One reason that many may opt for Term insurance over “Whole Life /Permanent” is based on financial needs and expenses over the course of a period of time.
Policyholders may only want to be covered while they have large expenses like a mortgage, children’s education, or to simply cover any outstanding expenses. By limiting the duration of a life insurance policy term, this means that premiums will be lower than those of whole life /permanent plans.
Term Life Insurance or Term Insurance will payout a tax-free benefit to your beneficiaries if you die within the number of years that the term covers; it is usually for a period of 10, 20 or 25 years.
Decreasing-term insurance
An option for those buying term life insurance is to have the potential payout decrease year after year. This is most commonly purchased to reflect the fact that mortgage debts fall as it is paid off. The difference between a 25 year “Term” and a 25 year “Decreasing Term” policy is that with a decreasing term life plan, the amount of the death benefit decreases each year. Because the payout decreases over time, the premiums though remain fixed for its duration, are lower than “regular” term plans. This type of insurance tends to be an economical way to protect your beneficiaries should you die unexpectedly during a period when you have substantial financial responsibilities that may be “decreasing”. Unlike mortgage insurance, the chosen beneficiaries of term life policies are the owners of the payout and can apply it to any outstanding expenses and not just the mortgage.
Convertible Term
A “convertible term” policy allows the insured to convert a term policy to a permanent one at a later date without providing proof of health. As long as the conditions of the policy have been maintained and payments made on time, the insured person is not required to undergo any new or additional screening at the time the policy is converted, regardless of his/her medical condition. This type of policy provides the benefit of obtaining less expensive term life insurance now while maintaining the option to convert to a permanent policy at a later date as insurance needs and financial resources change.
Renewable Term Life Insurance
This allows a policyholder to renew or extend their term life policy for additional terms without having to provide evidence of insurability. This is important because it enables a policyholder to continue their insurance as they get older or find themselves in poorer health. Most term policies do not allow renewal after age 80.
The best of both – Term & Permanent (Whole Life)
Find out if your provider offers a “T100” or similar plan. This type of life insurance is not renewable nor convertible, however it offers the security of permanent coverage along with the price advantage of term.
To best determine what the ideal fit is, we’re happy to help and to answer your questions. Please contact your advisor or Canada Protection Plan
