Term Life Insurance – Buy the term you need not just price

So often it happens when meeting with clients they are facing a steep price increase with their term life insurance. Far too often in Canada insurance adivser are selling clients the cheapest policy they can because it is the path of least resistance. Closing a sale and making a commission is not the job of an insurance agent. Getting the client the policy that best suits their needs is! If you are looking at term life insurance to solve a temporary financial risk, you need to look at the length of time that risk will last vs the price you will pay now. There is a large cost to you, the consumer, by not planning to get the proper term life insurance today.

Let me explain. Term life insurance comes in different term lengths. Most common are 10 and contracts term contracts. This means the policy will have a level premium or price for 10 or 20 years, guaranteed not to increase in price during those years. At the end of the term years the policy will renew. You are allowed to keep your coverage going, but for the next 10 or 20 years you will have to pay a new, much higher price. Based on your age the renew price of a term 10 policy could be as low as 4 times the original price and as high as 10 times the cost. This is why I advise my clients when buying term life insurance today to buy the term they need instead of being faced with a costly renewal.

Let’s take a look at how costly a term 10 policy can be if you need it for more than the first ten years. A young couple, both aged 28, just bought their first home. They expect to be able to pay off the house in 20 years but want to save money on their insurance premiums, so they buy a term 10 life insurance policy for $500,000 each for a total monthly premium of $32.50 per month. In the first 10 years the insurance only costs them $3,900. The renewal rate after 10 years is $148.75 per month. This is over four and a half times more costly than the original premium. The total cost for the next 10 years is $17,850. The total premium for the entire 20 years is $21,750 to both be insured for $500,000. If they had elected to buy the term 20 policy today the price would have been $43.65 per month.

This would total $10,476 over the full 20 years. This constitute a savings of $11,274 over the 20 years this young couple plan to pay down their house. That is over 50% of the premium in their pocket saved. So, what are your options for dealing with a short term life insurance policy? You will need to reapply for a longer term plan that more adequately suits your needs. If you buy the term you need up front then you won’t be face with the hassle of reapplying for coverage and having a nurse visit again with to take blood, urine, measure height and weight, etc. What if you have had a health problem in the mean time and can no longer qualify for life insurance coverage?

Then, your only option would be to keep your current term policy and pay the higher price. This is not an option most of us want to be faced with. There are more term life insurance policies out there than just term 10 and 20. Some companies, but not all, are offing 15, 25, 30 and even 40 year term life insurance policies. If you plan to pay off your mortgage over 25 or 30 years, there is a term life insurance plan to suit you. My advice again is to look at the length of time you will be at financial risk. How long will it take to pay off your mortgage or debts, raise your children, save for retirement, etc. This is the high risk years, and when buying term life insurance to protect against these risks, buy the term you need now and save money.