have a financial safety net that they can rely on for things like education costs, mortgage or rent, and funeral costs.
With term life insurance, you typically choose a term that lasts anywhere from 10 to 30 years. Term life insurance is designed to provide financial protection during a specific period of time, when you may have higher levels of financial responsibility.
That’s why you’ll find that term life insurance is a popular choice for families when they have children, mortgage payments, or other financial dependents.
Life insurance often sounds complicated. But we’ll let you in on a secret: it’s actually much simpler than you might think—especially when it comes to term life insurance.
But do not just take our word for it. Let us look at how term life insurance works in four easy steps:
Before you have life insurance coverage, you’ll need to shop around for a policy that meets your needs and your budget. Life insurance can be purchased through a broker, insurance agent, or even online.
As you choose your policy, there are a few things to think about, including:
Throughout the term of your life insurance policy, you’ll pay a fixed amount to your insurance provider. This is typically referred to as a premium, or your insurance rates. In order to keep your term life insurance policy active, you’ll need to continue to pay your premium.
Generally, your premium will be given to you as a monthly dollar amount. This amount is determined based on your age and your coverage needs when you purchase your policy.
For term life insurance, everyone’s premiums will be a little bit different. Every insurance provider also calculates their rates a bit differently. However, there are some factors that can help you understand the variation in cost.
Remember: Honesty is key when it comes to your life insurance policy application. If your insurance provider discovers that you’ve misrepresented yourself, your policy can be canceled, or your claim could be denied.
For many term life insurance policyholders, you’ll never file a claim.
If you’re still living by the end of your policy term, your coverage will simply come to an end. For example, if you have a 20-year term life insurance policy, but you’re still living after 20 years, your policy will lapse.
Based on your life situation and financial obligations at that time you can decide whether you want to extend the policy term, convert it to permanent insurance, or simply let it expire.
However, if you pass away while your policy is still active, your beneficiaries will need to file a life insurance claim. For example, if you have a 20-year term life insurance policy, but you pass away 10 years into the policy coming into effect, your beneficiaries would be eligible to submit a claim.
The process of filing a term life insurance claim varies between providers. Typically, your beneficiaries will be required to provide documentation regarding your death and other necessary details to help review and settle the claim.
Most insurance providers have agents and adjudicators who can walk your loved ones through the claims process, and ensure your loved ones have all the information they need.
Once your claim is settled, your loved ones will usually receive your benefit payout in the form of a lump-sum payment. This amount is based on the coverage you selected when purchasing your policy. Term life insurance payouts are also tax-free, so your loved ones can make the most of the coverage.
Unlike mortgage insurance—which goes to the bank to pay off the balance of the mortgage, term life insurance payouts aren’t earmarked for a specific purpose. So, it is up to your beneficiaries to decide how they’d like to use it.
Common uses include:
Term life insurance might be the right choice for you if:
There’s a reason term life insurance is one of the most popular types of life insurance. Here are some of the top term life insurance benefits Canadians can find.
Term life insurance isn’t one-size-fits-all, which is why most policies are personalized based on your budget and family’s needs.
You get to choose how long you have term life insurance and you get to decide how much. The flexible nature means you can get coverage when you need it the most.
But just because you’ve chosen a 20-year policy, doesn’t mean you’re stuck with that.
There’s usually the option to reduce your coverage over time if your financial obligations change. And if you find yourself needing more coverage than you initially expected, you can do what’s known as laddering, where you purchase another term life insurance policy to increase your financial safety net.
A common misconception about life insurance is that it’s expensive. But for most Canadians, term life insurance is more affordable than you might think.
Once you buy a life insurance policy, your rates remain throughout the term of your policy. You’ll pay the same amount every month for 10 to 30 years, making budgeting and planning much easier.
Snag lower rates while you can: Typically, the younger and healthier you are, the lower your insurance rates will be. You’ll be able to hold onto those rates throughout the entire term, as long as your policy remains active.
