- Life Insurance

Term Life Insurance

If you died tomorrow would your spouse or family have sufficient funds to pay the mortgage, pay off credit card debts or send the children to college? Term life insurance offers an affordable way to protect your dependants from financial risk in the event of your death.

In contrast to whole life insurance, term life does not build cash value. It is pure insurance protection which provides a tax-free death benefit to your beneficiaries if you die within the term of the policy. If you do not die within the term, the policy expires and you receive nothing. Term life policies vary in the length of the term, ranging from 1 to 30 years, the death benefit amount and the cost of the premiums.

Premiums for individual life insurance are underwritten to assess your insurance risk according to your age, gender, health and whether or not you are a smoker. The insurance company may require you to have a medical exam and request access to your medical records.

Because of the low likelihood of the policy having to pay out, up to the age of 50 the premiums for term life tend to be relatively inexpensive. If you renew your term life coverage after that age, your premiums are likely to increase substantially.

There are several different varieties of term life insurance. “Level Term” life insurance allows you to lock in the same monthly payments for the length of your policy. These are calculated by averaging the premiums that would be due each year. “Annual Renewable Term” life insurance provides coverage for one year, renewable annually for a specified number of years. The premiums are calculated according to the likelihood of your dying within that year, and increase each year as you get older. “Return of Premium” term life insurance has significantly higher premiums than traditional term life, but guarantees to pay back all your premiums if you outlive the policy. “Guaranteed Issue” or “Quick Issue” term life insurance requires no medical exam, and so may be the only option if you would be considered uninsurable according to underwriting. Because of the greater risk to the insurance company, the premiums tend to be higher.

Term life policies offer different features. Some have a renewal option, allowing you to renew your coverage at the end of the term. The premiums will usually be much higher as they are assessed according to your age at the time. Some policies will require you to have another medical exam to prove insurability, which could exclude you from renewing if you have developed a terminal illness during the term of your policy. Some other policies include guaranteed reinsurability, allowing you to renew your term life policy without proving insurability. Some term life policies allow “conversion” to a whole life insurance policy during the coverage period. Most insurance companies will not sell a new term life policy to those over 65.

Because of its affordability, term life insurance can be a cost-effective way to provide financial protection to your family in the event of your death.