Know The Advantages And Disadvantages Of Term Life Insurance In Ontario
Term life insurance is the simplest form of life insurance offering death protection for a specified time period at a fixed rate.
The term ends after the specified period gets over, and after that, the policy needs to be renewed at a higher rate.
When should you opt for a Term Life Insurance plan?
Term Life Insurance is the best fit for people in need of temporary life insurance. It is also well-suited for young individuals starting a family in their 20s or early 30s when they are short of cash with possible mortgages.
- If you have a mortgage, you may opt for a Term Life Insurance plan in Mississauga and Toronto, Canada, so you can leave enough money to pay it off in case of your death (we are assuming that you do not have a separate mortgage life insurance).
- If you have started a new family with young children to provide for with the cash running now, Term Life Insurance is the best option for you.
- If you think you don’t need coverage for your entire life, Term Life Insurance is again your best option to go for.
Term Life Insurance – The Advantages
- It is simple
Term Life Insurance is really simple to understand.
As the rates are typically low, this makes it easy to shop around. You will just need to make 3 choices to opt for this insurance – the amount of coverage, the term period, and the insurance company (an experienced financial advisor can help you make these decisions wisely based on your current circumstances and budget).
As long as you are paying your premiums on time, you will definitely get the coverage.
- Biggest value for money if you are young
All life insurance policies include a mortality charge for death benefit. Insurance companies pay this benefit by statistically determined mortality charges, no matter whether you are signing up for a whole, universal, or term life policy.
Individuals looking for maximum death benefit with minimum investment should opt for Term Life Insurance (this works exquisitely well when you are in young in your 20s or early 30s) because other insurance policies have other charges for additional features.
- It is inexpensive
Term Life Insurance premiums are more affordable than other life insurance policies.
The premium correlates directly with mortality charges. Mortality charges are interconnected directly to the policyholder’s likelihood of death.
Hence, young individuals can easily secure low premiums – the younger you are, the better it is going to be!
Permanent Insurances like Whole Life Insurance plans are costlier in comparison but they do come with other key benefits.
- Individuals in need of temporary coverage can benefit substantially
Individuals requiring a cover for a definite period of time can benefit tremendously from a Term Life plan.
For e.g., if you need a coverage for 15 years, a Term Life policy can help significantly.
Term Life Insurance – The Disadvantages
- Limited coverage
This is the major problem with Term Life Insurance.
You may have a hard time determining how long you need the policy for because you cannot predict the future.
What if a scenario comes where you may think 20-years coverage is enough, only to realize that you need additional years of coverage when your policy is nearing the expiry date?
A renewal is costly. And then if you are not young anymore, say in your 60s, you will have to go through additional medical exams and your premiums will skyrocket.
- Escalating premium amounts
Another huge problem!
The premium rises every year. This is because as one gets older, his chances of death and sickness rise. As a result, the premiums rise.
For young policy holders in 20s and early 30s, this is not a problem. But it heavily disregards old individuals in their 50s and 60s.
- No cash-value
Many people prefer to grow their wealth along with their life insurance policy. The very idea of having a 30-years policy and then outliving it, seeing it expire may seem like a total waste of money. But then, this is exactly what happens with Term Life Insurance.
Alternatively, you get a capital build-up option with other permanent insurance policies like Whole or Universal Life Insurance.
The death benefit and term cover of Term Life Insurance are set on stone. You cannot change anything on the contract.
Other life insurance products, on the other hand, are very flexible where you may choose to adjust premiums or the death benefit.
- No tax benefit
Every dollar you pay on your term life insurance plan is taxed.
Permanent insurance plans allow you to pay your charges out of their asset or saving components, that grows tax-free.
So, what should you opt for between Term Life and Permanent Insurance policies?
It all depends on your age, requirements, budget, liabilities, and current financial condition. A need based analysis needs to be done before coming to a decision.
Our experienced financial advisors backed by 30 years of experience in the field of insurance and investment can help you come to a feasible decision. Get in touch with us now!