Life insurance is one of those things that can feel more complicated than it actually is.
Sure—certain types of life insurance can have more nuance. But in general, term life insurance is extremely straightforward and easy to understand, allowing you to have complete confidence in knowing exactly what you’re getting.
If you hold an active term life insurance policy, when you pass away, the benefit payout is typically not taxable. This means your beneficiaries will receive the full coverage amount.
On the other hand, permanent life insurance policies can have tax implications that impact the amount that your beneficiaries receive.
One of the best term life insurance benefit is that it can help put your mind at ease.
Having term life insurance allows you to breathe easy, knowing if anything unexpected happens to you, your loved ones will be taken care of financially.
Discover how you can put your mind at ease with life insurance coverage that protects your loved ones through every stage of life. Learn more about Blue Cross Life Term Life Insurance.
Navigating the world of life insurance in Canada can be overwhelming. Understanding the types of life insurance available is a good starting point. Here’s a breakdown of the most common types:
How it works: Term life insurance provides coverage for a specific period, usually 10, 15, 20, 25, or 30 years. If the policyholder passes away during the term, the beneficiaries receive a tax-free death benefit.
Why Term Life?
Key points:
How it works: Whole life insurance provides coverage for the policyholder’s entire life. It includes an investment component that builds cash value over time.
Why Whole Life?
Key points:
If you're researching life insurance options, you've likely come across term life insurance. It's a popular choice in Canada, and for good reason. Understanding how term life insurance works and its benefits can help you make an informed decision to protect your loved ones. But what makes term life better for you compared to other policy types out there?
Let's explore how term life can be a great choice for you and your family:
Discover how Term Life Insurance can take out the hassle in coverage so you can focus on the more important things in life. Learn more about Blue Cross Life Term Life Insurance.
When it comes to life insurance, term life insurance stands out as a popular and affordable option for many Canadians. But what does it actually cost? Understanding the factors that influence the price can help you make an informed decision.
The cost of term life insurance in Canada depends on several key factors:
Every individual insurance plan has different exclusions, so it’s important to review your policy carefully. However, common things that aren’t covered in a term life insurance plan include suicide within the first few years of coverage, death related to illegal activities, etc.
Yes, you can get term life insurance even if you have life insurance through your employee benefits. In fact, it’s usually recommended.
Having employee life insurance is a great head start when it comes to financial protection. But with employee life insurance, your insurance amount is usually limited. The amount is often determined by your salary, usually 1-2x your annual salary. You’ll also lose your benefits if you leave the company.
Term life insurance provides coverage regardless of your employment situation. You can also use it to supplement your existing employer-provided coverage, to make sure you have enough coverage for your needs.
In most situations, providers require that you’re a permanent resident or Canadian citizen to qualify for term life insurance in Canada.
For example, Blue Cross Life Term Life Insurance, requires applicants to be a Canadian citizen or resident. You also must sign your policy contract while physically within Canada.
When the term on your term life insurance comes to an end, your coverage simply expires. Before it expires, you have a few options: you can decide if you want to renew your policy, buy a new one, convert to a different type of life insurance, or cancel your coverage.
If your term life insurance policy is coming to an end, it’s best to reach out to your provider to see what options are available to you.
If you die while your term life insurance policy is still active, your beneficiaries will need to file a claim with your insurance provider. At this point, your insurance provider will walk your loved ones through the claims process and request any information they might need to settle the claim. Subject to the terms of your policy, your beneficiaries will receive a lump-sum payment once the claim is settled.
® Registered Trade-mark of the Canadian Association of Blue Cross Plans, an association of independent Blue Cross Plans. TM Trade-mark of the Canadian Association of Blue Cross Plans, an association of independent Blue Cross Plans. Used under license by Blue Cross Life Insurance Company of Canada (Blue Cross Life®).
Term Life and Critical Illness Insurance products are underwritten by Blue Cross Life and distributed by PolicyMe Corp.
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