The well-known and lesser-known benefits of term life insurance

Ashleay: Welcome to the “In Your Interest!” podcast. My name is Ashleay and this week we’ll be talking about term life insurance with Liz Bradley, Life Insurance Sales Manager. Hello, Liz!

Liz: Hi, Ashleay. Nice to be here.

Ashleay: Great to have you. So, Liz, you’ve been in the insurance industry for over 20 years now. Could you tell us what you consider important to understand about term coverage? Why do you think it continues to be such a popular solution?

Liz: Thanks so much, Ashleay. Absolutely. I love the insurance industry overall. And term insurance is, I think, incredibly flexible, can be very affordable and suit a variety of needs. The great thing about term insurance is that it’s life insurance that covers somebody for a certain period of time. If somebody were to die prematurely during that period, their beneficiary would receive a tax-free payout for the amount of coverage they chose. You know, it’s traditionally a very popular product among young families or new parents, who might want to cover their child’s dependency period up to the age at which would likely leave home.

Ashleay: Yeah!

Liz: And definitely for mortgage holders, if somebody has a loan or is buying a home and they want to cover off the mortgage balance, don’t want to leave their dependents with something owing, which is incredibly important. And there’s a variety of other clients who would find it useful, a few of whom I know we’re going to talk about today. Before we get into some examples of client for whom it’s relevant, some of the key things to keep in mind with term insurance is that it is incredibly flexible: you can choose the length of coverage—anything between 10 and 40 years—so it’s very adaptable to a client’s needs. And the affordability factor is huge: you know, where permanent life insurance can cover you for your entire life, term insurance only covers you for a fixed period. So this lets you to benefit from higher coverage at a lower cost, easily fitting into a variety of budgets. It’s also very simple and straightforward. The price and the coverage are guaranteed and not going to change for the entire term that you’ve locked in. And later on in life, you have a variety of options. That’s where more flexibility comes in, as well. You can renew the term, you can convert it to a permanent product, and, in some cases, you can even convert a term to another, longer term as well.

Ashleay: Very interesting. And so now that we’ve covered the basics, what are the lesser-known qualities of the product. Could you tell me more about that?

Liz: Absolutely. You know, one of my favorite things about it, which I feel pretty passionate about, is locking in something called our “insurability.” We can often take for granted our health and our ability to qualify for insurance. But when you take out term insurance, quite often you’ll be younger, looking for a good deal on coverage, since budget is top of mind for many young people. As you get older, your budget may increase as your income grows, and you may be looking to either extend your coverage beyond the original term or convert to a more comprehensive life insurance product. So, when you open that term policy when you’re younger, you’re effectively locking in your state of health for the future. And I cannot stress enough how important this is. I see it every day in our industry, where people just can no longer qualify for coverage. So as an example, let’s say you open your term policy when you’re 30 years old. At that age, hopefully you’re fit, healthy, you know, generally you’re more likely to be in good shape, which means it’s not as difficult to get term life insurance at a really great price. Unfortunately, as life goes on, we might develop some health issues, lifestyle factors that could jeopardize our eligibility for life insurance or affordable life insurance, which is pretty important. But, in this example, the fact that you opened your term policy when you were 30 and healthy, means your eligibility when renewing your term or converting it into permanent life insurance will be based on your health when you first applied and locked it in; as opposed to your state of health when you are older, say age 50 or 55. So overall, this is a huge reason and a great plus in favour of term life insurance: to be able to lock in your health today at a lower price to ensure you continue to have access to coverage when you’re older. When the term policy is renewing or being converted to permanent, it can become a lifelong product that you were able to lock in well in advance, at a better rate and in better health.

Ashleay: I do believe there’s a second item about this that’s very interesting as well. I don’t know if you want to talk to us about decreasing coverage.

Liz: Absolutely. This is a really incredible feature available with term insurance, which adds to its flexibility. Basically, what decreasing coverage means is that, as time goes on, the amount that would be paid out if you were to die decreases by a small amount every year, ending up as low as 50% of the original face amount. And guess what? The good news here is that it means your premiums, or the monthly amount you pay for your coverage, is going to be lower as well. A great example to really show you why I like this feature so much is in the case of covering a mortgage or loan. So, let’s say somebody takes out a mortgage of $400,000, and for simplicity’s sake we’ll say they take out a term life insurance policy to match that loan amount. Halfway through the term of the mortgage, the balance of the loan will be around $200,000, give or take. At this point, is it still necessary to pay for a term insurance policy that would pay out the full $400,000? In some cases, yes, absolutely: if they want to leave something behind for dependents or to cover expenses, for example. But for those who are very budget-conscious and who want to keep the cost of insurance to a minimum, they can pay for only the coverage they need, which allows them to reduce their coverage down to half of the original amount like they would be doing with the loan. So, in this example, that would be $200,000. That way, if they were to die prematurely, they would leave only the amount required to pay the balance of the mortgage or the loan, and overall would have paid much less in premiums.

