Term life insurance in Canada pays money to your loved ones if you die while your policy is still active. Here’s how to determine whether it’s the right choice for you.

People often don’t talk much about life insurance when starting conversations. We get it—we find it unpleasant to talk about what transpires after we pass away. But it’s really essential to understand how life insurance works so your loved ones will have enough money if something happens to you. Here’s all you need to know about term life insurance in Canada, which is explained in simple terms.

 

What is term life insurance?

There are many types of insurance in Canada, and term life is just one of them. As the name indicates, it offers coverage for the duration of the term you choose—the period the policy covers you. The coverage period in Canada ranges typically between five to 30 years. If you pass away during the term or when the policy is still active, your beneficiaries receive the death benefit. You can terminate a term policy at any time. However, it doesn’t have cash value, and upon termination, you receive nothing in return for the premiums you paid.

Many Canadians choose term life insurance over others since it’s less costly and covers you for a specific period. It’s great for paying off things like a mortgage. For a coverage of $100,000, you might pay anywhere between $13 and $100 per month. Your premium payments depend on factors such as health, lifestyle, and age. For a 30-year-old healthy person, the payment will probably be lower compared to a 60-year-old who smokes.

 

What’s the difference between term and whole life insurance?

A whole life policy offers lifetime coverage provided you pay premiums, as opposed to life insurance. However, you need to understand that each of these options has pros and cons. Therefore, the right coverage for you depends on what you intend to achieve from the insurance policy.

Term life insurance is a better option to ensure your debts and mortgage are paid off. Premiums are low, and they cover a specific period. On the other hand, if you wish to pay a constant premium and borrow loans or withdraw some money while still alive, whole life insurance might be better.

Which term life insurance is better for you: 10 or 20 years?

The answer to whether you should buy 10- or 20-year term life insurance depends on your insurance needs. If you intend to pay off a short-term debt with a payment duration of 10 years or less, the 10-year term might be better. It offers the coverage you need at a lower cost. However, if you expect to have the debt for over 10 years, opting for a 20-year term (or longer) could be more beneficial. With a longer term, your premiums stay constant for 20 years, so you won’t face higher costs when you renew after the first 10 years when you’ll likely be older. Choosing the longer term initially might help keep your overall insurance costs lower.

 

Comparing term life insurance quotes

Your health, age, and gender are vital factors in determining the cost of term life insurance. This table offers average prices based only on the term’s length. If you want to save money on term insurance, it’s often best to purchase it when you’re relatively young and in good health.

 

How your health affects it

If you have underlying disabilities or conditions, discussing them with your insurance broker is essential. They can provide information on how these factors may affect your premium or policy eligibility.

Term life insurance typically doesn’t cover disability, which usually requires a separate policy. While some insurance policies may offer a small amount of disability coverage as a rider, this is not included in the base premium. A rider is an extra benefit added to a policy.

When it comes to health conditions like diabetes, people often wonder about the best-term life insurance. But there’s no one-size-fits-all answer. It depends on your goals, debts, and other factors. Make sure to tell your insurance broker about any existing medical conditions, like diabetes. Some insurance plans guarantee eligibility no matter what, but they might cost more.

 

What happens upon the expiry of term life insurance?

The policy will either renew or expire when the term ends, depending on its terms. Unlike whole life insurance, term insurance doesn’t pay anything out at the end of the term.

 

Can term life insurance policy be sold in Canada?

In Canada, selling a life insurance policy is called a viatical settlement or life settlement. You sell your policy to someone else for less than its total value but more than you’ve paid in premiums. The buyer pays the premiums and gets the total payout when you die.

People might want to sell their policy for several reasons, such as:

• They can’t afford the payments anymore because their financial situation has changed
• They get very sick and need money quickly

Viatical settlements used to be allowed in New Brunswick, Nova Scotia, and Saskatchewan, but these provinces changed their rules and no longer allow them. Now, only people in Quebec can conduct viatical settlements.

Selling a policy can help someone who can’t afford payments anymore or needs cash quickly. However, critics are concerned that it could lead to vulnerable people, like seniors, being targeted by dishonest buyers. These people might not realize all the consequences of selling their policy. Also, some insurance companies, such as Sun Life, don’t allow policy sales no matter where you live.

 

How much term life insurance should you get?

Term life insurance is often underestimated in terms of cost, especially among healthy people under 40. Contrary to popular belief, the premiums for term insurance can be quite affordable for this demographic. Additionally, many individuals overlook the actual amount of coverage they need. It’s important to recognize that term life insurance serves a broader purpose beyond covering funeral expenses.

To figure out how much coverage you need, your broker will do a life-needs analysis. This looks at what you owe versus what you own and earn. It also considers other costs you’d want to be covered if you die. For instance, you might want your spouse to get a certain amount of money every year, like five times your current income, so they can keep the same lifestyle even if you’re not around. Many also get extra coverage to make sure one person isn’t left with big bills, like childcare, their kids’ college fees, and the mortgage.