The Importance of Term Insurance for a Stress Free Financial Future
December 23, 2021
Life insurance is one of the most important things that you can invest in to protect your family in the event that you pass away. While there are several different types of life insurance, the one that is most commonly invested in is term life insurance thanks to its immediate affordability.
How Does Term Life Insurance Work?
Term Life Insurance is perhaps the easiest type of life insurance to understand. The policyholder is insured for a set amount of money (benefit) for a set amount of time (term). If the policyholder dies during the term, their beneficiaries receive the benefit tax free.
If the policy holder outlives the term, the insurance policy must be renewed (at a higher cost since the policyholder is now older), or the policy simply expires. For this reason, term insurance is best suited for short term needs such paying off a mortgage or paying for a child’s education. It can also be a good option for those who may not be able to afford as much permanent insurance as they need but who still want some added protection in the short term.
Most term insurance policies are either Term-10 or Term-20, meaning that their terms are ten and twenty years respectively however some insurance companies may offer other term lengths as well.
What Are Some Common Uses for Term Insurance?
As mentioned, term insurance is most appropriate for short term needs – i.e. needs that you will only have for the next ten to twenty years. The following are a few common uses for term insurance:
Paying off a mortgage –
if your amortization period on your mortgage is 20 years or less, then term life insurance can be used to pay off the balance of your mortgage should you die before it is paid off. This is an excellent way to protect your family and ensure they will still be able to live in the family home in the event that you are not here. Term life insurance is also often more affordable than the mortgage insurance you might get through your bank.
Paying off a mortgage –
A term life insurance can by used to ensure that your kids’ education is taken care of in the event you pass away before they go to college or university. Since your kids will be grown in 20 years, this is a short term need and term life insurance is therefore adequate.
Use as a Stop Gap if you cannot afford permanent insurance –
Initially, term insurance is less expensive than permanent insurance. Many people who are just starting out may not be able to afford as much permanent insurance as they really need – so term insurance can work in the interim. If you are using term insurance as a stop gap however, you should speak to your broker about helping you develop a plan to switch over to permanent insurance.
Would you like to learn more about term insurance? Contact us today to speak to one of our brokers.