Unless you’re already an insurance pro, term life insurance can feel like a bit of a black box. There’s a lot to consider before buying a life insurance plan, and we’ll bet you probably have some questions.
So, before you commit to a term life insurance plan for the next decade (or three), let’s make sure you have the answers you need!
Term life insurance is a 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,” it can provide 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’ll be given a rate or a premium. You’ll pay this premium every month (or year) that your plan stays in effect. If something happens to you during that time and you pass away, your chosen beneficiaries can receive a tax-free, lump-sum payout, subject to the terms of the plan.
Your beneficiaries can then use this payment to replace your income, cover funeral and burial costs, pay off debt, or anything else they feel is necessary.
If you outlive the term of your plan, your coverage will come to an end. At this point, you can decide if you want to renew, convert to permanent life insurance, or simply let your plan expire.
Nobody likes to think about the worst-case scenario, and the hope is that you’ll 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. Once your term ends, you’ll no longer have life insurance coverage. But you also won’t have to pay a monthly premium, either.
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’ve met the terms of the plan). You’ll have to pay your premiums for the rest of your life to keep your coverage.
Curious about permanent life insurance? We cover the differences between term life insurance and permanent life insurance in question 7.
Term life insurance can start at around $30 on average, 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’ll pay throughout the term of your life insurance plan.
Life insurance rates and premiums are typically determined by 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 plan 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.
CAA members enjoy exclusive member pricing on CAA Term Life Insurance, provided by Securian Canada. Learn how you can save 10% on rates.
Most term life insurance plans 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 plan, 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:
Of course, you’ll also want to factor in your budget. In general, the longer your plan 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 plan, 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 plan. 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 time frame—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:
Of course, 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 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 sounds like a bit of a cliché, but the truth is that the cost of term life insurance goes up as you age. Meaning most Canadians are better off purchasing a term life insurance plan sooner rather than later. And every day that you go without life insurance is another day that leaves you and your loved ones financially vulnerable in case the worst 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:
Whether term life insurance is better than whole life insurance ultimately comes down to your personal insurance needs. Whole life insurance is a type of permanent insurance that offers coverage for the rest of your life.
But 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.
Let’s look at some of the differences between the two:
Depending on what you want to get out of your life insurance plan, permanent or whole life insurance can be a great alternative to term life insurance. However, you’ll find that permanent life insurance is more common among individuals with a high net worth or more complex estate planning needs.
Yes. When you purchase a term life insurance, your premiums will stay level or the same for the entire term of your plan. This predictability is one of the reasons term life insurance is such a popular choice among Canadians.
Because of the fixed insurance premiums, many individuals opt for longer plans so they can take advantage of lower rates while they’re younger.
There are a few reasons your term life insurance plan premiums might change.
Term life insurance riders or add-ons are optional features that you can add to your basic plan. Riders offer the flexibility to customize your insurance plan based on your and your family’s needs. If you opt for insurance riders, you’ll typically pay a slightly higher premium for the added benefits in your plan.
A common example of a term life insurance add-on is an accidental death benefit rider. This add-on means if you die as a result of an accident, your loved ones can receive an extra payout on top of the coverage in your regular plan. This type of rider can provide additional financial security in the event of an unexpected emergency.
Other add-ons you might see include child riders or guaranteed renewal riders. Some products like CAA Term Life Insurance include these as a standard part of their plans. So, it’s worth considering what’s included when evaluating your plan options.
A professional insurance advisor can always walk you through the various add-ons available to you and share their recommendations.
Term life insurance is almost always a worthwhile investment. But every insurance provider will have different rates and plans, so it’s important to shop around for the right plan for your needs and budget.
Some ways to find affordable term life insurance in Canada include:
Get a personalized life insurance quote in less than 60 seconds right from the comfort of your home with CAA Term Life Insurance, provided by Securian Canada. Get your free, no-obligation quote today.
Securian Canada is the brand name used by Canadian Premier Life Insurance Company and Canadian Premier General Insurance Company to do business in Canada. Plans are underwritten by Canadian Premier Life Insurance Company.