Both Term and Permanent insurance policies use the exact same mortality tables for calculating their respective premiums. However the cost of the two types of policies is much different because Term policies increase as the insured ages and Permanent policies generally provide a level costs for life.
The simplest form of Term insurance is Annual Renewable Term insurance. Under this type of policy the premiums would increase on an annual basis.
The Term insurance marketplace has evolved over the last half century. Many insurance carriers now offer term policies of multiple lengths. Industrial Alliance recently introduced a Pick-a-Term policy which allows the insured to choose a Term policy from 10 to 40 years.
The concept of “Buying Term and Investing the Difference” implies that the money the applicant saves in purchasing a Term policy will be applied to a separate savings account. The advantages of buying a Term policy are the following:
Lower initial premiums. The applicant can apply the savings into a retirement account or the money can be used to help pay down debt.
Term insurance may be the only feasible way for many individuals to adequately protect their family.
Term policies are very simple to understand. The insured’s premiums are fixed for a stated Term.
Most Term policies are convertible. This means the insured can convert the policy without a medical to a Permanent plan. However it should be noted the cost is based on the insured’s age at the time of conversion.
As previously mentioned Term policies escalate substantially in cost as the insured ages and “Buying Term and Investing the Difference” does carry several distinct disadvantages:
Industry studies have shown that the probability of filing a claim under a Term insurance policy is less than 2%.
Many Canadians still have mortgages and other debts into their 50’s and 60’s and the cost of maintaining a Term policy can be prohibitive.
Term policies do not have a cash value. Therefore if the insured misses a payment the policy will lapse in 30 days.
While the concept of “Buy Term and Invest the Difference” has some merit many consumers simply do not follow through and they are left without life insurance or savings.
The bottom line – each individual has their own unique needs and priorities. An independent broker can work with the insured to design the best plan for his/her situation. You can compare for yourself in the comfort of your own home by visiting our instant on-line quote calculators Term Insurance and Whole Life Insurance.
