Features Of Term Insurance
Valid Only For A Period Of Time
Term insurance is a form of life insurance. It is temporary in nature, unlike permanent life insurance, where coverage continues throughout a person’s lifetime. Term life insurance has several key features. First of all term insurance is valid for only a particular period of time. The period varies depending on the policy. A person living in Canada can purchase a term insurance policy covering a period of fifteen years, twenty years or even twenty-five years. If the insured party dies before the term of the policy comes to an end, his/her surviving spouse and children will be entitled to the death benefits from the policy. If the insured party is still alive at the time of maturity of the term insurance policy, he/she is entitled to the monetary benefits stated in the policy. This money can be used for any purpose by the insured party. It can be used to make investments, pay medical bills or to pay for the children’s college expenses.
Relatively Inexpensive
Another feature of term insurance in Canada is that it is relatively inexpensive when compared to permanent life insurance. Not everyone can afford permanent life insurance with its higher premium rates. For young families who wish to save money and at the same time wish to have some coverage, short term insurance is the ideal choice. Term insurance policies have lower premium rates. The amount that has to be paid as premium also remains level during the entire period of time for which the term insurance policy is valid. Inflation and other aspects do not result in premiums becoming more expensive in the case of term insurance policies. This type of insurance is ideal for people who want coverage for a particular period of time. People who have budget constraints and cannot afford to spend a lot on insurance can also go in for term insurance. Term insurance is also ideal for those Canadians who wish to have coverage for their children at a lower rate of premium. When the policy matures, the children can use the money to pay off their student loans.
Renewability Options
Another feature of term insurance is that the term insurance policies are renewable. Most term insurance policies in Canada have a provision for renewability. The policy holder can renew the term insurance policy at the end of the term for the same coverage or less, depending upon his/her needs. The policy holder need not go in for another medical examination at the time of renewal. There is no need to prove that he/she is still insurable. This is one of the key features of term insurance in Canada. This feature makes term insurance user-friendly. The convenience factor involved in the renewability option can be used by Canadian insurance companies as a Unique Selling Proposition while marketing their term insurance policies. Term insurance policies can prove to be a better profit maker for Canadian insurance companies than permanent life insurance policies. Term insurance can be targeted towards more segments of the population.
Conditions For Term Insurance Renewal
Though renewability is a great feature of term insurance, some conditions are involved. When the term insurance policy is renewed, the premium becomes more costly. The rate of premium is based on the age attained by the policy holder at the time of renewal. Each time the term insurance policy is renewed, the policy holder is a little older than before. The risk of mortality also increases with age. This is the reason why coverage is more costly when the policy is renewed. Even though the rate of premium is increased when the term policy is renewed, it still remains cheaper than permanent life insurance policies. The fact that the policy holder need not prove his/her medical fitness again is in itself a feature unique to short term insurance policies. A term insurance policy can be renewed any number of times. But the premium rate increases at the time of each renewal.
Convertibility Options
Another important feature of Canadian term insurance is convertibility. Some insurance companies in Canada have a provision in their policies which allows the policy holders to convert their term insurance policies to permanent life insurance policies if they desire to do so. The policy holders who wish to convert their short term insurance policies to permanent life insurance policies need not go in for a medical examination again at the time of conversion. They do not have to prove that they are still insurable. But this feature is not provided by all Canadian insurance companies. The companies that provide the convertibility feature charge a higher rate as premium.
Conditions For Conversion
The convertibility feature of term insurance policies comes with several strings attached. Certain conditions apply when a policy holder wishes to convert his/her term insurance policy to a permanent life insurance policy. These conditions are put in place in order to limit the privilege of convertibility. Most insurance companies prohibit conversion once the policy holder reaches a certain age. For example, Canadian insurance companies prohibit policy holders who are over the age of seventy to convert their term insurance policies to permanent life insurance policies. Some companies prohibit policy holders to convert their term insurance policies to permanent life insurance policies once the policies have been in existence for a certain number of years of the policy’s term. For instance, most Canadian insurance companies prohibit conversion if a ten year term policy has been in force for seven years. Policy holders who are under the age of seventy have every right to convert. Policy holders whose policies have not been in force for long can also convert their term policies to permanent life insurance policies. Young families initially would not be able to afford the premium rates for permanent life insurance policies. They might have purchased term policies at that time. When they are able to afford the premium rates of permanent life insurance policies, they can convert their term insurance policies to permanent life insurance policies.
When a term insurance policy is converted into a permanent life insurance policy, a new permanent life insurance policy is issued. The premium rate is also higher than that of the original term insurance policy. This is so because unlike term insurance policy, a permanent life insurance policy builds cash values. Also, the attained age of the policy holder is higher than when the original term insurance policy was issued. When the policy holder grows older, the risk of mortality is higher. This is the reason why coverage is costlier when the term insurance policy is converted into a permanent life insurance policy.
The features of renewability and convertibility are not automatically incorporated into every term life insurance policy. The provisions of renewability and convertibility are included when the policy is purchased. These features are included in the term insurance policy when the policy holder requests such inclusion. Only policy holders who are ready to pay a higher rate of premium for including the convertibility option in their policies request the insurance companies to include this feature. The feature of renewability does not include any additional premium at the time of issue but when the policy holder renews the term insurance policy, the rate of premium increases. Only policy holders who are ready to bear such additional costs ask the Canadian insurance companies to include such features.