Usage Of Term Insurance
Family Protection
Canadians have several usages for term insurance. Term insurance can be used to fulfill several obligations. There is one major usage of term insurance. That is family protection. Term insurance ensures financial stability for the family. People generally want their loved ones to lead a stable life even after they are gone. But many young families cannot afford to pay the expensive premiums needed to maintain permanent life insurance policies. Term insurance offers such families a good solution. Term insurance policies are relatively inexpensive when compared to whole life policies. The cost of premium payments is also low when compared to permanent life insurance policies. The surviving spouse and minor children will have funds to live on. This is one of the main usages of term insurance.
Supplement a permanent life insurance
Another usage of term insurance is that it can be used to supplement a permanent life insurance policy. Even if a person already has a permanent life insurance policy, a term insurance policy can be used to get added benefit and protection. The term insurance policy can also be used to cover additional needs that may arise unexpectedly.
Money From Term Insurance Can Be Used For
Medical expenses
The money from the term insurance can also be used to pay for any medical expenses incurred by the surviving family members. The policy holders can also enjoy the benefits of term insurance if the policy matures during their lifetime. Else, they can rest easy knowing that their family members would be well cared for even after their lifetime is over.
College education
The money from term insurance can be used to pay for the college education of the children of the policy holder. Proper planning would ensure good education for the children of the policy holder, even if he/she were to die prematurely. If the insured party is the main source of education funding in the family, his/her death could throw the surviving children’s lives into disarray. They may even be forced to join work without completing their education if there is no term insurance to help them get through college. The money from term insurance can be used to pay for college tuition fees. This is another important usage of term insurance.
Mortgages and other debts
One more usage that Canadians have for term insurance is that they can use it to pay off mortgages as well as other debts. The short term life insurance policy can be used as an asset to cover any debt obligations. For example, if the insured party has 15 years left on his/her mortgage and has a twenty year term policy and dies before paying off the mortgage, the term insurance policy will be sufficient to cover his/her debts. The amount of money used for this purpose is decreased from the death benefits. As the short term life insurance money is used to pay off debts, the resulting death benefits will be lesser. Another usage of family members that you may come across in term insurance is that it is used to meet any capital expenses that the policy holder’s family members may come across.
Uses Of Term Insurances To Businesses
Clear debt obligations after the business owner’s death
The usages of term insurance are not restricted to individuals alone. Businesses in Canada also find several usages for term insurance. If the business in question is a sole proprietorship, short term life insurance policy is taken on the business owner’s life. The proceeds from such a policy are used to pay for any expenses incurred at the time of the business owner’s death. The term insurance policy can also be used to clear any debt obligations faced by the business after the business owner’s death.
Insure the life of a key employee
In the case of incorporated businesses, term insurance is used to insure the life of a key employee, such as a top level employee, a sales manager, a project leader, a research scientist or a system administrator. In the business world, such policies are known as key man insurance. Such policies are generally purchased by Canadian businesses in order to provide funds in case the key employees die. Sometimes, companies incorporate term insurance schemes into the salary structure of employees in order to motivate them to stay with them. This will also motivate the key employees to perform better knowing that the company would take care of them. The cost of the premium is split between the employer and the key employee on whom the short term life insurance policy is taken.
Useful for partnership firms
Term insurance also finds usage in case of partnership firms. Buy/sell agreements are created by the partners. In case of a partner’s death, the rest of the partners buy out the deceased partner’s share of the business using the buy/sell agreement. The money from the deceased partner’s term insurance is used to finance such a buyout.
Save money for employees’ retired lives
Canadian companies also provide a scheme called deferred compensation to their employees. This scheme enables employees to reduce their salary in order to save money for their retired lives. Term life insurance can be used to fund such schemes.
Provide donation or gift to charity
Tem life insurance also finds usage in charity. Canadians use term insurance to provide the funds they need in order to give a donation or gift to charity. Term insurance policies also have optional provisions which are very useful. These optional provisions, also known as riders, can be availed on payment of additional premium. This optional rider will ensure that premiums are waived if the policy holder meets with an accident and is totally disabled. But the benefits will not be affected. This is one more area where term insurance finds usage.
Convert to whole life policies
Term insurance policy holders can renew their policies at the end of the term without having to show that they are still insurable. This is one more use of term insurance. Term life insurance policy holders can convert their policies to whole life policies without having to prove that they are in good health. This is one more usage of term insurance.
Other usages of term insurance
Term life insurance has another important usage. In case the insured party dies in an accident, his/her heirs are paid double the benefit amount usually paid if the insured party dies of natural causes. The movie “Double Indemnity”, in which the heroine tries to collect double the amount as death benefits, is based on this concept. This is an important use of term insurance.
When an insured party becomes disabled and is unable to work, he/she is permitted to stop paying premium on his/her term insurance policy. Coverage will continue unaffected. If the insured party has signed for an optional provision, it will cover the cost of the premium. This is another important usage of term insurance in Canada.
Term insurance in Canada has another important usage. If the insured party is considered to be terminally ill, part of the benefits are paid when he/she is still alive. This amount could help the insured party to pay medical bills without having to depend on anyone. This allows the insured party to live the last moments of his/her life with dignity. When the benefit amount is paid on time, it could possibly prolong the insured party’s life by a few more months.
It can be seen that term life insurance has several usages in Canada. Insurance companies in Canada can make a handsome profit by marketing term insurance. The usages of short term life insurance can be highlighted while advertising the product. Customers can be attracted from all walks of life as term insurance is pretty affordable.