What are the different types of life insurance in Canada?

Understanding insurance is complex yet so simple. For starters, there are two main types of life insurance available in Canada. These are term life insurance which is sometimes referred to as temporary and permanent life insurance.

Term Life Insurance

Term life insurance is issued for a set number of years, usually between 10 and 30. Like any other life insurance, it requires a medical test. When you buy term life, you choose the term length (how long you want to be covered for) and your coverage amount (how much you want your beneficiary to receive when you die).

The premiums for term life insurance are consistent and regular throughout the chosen term your chosen death benefit is paid to your beneficiaries. Term life insurance is a straightforward insurance product that makes the promise if you die, we’ll pay, but only if that were to happen within a specified length of time, or ‘term’. Hence the term life insurance. You should know that it is only applicable to a maximum of 85 years.

When your term expires, you may have the option to renew your policy for a higher cost due to being older or let your coverage expire. Depending on your policy, term life insurance can be converted to either whole life insurance or universal insurance approximately between one and five years before the policy expires.


Why do I need term life insurance in Canada?

Term insurance provides temporary coverage because it’s designed for temporary needs. It is best for people who have a temporary need for life insurance. However, temporary can extend for many years or converted permanent life insurance.

Term coverage gives room for flexibility in financial training while allowing you to deal with specific life risks at a manageable cost. While this is simple, the premiums are a bit lower making them manageable for the policyholder. For some people, this can either be when kids are still young, the mortgage is still new or the earning power is challenging.

The best time to invest in term life insurance in Canada can be when:

  • When you don’t have mortgage insurance yet you have a mortgage and would like  to leave your family enough money to pay it off if you die
  • If you need coverage for young children that may lack financial support in the event of your death.
  • You can get coverage when you are nearing retirement to help with liabilities and emergencies.


How Term Life Insurance Works

Upon the purchase of a term life insurance policy, the insurers will determine the number of premiums based on the value of the policy. Age, gender, and health status are also put into considerations while in some cases, you will need a medical exam and family history.

If you die during the term of the policy, the insurer will pay the face value of the policy to your beneficiaries. This cash benefit is untaxed most of the time and can be used by beneficiaries to settle your healthcare and funeral costs, and any other debts incurred.

However, if the policy expires before your death, you or your beneficiaries are not entitled to any payout.  Depending on the contract, you can decide to renew the policy when it expires. The premiums will however be calculated as per your current age at the time of renewal.

Unlike a whole life insurance policy, term life insurance is not inclusive of a savings component. The only value with this insurance policy is the death benefit.


Types of Term Life Insurance

Term insurance comes in two basic varieties—level term and decreasing term. However, there has been an inclusion of a yearly renewable term. The terms “level” and “decreasing” refer to the death benefit amount during the term of the policy. The best option will depend on your individual circumstances.

1. Level term policies

Although the level-premiums tend to have higher insurance premiums as compared to insurance with the same coverage, it ends up being more advantageous. This is because the higher premiums will be beneficial when they are most needed. Policies with similar coverage and lower premiums usually don’t see an increase in coverage as they mature.

Level-premium insurance consists of premiums that are guaranteed to remain the same throughout the contract, which could be between 10-30 years based on your needs, while the amount of coverage provided increases. This means that the policyholder will have to keep paying the same amount of premiums but have access to the increasing amount of benefits with the maturing policy. This makes the policy a great option for those who want to invest for a longer period.

Because actuaries must account for the increasing costs of insurance over the life of the policy’s effectiveness, the premium is comparatively higher than yearly renewable term life insurance.

2. Yearly renewable term (YRT) Policies

A yearlyto renewable term insurance policy is a one-year term life insurance policy that is renewed annually. When you apply for a yearly renewable policy, you will be given a quote for the year. With each renewal, the price of the premiums changes as they grow higher due to the increase in age and other factors.

This plan may not work for most life insurance seekers as they have limitations and tend to be expensive as the policyholder becomes older. Premiums increase annually in order to cover increased risk with age. This type of insurance is also referred to as increasing premium term insurance or annual renewal term assurance.


Is Yearly Renewable Term good for me?

Early renewable term insurance tends to work best for young people who are exploring the world of insurance because of their low costs and flexible premiums. It also caters to the named beneficiary by paying benefits in the vent that the policyholder dies before the policy expires.

However, if in the course of purchasing yearly renewable term insurance, you realize you can afford stable life insurance, the insurance service provider may let you convert your policy to whole life insurance without being subjected to medical tests and exams.

The biggest challenge of this insurance policy is that if you as the policyholder keep renewing it for many years, you may end up spending a lot on insurance when an easier option would have been a level term life or permanent life insurance policy.


3. Decreasing term policies

With this policy, the policyholder commits to a fixed or level premium for the duration of the policy. These policies have a death benefit that declines each year, according to a predetermined period.

For a better understanding of decreasing term insurance, you need to align age with responsibilities. The policy holds that the older you grow, the lesser the liabilities. With fewer responsibilities, the policyholder, therefore, has no need for high levels of insurance, hence the decrease in the number of benefits.

