Pros and Cons of Term Life Insurance in Canada

November 15th, 2011 | Author: Mitch Reynolds

What are the Pros and Cons of Term Life Insurance?

Understand Term Life Insurance Before You Buy

Pros and cons of term life insurance This article will look at the most important Pros and Cons of buying term life insurance. There are a lot of good things about term life insurance, but a few major draw-backs. When buying life insurance your policy needs to fit your long-term financial plan, protect your immediate risks, be affordable and/or create a cash value. Term life insurance does some of these things well, but not all of them.

Term Life Insurance Pros

Policy is very affordable – lowest cost to buy life insurance in Canada

Term life insurance is the lowest cost option to buy life insurance in Canada today. You even have many options to buy different term lengths, i.e. 10, 20 and even 30 year terms. The longer term you lock in today the higher the cost, but you are guaranteed the premium will not increase during those 20 or 30 years.

Can be converted into permanent life insurance coverage

Term life insurance should always be sold with a convertible feature. This means before the age of 65 to 75 (depending on your life insurance company) you can convert a term life insurance policy into permanent life insurance coverage (like whole life or universal life) without providing medical evidence. Thereby your temporary life insurance protection can adapt to your needs as your life situation changes.

Can be combined for total family coverage

Many life insurance companies in Canada offer discounts for both spouses to buy term life insurance, or they have combined policies where both spouses can be insured on one policy (thus saving the $60 – $100 per year in policy fees). You can also add Child Term Riders to term life insurance to provide life insurance protection for children which can be converted to a stand-alone policy when the child becomes an adult.

Term Life Insurance Cons

Renewal Rates for term life insurance are very high

At the end of the term, say in 10 or 20 years, the price for the term life insurance gets very expensive. You have a guaranteed right to keep your policy (called renewable coverage) but the price can go up by 5 – 10 times what you were paying. The shorter the term, the lower the price increase, but it happens more often. Vice versa for lengthier terms.

The policy has no cash value – no equity

Term life insurance is like renting your risk protection. Yes, it is much less money per month than permanent life insurance to get coverage, but there is no equity to show for your ongoing premiums. Think of it like renting a house versus buying the home and paying off a mortgage. Your rental payments are gone – lost money – for the benefit of living in the home. Your mortgage payments, however, build your equity in the house. At the end of your term, or if you cancel your coverage, the life insurance company will not refund any premiums back to you.

Term insurance is only temporary coverage

Term life insurance fills an important role in the financial plans of many Canadians. It provides low cost life insurance coverage for short to medium term needs, like paying off a mortgage, replacing income to the family, providing for children if you’re gone, etc. The problem is that many Canadians need permanent life insurance planning as well as short term planning. Needs like dealing with CRA taxes at death, providing income for a dependant adult child, covering estate costs and leaving a legacy for the next generation are important planning needs too. It would be wiser for many Canadians to start planning for these things earlier in life rather than waiting until they are much older and premiums are going to cost them a small fortune to buy the coverage. If you really have only short term need for coverage than term life insurance is good for you, otherwise you will save yourself a lot of money by planning your permanent life insurance earlier in life.

Learn more about the Pros and Cons of Term Life Insurance

At Life Guard Insurance our team of life insurance brokers across Canada have a lot of experience designing life insurance plans to meet the needs of their clients. Please contact us, and we will put you in contact with a local life insurance broker who show you the pros and cons of term life insurance and if it is right for you.

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