Ashleay: And are there any other characteristics apart from these two?

Liz: You bet; there’s always more to talk about when it comes to insurance. With this term, what adds to that customization for your client—really making it flexible, again—is the ability to add something called a rider. And that can cover risks like critical illness or disability or 16 other additional benefits that could be added to a policy, without any policy fees. That way, with the help of your advisor, you’re able to bundle and build an insurance solution specific to you, which accounts for your particular lifestyle and circumstances. And lastly—and I know people will definitely appreciate this one—is that today in the industry, often you can go without the need for paramedicals, fluids and a nurse coming out to visit, based on today’s technology and underwriting. Meaning many cases can be approved instantaneously—which is a huge advantage—depending on a client’s age and the face amount they’re applying for. So I’m going to circle back to that example I gave you earlier: somebody looking to cover their mortgage or a loan (but in this case, let’s look at a mortgage). So typically, we’re going to look at a term of 25 years on a mortgage (it could be longer, but for this example let’s do 25 years) and let’s also say that that individual is a 30-year-old healthy woman who does not smoke, lives in Ontario and is looking to get $400,000 to cover off her mortgage needs.

Ashleay: Right. So how much do you think she should pay monthly for this coverage?

Liz: I know it’s going to surprise you, Ashleay, but it’s only going to be $26.28 per month.

Ashleay: Wow! Okay.

Liz: Isn’t that incredible? It’s so affordable. And plus, if we do want to keep in mind every dollar and we want to consider decreasing coverage like I talked about before, that monthly premium goes down to $20.52. So, there’s incredible affordability there. And we can even look at increasing that coverage amount—because it is so affordable—to cover off additional needs. So that same client, if we wanted to change the coverage to $600,000–perhaps they have a bigger mortgage or they want to also cover off anything for dependents in the future and leave behind a little bit more—bumping up that face amount to $600,000 would only be another $7.74 per month.

Ashleay: Wow!

Liz: I know. It just blows my mind. Young and healthy term insurance is so powerful. Now, if we go to the other end of the scale, if the goal is simply to cover the dependency period of a child, the same person could obtain $100,000 of coverage with a term 20, and that’s only $10.26 per month.

Ashleay: Oh, wow.

Liz: Twenty-six cents. Ha-ha!

Ashleay: Right.

Liz: We can’t forget the cents!

Ashleay: Ha-ha! No, no, can’t forget that. So we’ve touched upon a few different scenarios where term insurance can be a great option. We’ve talked about new parents, home buyers. Who else could term insurance be a good fit for?

Liz: Great question. We’re seeing more and more clients take out an insurance policy when they’re very young. Perhaps as early as just coming out of university, or even children—parents taking out term policies on children when they’re very young and when it’s incredibly affordable and locking in that insurability I talked about earlier. You know, in the case of a university grad, maybe they’ll take out a 10-year term insurance because it’s so very affordable, and maybe they’re looking at about $250,000 for that kind of age group. And they’re being well advised to do this, I think, because, of course, they are younger and it’s cheap to obtain that life insurance. And I cannot emphasize enough the importance of locking in that health and insurability, so that they have access to that coverage when they need it as their life changes and health changes as well. So if I was to put a number on that, for a male non-smoker, 22 years young, living in BC, as an example: $250,000 term 10 would only be $15.08 per month. I know that’s like two Starbucks coffees these days.

Ashleay: Ha-ha! Yeah!

Liz: And at age 22, even though we may think there’s not a lot to insure, the benefits of starting young are just so very important. I’ll say it again: guaranteeing access to affordable coverage as you grow, you benefit from a range of options and keep things available to you, opportunities to invest in other products as life changes. You know, term insurance really is a product that can evolve with your life.

Liz: Now that’s just a few other categories, but you know what? We haven’t even touched on business owners and professionals. This is a huge market where term insurance can be a great fit for a variety of needs, and the face amounts can be anything ranging from $500,000 to multiple millions, and we can look at longer coverage periods, up to 40 years even. There are so many great benefits for those individuals as well. But one thing really does remain constant no matter who you are, and that’s the affordability and flexibility of term insurance. Let me tell you, I really love this product and its ability to adjust to your reality is what makes it Canada’s favorite life insurance product!

Ashleay: Absolutely. And on that note, we’ll conclude today’s episode. Many thanks to you, Liz, for coming along and explaining the benefits of term life insurance and how it works. And a big thank you to our listeners, and we’ll see you all next week! Loved this podcast? Want to know more about economic news? Follow our “In Your Interest!” podcast, available on all platforms, visit the economic news page on ia.ca or follow us on social media.