Bill’s Blog | August 4th, 2022
So what is term insurance? Term insurance is a stated period (term) in which you want to have a specified amount of coverage. Example: Term 30 (years) and a $400,000 coverage. Insurance companies have become more creative over the last decade to meet almost every person’s needs. Most companies start at 50K or 100K and go up to 2M in coverage, but one can apply for even higher amounts in the right circumstances. Some companies offer customizable terms, like Terms 5, 7, 12, 22 or 65. Most offer terms 10, 20, and 30 up to term 100.
Why get life insurance in the first place? So, who might be an ideal client for term insurance? What are the pros and cons of term insurance? When should a person apply for life insurance, and when should they not? So, let’s answer these critical questions.
Why Get Life Insurance:
- You want to protect loved ones in the event of an untimely death. Both mom and dad should have equal coverage in most cases to avoid a dual crisis, the loss of a loved one and prevent a financial crisis.
- You have sizable personal debts (car, home, LOC, credit cards) or as a business owner with loans. Term insurance, in most cases, is a very affordable way to offset debt obligations.
- Lastly, what are your and my risk of death? Well, 100%! Unless you can self-fund a death and all its fallout, it is best to have adequate life insurance.
Ideal Clients for Term:
- Great for younger persons or young families due to its affordability.
- Insuring children protect parents, and a term product can be a low-cost solution. Also, it provides guaranteed insurability for the child in the event of a severe health issue.
- Funding a buy-sell agreement is critical in a business partnership. Term insurance is often the best solution for a growing business.
- In the mid to late ’50s or later, you want to ensure there are monies when you pass away for funeral costs and possibly leave a legacy to family or charitable organizations you want to support. I also use an insurer specializing in 60-plus term products, which is the benefit of being an insurance broker.
Pros and Cons of Term Insurance:
- Affordability until the early 50s.
- You can customize the term to meet specific objectives.
- Monies are paid out quickly after death tax-free and stay outside of the estate.
- Underwriting the policy is generally quick, 30 to 60 days, and sometimes within a few days.
- Peace of mind, knowing your wishes will be fulfilled.
- Cons: Premiums go up significantly in the 50s and beyond.
- If you received a critical illness before the policy expired and wanted to continue coverage when the term is up, you might not qualify, depending on the illness. Having some whole life insurance solves this issue.
When should a person apply for insurance, and when not?
- It is always preferred to get insurance when you are younger and healthy. Why? Insurance premiums are based on age, sex, activities, smoker/non-smoker and health status. Therefore, you will pay less for the term if you are younger and healthy and have no bad habits.
- When not to apply:
- You have a potential health issue that your physician is exploring and getting testing. Wait until you have a conclusion, and if there are no significant problems, apply for insurance.
- You are waiting for surgery. Again, wait until you are recovered and then apply, as there is no point in having a “Decline” on your record.
- If you are contemplating suicide, and I am not trying to be morbid or insensitive, there will be no coverage other than possibly premiums returned to the beneficiary. All insurers have a two-year clause related to suicide.
I hope this helps you understand the benefits of term insurance. If you need help, please reach out to me. I can serve anyone in BC.
PS, Please join us on August 20th (Saturday) at 10 AM PST for a special webinar with Mark Taucar (Active Portfolio Manager). Mark is a top Canadian portfolio manager with over 23 years of experience and understands market risks and what to do. I will interview Mark on his thoughts regarding the markets, and he will provide many insights. The webinar is forty-five minutes, with Q&A to follow. Please register through the Zoom link.
All the best,
Bill Westmacott, Owner