When selecting a type of life insurance, you may encounter the words “temporary” or “term” life insurance. This type of insurance is named as such because it has a specific validity period. What makes it ideal compared to other life insurance is that it is slightly more affordable, given several advantageous circumstances.
If you are interested in learning more about this type of insurance option, then you are on the right page. However, to avoid confusion, take note that the type of insurance that will be discussed in this article does not refer to the “temporary insurance” that is valid while the application process for term or life insurance is ongoing.
Temporary insurance is a sub-category of traditional term insurance. Many providers also offer online applications for temporary life insurance while the client is waiting for their insurance policy to get approved. This is done to cover applicants during the brief period that they are not covered while waiting for their policy to be active. It is a comfort tool that can be utilized by applicants that want peace of mind while waiting for approval. In some companies, you will stop receiving temporary insurance under the following situations:
- Your permanent life insurance is approved and in effect
- Your application was denied, but you will usually get your premium back
- The 30-day response period has lapsed, and you are unable to provide the necessary information needed to process your insurance application.
- You wish not to proceed with your application process.
- You are unhappy with the clause of the insurance policy, and you wish to reject the offer.
A term life insurance is a type of insurance with limited time coverage with fixed premium rates. Meanwhile, temporary life insurance refers to the coverage that you receive while your term or permanent life insurance is in process. The meaning of these two are often interchanged, but they are not one and the same.
In this article, we will be discussing the basics of term life insurance and whether it is the best choice for you.
If you die within the validity period of your term insurance, your beneficiary will receive death benefits. They can use it to pay for things such as:
- Existing mortgage
- Loans
- Childcare expenses
- And other types of expenses
The nice thing about term life insurance compared to other insurance types is that the process is less meticulous and time-consuming than permanent life insurance. Some term life insurance also does not require extensive medical check-ups.
Furthermore, this type of insurance can have a coverage period between 10 years to 65 years, depending on the insurance company provider’s rules.
With that said, here are the 3 main types of best term life insurance:
Level-Premium or Level Term Policies
These term policies can last between the periods of 10 to 30 years, and the death benefit and premium rates are fixed.
Yearly Renewable Term Policies
There is no specific term under this policy. However, it is a no medical life insurance, which means that you do not have to provide insurability proof. The downside of this one is that life insurance rates can become quite expensive when the holder ages.
Decreasing Term Policies
The death benefit in this policy decreases every year, depending on the agreed-upon schedule. This term life insurance has a fixed, level premium rate for a specific period.
If you are interested in getting term life insurance in Mississauga, it is best to take it to a certified insurance advisor who can further discuss options best suited to your circumstances. It is also a good idea to shop around different insurance providers and ask for quotations so that you have a better idea of which provider will give you the best policy suited for your needs and requirements.
There is not much difference in the term life insurance cost depending on the location of the provider. However, the certification of insurance providers may differ from one province to another. This is because some provinces in Canada have their separate government-regulated authorities with different standards in licensing individuals allowed to sell insurance.
Is Temporary or Term Life Insurance the Right Choice for You?
Now that you have a better idea of what is short term insurance, the question is now whether it is the best choice for you. Here are some instances when opting for term life insurance Canada is a smart decision:
If you are looking for affordable coverage
Life insurance cost can be quite expensive regardless of its type because it is an additional expense. However, term life insurance is considerably more affordable than other types of life insurance products, plus they are calculated relative to your income, age, and other factors.
You have other investment ideas
Another instance when term life insurance is a better option is when you have other investment ideas. This can compensate for the lack of savings and investment of the insurance. You can also free up some of your cash flow since you will only be paying an affordable premium.
If you have dependents
Suppose you have dependent children who are still in school or elderly parents, and you are their primary provider. In this case, getting term life insurance is a smart decision.
You will never know what will happen on a day-to-day basis, and it is good to have the peace of mind knowing that your family will be financially taken care of if something bad happens to you. You can pick a term that allows you to cover your kids until they are self-sufficient and can support themselves financially.
If you have an existing mortgage
Suppose you die and you have an existing mortgage; it will be quite difficult for your family to cover that specifically if you are the main breadwinner. Worst case scenario is that the lender will take back the property and render all your previous payment and hard work useless.
