Term Life insurance
Term Life Insurance does pretty much what it says on the label. It’s life insurance that lasts for only a specific number of years (the ‘term’). Premiums don’t change throughout the policy term and it’s usually the most affordable form of life insurance.
Terms life insurance is also very flexible. You can choose a term of 5, 10, 30 or even 30 years. At the end of the policy term, your insurance expires unless you’ve opted for a more expensive policy that comes with a renewal guarantee. You can also cancel or convert your policy into permanent insurance at any time (provided you’re below a certain age).
Key Advantages
Most affordable
Easy to understand
Flexible terms ranging from 5 to 40 years
Guaranteed renewal for most policies at the end of the term at a predetermined price
Convertible to permanent insurance without a medical exam required (age restrictions may apply)
Why Choose Term Life Insurance?
Aside from being affordable and easy to understand, Term Life Insurance is more flexible. You get to pick how long you want your policy to last and you can adapt it to fit your changing needs. You can purchase more insurance or cancel your policy as needed.
How Does Term Life Insurance Work?
It’s a pretty straight forward process. You select how much insurance you want to purchase and how long your term will be, you pay your monthly or annual premiums and your life insurance is in force for the policy term you’ve chosen. If you pass away while the policy is in force, the insurer will pay your beneficiaries a lump-sum cash payment equal to the amount of insurance (the ‘limit’) you’ve purchased.
How Long Should My Term Be?
While a 5-year term will be the cheapest, it’s not always the best choice. You should pick a length that matches your needs. Let’s use 2 examples to show what we mean.
Example #1: A Young Family Expecting Children
Young families expecting children will usually purchase a term of at least 20 years - just enough time for the child to become independent and move out. If you’re buying for teenage dependants, maybe 10 years will be enough.
Example #2: A Family Taking on a Mortgage
A mortgage is a huge commitment, especially if you’re the main source of income for your family. If you pass away, how would your family pay off the mortgage? To mitigate this risk, most people will purchase enough term life insurance to cover the amounts owed and choose a policy term equal to the length of the mortgage (usually 30 years).
It’s also important to keep in mind that these policies are flexible so you can always tweak the length of your policy later on as things change.