There are a lot of great reasons to consider putting a life insurance policy in place if you don’t already have one. Common reasons people buy life insurance include replacing income, paying off debts, providing for family members, and ensuring their business continues if they pass away. If you’re thinking about getting a life insurance policy or adding to what you have, you might be wondering how term life insurance can benefit you. In this article, we’ll explore the top 5 benefits of term insurance and look at how a certified financial planner can help you get the best life insurance for your circumstances.
Term Life Insurance
Term life insurance differs from a whole life policy because you buy it for a specific amount and a specific period, rather than for life. You can typically choose a term between 5 and 50 years.
Another option is a Term 100 policy. Term 100 is actually a type of permanent life insurance because it stays in place until you reach 100 years of age. However, premiums are typically lower than other types of permanent life insurance because there is no investment or cash value component.
Life insurance is a financial tool you can use to protect your loved ones and estate. Amounts usually start at $50,000, but can go up to $1,000,000 or more depending on the policy.
How you incorporate it into your financial plan depends on your needs. There are several reasons you might want life insurance for a term instead of for your entire life. Five benefits of term life insurance are:
- You can have it for as long as you need it
- Premiums are more affordable than a whole life policy
- It’s a low-maintenance product
- You have options when it expires
- It provides a tax-free payout to your beneficiaries
Do you need life insurance forever?
Some people want a life insurance policy in place until they pass away, while others want it only to cover specific needs. You might want your life insurance policy to pay off outstanding debts like a mortgage if you pass away, or cover the costs of childcare and education until your children are adults. You may not need life insurance once those needs change. In these situations, you can buy the amount of coverage you require for the amount of time you want it.
Affordable premiums
Term policies typically have lower premiums than whole life policies, making them more affordable. The lower premiums are partly because term life offers no investment component and has a fixed term. A whole life policy could remain in effect for a much longer period, since it’s meant to cover your entire life.
An additional benefit is that your premiums are, in most cases, fixed for the entire term of the policy. You’ll know exactly how much to budget each month for your payments.
Low maintenance
A term life insurance policy does not need monitoring or maintenance, apart from paying your premiums. You’ll need to know when it expires, but the company will usually notify you if your policy is due to end. At that point, you’ll have options regarding what you’d like to do.
Flexible options
One key benefit of a term life policy is its flexibility. You can have multiple policies to meet different needs. Additionally, when the policy expires, you can renew it (although the premiums will be higher). You can apply for coverage under a new policy instead to change your term or amount. Some policies allow you to convert your term life to a whole life policy without a medical exam if your needs change.
Tax-free death benefit
If your life insurance policy is in effect when you pass away, the proceeds are paid to your estate or beneficiaries on a tax-free basis. The beneficiaries can use the funds as they wish, including paying for funeral expenses, repaying debts, or covering outstanding taxes.
Another option is to use life insurance proceeds to replace lost income. Many households rely on two incomes to cover their costs. When one person passes away, that income is lost. The reduced income may force the surviving spouse to sell assets or make major lifestyle changes, which can be extremely difficult while grieving.
Term insurance can bridge the gap left by lost income for a set period. If, for example, your net household income is $100,000 and you contribute $50,000 of that, a $250k policy can replace your income for 5 years.
Disadvantages of term life insurance
Term life insurance is a great solution for many, but might not be right for you. Some drawbacks you need to consider are:
- The policy does expire, possibly leaving you without insurance when your family needs it
- Premiums typically increase upon renewal
- There is no investment or cash surrender value component, so you can’t use it for future savings or as collateral for a loan
How To Get The Best Life Insurance For Your Needs
If you’re asking yourself, “Should I get term or whole life insurance?”, or have questions about which would best suit your needs, a certified financial planner can help. Life insurance is an important part of your financial plan and can be a valuable tool for achieving your goals. Our certified financial planners at MDL Financial Group will work with you to determine the best fit for your needs. Our team has been serving the Ottawa area for more than thirty years, helping clients achieve their dreams. Please contact us online or by calling 613-416-9649 to book a discovery call.
We look forward to working with you!
If you liked this article, here are three more you might enjoy:
https://mdlfinancialgroup.ca/estate-planning-strategies-to-reduce-estate-taxes/
https://mdlfinancialgroup.ca/seven-key-components-of-a-financial-plan/