Decreasing term policies are often related to a mortgage because the principle coverage of a home loan depreciates, which is the same principle that is applied. The older you get, the lower the death benefits you are entitled to.   

Often, the premiums are regular and constant throughout the duration of the contract with reductions occurring on a year or a monthly basis. The duration of the decreasing term policies goes between 1-30 years depending on the company and plan agreed upon.

 For individuals with dependents, this form of life insurance policy may not be the best option. The policy offers a decreasing death benefit with no cash value to the beneficiaries. Although it is more affordable as compared to whole life or universal life insurance, you may want to consider an affordable term standard insurance policy as a backup.


Should I invest in Decreasing Term Life?

Decreasing term life insurance policy is perfect for those who want to protect their assets. The policy can also be effective for small business partnerships as it can be used to offer coverage of being indebted against startup costs and operational expenses.

Sometimes, the decreasing policy for small businesses offers financial support for continued operations or retirement of the debt if one partner dies while still indebted.


How Much Term Life Insurance Do I Need?

When choosing term life insurance, you ought to consider the debts and responsibilities you intend to cover with the insurance. This way, you will determine the plan that is appropriate to purchase. For instance, if you want to cover the financial support of your children until they are through with college, you may consider a ten-year plan. On the other hand, if you want to cover the mortgage you just got, consider the years you have to repay the mortgage loan.

Sometimes a policyholder wants to find a replacement for the income for a certain period. This calls for proper calculation of the amount needed to cover the financial needs of the family while maintaining their standard of living for a given period, say 10 years.

Taking a term life insurance policy that is designed to cater for the debts and liabilities means handing over the financial responsibilities that would have been paid for by the personal salary of the policyholder regularly.

However, coverage varies depending on the person and their location. It is advisable to use online calculators or better yet, talk to your insurance provider to get the range of the recommended amount.


How do I choose Term Life Insurance time?

The need that needs covering should determine the length of the term insurance policy chosen. This means that if you need to cover for the mortgage, you may have to choose a different length of time as compared to a policyholder that needs to cover the education of their children.

While the standard period ranges between 5-30 years, some companies are open to providing longer-term life insurance policies that may stretch to 40 years.  However, if the family’s financial needs stretch past the standard period, it is recommended to consider shifting to a permanent life insurance policy like universal life insurance.

What should I Expect When Applying for Term Life Insurance?

Knowing what to expect when you apply for life insurance can help make the process simpler and easier. Having a better understanding of the process and the requirements can help you better understand the importance of each procedure and what you’ll need to have on hand when you get started.

The process starts with you selecting a term life insurance policy provider and your preferred term life policy. Once you have received a quote based on your anticipated benefits, your needs, and your current financial state, you will need to fill out an application form. For medical records, you may be asked to sign medical releases.

A medical exam focuses on height, weight, blood pressure, blood and urine samples, and questions about your prescriptions and health to ensure that the information provided on the application form is true. 

The nature of medical tests varies from one person to another and it depends on the declarations made. The test can consist of taking the height and weight measurements to determine the BMI and taking blood and urine test for various functions in addition to other tests depending on your lifestyle habits, current illnesses, and medical history.

Also, depending on your age and/or amount of insurance requested, a life insurer might also request an EKG or cognitive assessment.

The term life insurance policy provider will also have to carry out their research on you. This will focus on the history of drug prescriptions, medical records for those who have given consent, motor vehicle report, history of life insurance applications, and third-party verification statements for those with bulky insurance benefits.


What Happens When Term Life Insurance Ends?

At the end of the term, as per the contract between the insured and insurer, the term policy expires. When the policy expires, you are not entitled to any refunds of the premiums unless the policy purchased included the return of premium term life insurance.

IfseveralIf several you still require insurance, you can renew the policy or purchase another one. However, the renewed policy will cost a lot more as it will be subjected to the current. For instance, if you took an a10-year-insurance plan at age 34 and it expired when you are 44 years old, the conditions applied will have to be those of a 44-year-old.

Ensure you get a quote and an analysis before agreeing to renew an expired term life insurance policy. Being older doesn’t necessarily mean a very high insurance rate.

While sometimes policyholders decide to end their term life insurance contract before it expires, it is advisable to ensure that you are doing the right thing. If you stop paying for the insurance, it will be canceled. The worst part is if you have it canceled only to realize later on in life that it was a bad idea and have to go through the whole process again. 

How do I get the quotes for disability insurance?

Our transparency and the need to help our customers on sport has made finding term life insurance policy quotes simple and instantly. Most compliant insurance service providers have made insurance quotations as easy as a click away.

You can use our online forms or reach out to us via email, and phone number. The quotations can be adjusted as per your financial situation and insurance needs.


Which is the best disability insurance company in Canada?

The best term life insurance companies are those that are experienced, have the knowledge and understanding of the insurance industry. Different companies offer different policies that range from the individual, group, and customized amount of benefits and premiums as per the needs.

While Canada has a number of trusted insurance companies, Policyhub stands out as the best choice for most Canadians. This is because of their industrial connection with a wide range of investment and insurance companies as well as well-trained and experienced staff that will guide you throughout every step of your coverage.

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