What is term life insurance and how, exactly, does It work?


What is term life insurance?

The basics of life insurance are as you guessed: You pay small amounts of money over a length of time and, when you die, money is left for your family.

Term life insurance is one of the many types of life insurance available in Canada. As simple as its name implies, term life insurance provides coverage based on a set period of time, usually a 10-year, 20-year or 30-year term. 

Many opt for term life insurance because it offers low-cost coverage for a certain amount of time, and it is generally well-suited for covering debts with a known lifespan, like a mortgage. Generally speaking, premiums can range from $13 a month to more than $100 a month for $100,000 of coverage, depending on a wide range of factors, like your age, health and lifestyle. If you are a 30-year-old healthy individual, you may be closer to the lower end, versus the other end of the spectrum as a 60-year-old smoker.

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Term vs whole life insurance

Term and whole life insurance are two types of life insurance. “Each option offers its own benefits, and the coverage that would be recommended would depend on the reason the insured is seeking life insurance,” explains Adam Mitchell, president of Mitchell & Whale Insurance Brokers Ltd. in Whitby, Ont. 

If you’re looking to cover debt with a timeline—for example, ensuring the mortgage on your family home can be paid off if you pass away—term life will be a better low-cost option. But if you want premiums that stay the same, and to build a cash value you can borrow against or withdraw from before you pass, whole life may be your better bet. 

Should I buy 10- or 20-year term life insurance?

Mitchell says the answer would depend on what the insurance is intended to cover. If it is a short-term debt obligation that will be over in 10 years or less, the 10-year term may be more beneficial, as it will offer the coverage you need at a lower premium. If the obligation may last longer than 10 years, the longer term may be more beneficial, as the insured would keep the same premium for 20 years instead of having to renew at an older age (after the first 10-year term). Choosing the longer term to start may keep the total cost of insurance lower overall. 

Comparing term life insurance quotes

Your health, age and gender play critical roles in determining what the cost of term life insurance will be for you. The below table gives an idea of the price averages, based solely on the length of the term. To save money on term insurance, you are likely to get the best deal if you buy when you are young-ish and when you’re in good health. 

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