Q – My husband and I have just had our first child. We are in our early 30s and have a very large mortgage and substantial credit card debt. My husband was recently laid off, and we are strapped for cash. We know we need insurance, but permanent insurance is very expensive. What do you think of term insurance? – Olivia D., Niagara Falls, Ontario
A – Life insurance is a very important investment, especially if you have a growing family. There are many benefits to term insurance, but you must keep in mind that this type of insurance covers a specific “term” as specified in the insurance contract, say 10 years, after which it may be renewable, typically at a higher premium. It does not last for your lifetime, as “permanent” insurance does.
Term life insurance is the most basic and least expensive (at least in the early years) of insurance policies. It ensures that a specified sum of money will be paid out to your beneficiaries if you die during the term of the policy. This money can be used to pay off the mortgage, credit card bills, children’s education, or for whatever you need. The term can range from 5 to 30 years, and the premium will remain the same for the term you have specified. If you or your beneficiaries do not make any claims during the term of the policy, in most cases, the policy will expire worthless.
In my opinion, term life insurance is appropriate for the average person looking to insure themselves against unforeseen events. It is similar to car insurance. You pay car insurance to protect yourself in the event of an accident, but if you don’t have an accident, the insurance company is not going to give you your money back.
Most term polices can be converted into permanent life insurance policies later in life without proof of medical insurability, but you will be paying the premiums at the attained age. Providing you qualify, term insurance will give you the coverage you need now. In the future, when your cash flow is more substantial, you can look at converting to a permanent policy, such as whole life or universal life, if it suits your needs. – Robyn