Term Insurance For Canadian

Similar To Other Types Of Insurance

Term insurance, for all intents and purposes, works just like the other types of insurance. Insurance companies in Canada will satisfy only those claims which are made against what is insured. Term insurance works just like auto insurance or home insurance. An automobile owner insures his/her automobile against accidents. The insurance company will settle the claim if the automobile is damaged or destroyed due to an accident. If the automobile owner sells the vehicle and discontinues the auto insurance, the insurance company is not liable to settle any insurance claims due to accident. The premium amount paid so far by the policy holder will not be refunded. Similarly, a home owner will insure his/her home against earthquakes or floods. The insurance company will settle the claim if the home is damaged or destroyed due to an earthquake or a flood. If such calamities never occur, the insurance company is not liable to pay anything. The premium will not be refunded. Term insurance also follows the same principle. It is a form of risk management.

Term Insurance Premium Conditions

If the short term life insurance policy holder discontinues the term insurance policy, the amount of premium paid so far will not be refunded. The policy holder is not entitled to get any coverage whatsoever after the term insurance policy has been discontinued. If the term insurance policy holder forgets to pay the premium, the same thing happens. The term insurance policy becomes invalid. The policy holder does not get any coverage and the premium paid so far will not be refunded. On the other hand, if the policy holder pays the premium amount regularly and keeps the policy up to date, he/she is entitled to get the benefits when the term insurance policy matures. In case the policy holder dies during the term of the policy, his/her beneficiary will get the death benefits. This money can be used to pay off mortgages and debts and settle funeral expenses. It can also be used to pay for children’s college education.

Different Types Of Term Insurance

Level Term Insurance

There are different types of term insurance policies. Each type of term life insurance policy works in its own way. The most popular type of term insurance policy is the level term life insurance policy. In a level term insurance policy, the rate of premium remains the same throughout the term of the policy. This policy is relatively inexpensive. The policy holder gets the benefits once the level term insurance policy matures. If the policy holder happens to die during the term of the level term insurance policy, the death benefits are paid to his/her beneficiary. When the level term insurance policy matures, it can be renewed for a further term if the policy holder wishes to do so. There is no need for the level term policy holder to prove that he/she is still insurable. But when the level term insurance policy is renewed, the rate of premium increases. This increase is based on the age attained by the policy holder at the time of renewal. The reason for the increase in premium rates is that as the policy holder grows older, the risk of death is much higher. The policy holder has to pay a higher rate of premium in order to enjoy the coverage.

Some insurance companies in Canada include the convertibility option along with the level term insurance policies. This option allows the policy holders to convert their level term insurance policies to permanent life insurance policies like whole life policies or endowment policies if they wish to do so. Some people may not be able to afford the high rates of premium in permanent life insurance policies. Such people would have purchased level term life insurance policies. When they are able to afford the premium rates of permanent life insurance policies, they can use the convertibility option and convert their level term insurance policies to permanent life insurance policies.

Decreasing Term Insurance Policy

Another type of term insurance policy is the decreasing term insurance policy. This policy provides a decreasing amount of coverage during the term of the policy. The death benefits involved in a decreasing term policy may begin at a certain level and will start to decrease over the years. The rate of decrease is calculated by a formula which is included in the decreasing term insurance policy. This type of term insurance policy is not very popular. It works according to the formula and does not give much monetary benefits.

One Year Term Policy

Another type of term life insurance policy is the term policy which is taken for a one year term. This policy seems simple enough, but the way it works could lead to a lot of complications for the policy holder. This policy is purchased for a one year term. Premium is paid for one year only. The coverage is also for only that one year for which the policy is valid. If the policy holder dies within the one year term of the policy, death benefits are paid to his/her beneficiary. But if the policy holder happens to die just one day after the policy term is completed, his/her beneficiary is not entitled to get any death benefits. This is a major complication in one year term policies. If the policy holder wants to renew the term policy on completion of the one year term, he/she has to prove that he/she is still insurable. A policy holder may contract a terminal illness during the one year term of the term policy, but may not actually die during the policy term. The policy holder may wish to renew the short term life insurance policy. In such a case, the policy holder will have to take the medical examination again in order to prove that he/she is insurable. A terminally ill policy holder will not pass the medical examination and cannot renew the term insurance policy. This is another complication involved in one year term insurance policies.

Annual Renewable Term Insurance

Yet another type of term insurance policy is known as Annual Renewable Term (ART) insurance policy. This policy works in a manner which is slightly different form the other types of term insurance policies. These policies must be renewed annually. The rate of premium increases every year. A policy holder can renew such a term policy every year for a specified number of years. The number of years for which such term life insurance policies can be renewed ranges between ten and thirty years. Sometimes, the ART policy can be renewed until the policy holder attains the age of ninety-five. But this is allowed very rarely. Very few insurance companies allow the policy holders to renew their policies till they attain the age of ninety-five. With each renewal, the rate of premium increases. This is so because with each renewal, the policy holder grows a little older than the previous year. The risk of mortality increases with each advancing year. So, the policy holder must pay a higher rate of premium at each renewal in order to enjoy the coverage. ART policies sometimes prove to be financially unviable as the premium rates keep increasing. At a certain point, the rates will start equaling the premium rates of permanent life insurance policies. Policy holders may find it difficult to maintain ART policies. This type of term insurance policy is not as common as the level term insurance policy.