Unfortunately, this scenario is more common than you think, especially for those who do not have mortgage life insurance. If you do not know what that is, it is a type of life insurance policy specially designed to repay the outstanding mortgage and its associated cost in the event that the borrower experiences sudden death.
In this case, the death benefit from the term life insurance can be used to cover the cost of the mortgage. This will ensure that your family will not lose the roof over their head when you pass away.
When choosing a term life insurance for this purpose, you can set the coverage period up to when you fully paid your mortgage. For example, if your mortgage is 15 years, it is also a smart and practical idea to avail of term life insurance with 15 years of validity.
The difference between mortgage life insurance and term life insurance is who is the beneficiary of the death benefit. If you have mortgage life insurance and you suddenly die, the lump sum payment for your mortgage will be given directly to the lender. Meanwhile, in term life insurance, it will be given to your chosen beneficiary so they have the option on how they would want to spend the money they receive.
If you have debts and loans
It is also a good idea to have term life insurance if you have existing debts and loans. Whether these are financing debts or personal loans, you never know what the future holds, and if you suddenly pass away, the financial burden to repay these debts and loans will ultimately be passed on to your family.
To avoid them from carrying that financial burden, opting for term life insurance while you are in the period of making repayments is a good idea.
If you want to convert later on
Some insurance providers offer the option to convert your term insurance policy into universal life insurance or whole life insurance. This typically happens when your term life insurance policy is about to expire.
This will allow you to save money. You will not need to pay for the expensive premiums of universal life insurance or whole life insurance if you start off with a term life insurance.
Which Longer-Term Life Insurance Option is Ideal for You?
If you have decided to avail of term life insurance, the next thing that you have to figure out is which term insurance is suitable for you. Here’s a quick guide to help you identify the answer to that according to your circumstance:
20-Year Term
The 20 years term life insurance is the best fit for you if you have children who are still young and their sole provider. By the time the 20 years coverage is up, those children will be able to financially sustain themselves even if something unfortunate does happen to you.
It is also a good idea if you have long-term debts, a line of credit, and mortgage coverage. A 20-year term life insurance is also more affordable, so it is an excellent choice if the monthly premium cost is a major factor for you.
30-Year Term
If you have a spouse who relies on your income, it is a wise idea to extend your term life insurance to 30 years. This will provide financial protection to your significant other up until you are near your retirement age.
Term to Age 65
Term to age 65 term life insurance is an excellent choice if you want to be covered until you are eligible for retirement. This covers all the mentioned reasons and instances of the other terms mentioned above.
This type of term life insurance can be affordable if you avail it while you are still young. This is because your risks of health complications and issues are statistically lower.
Who Needs Temporary or Term Life Insurance?
This type of life insurance is ideal for people who need a life insurance policy temporarily. However, this can extend for many more years when needed.
Many people can benefit from availing of temporary insurance. For example, those who have a mortgage can benefit from one because this can allow their families to pay it off when an unforeseen death occurs.
It is also great for people with young children as the death benefits can help provide for their needs, like their education, should something happen. For those who are planning to retire, a 25-year term life policy can be great at covering their needs like raising kids and paying mortgages.
On top of that, some insurance providers allow their clients to convert their insurance plans into universal or whole life policies. These policies are also renewable, but the premiums are calculated on a new renewal date.
This type of insurance can also be great for covering other expenses like paying off loans, rent, childcare expenses, and more in case something unexpected happens. Overall, if you need life insurance coverage temporarily, then this might be the ideal option.
Term Life Insurance Cost
The average term life insurance quotes for a 20-year long policy for a healthy 30-year-old individual is around $27 per month. However, this price can vary from case to case.
The main factors that determine your term insurance’s premium price are your gender, age, health, income, number of beneficiaries, and coverage duration. The rule of thumb is to get your term insurance as early as possible so that you can lock on lower rates. It is also important to consider the insurance provider that you will be buying from since they differ a lot in terms and conditions.
Final Words
Term life insurance is an excellent choice for particular circumstances. It is also considerably more flexible than other types of insurance since you can convert it into universal or whole life policies later on as long as it’s allowed by the provider.
Several companies offer free term life insurance quotes in Canada. Make sure to compare these and pick the best one with the favorable conditions for you.