The purpose of life insurance is to protect your family. A ten year term life insurance policy will do that for the first ten years, but what about after that?
Many families buy the cheapest ten year life insurance policy at their disposal. This is an acceptable practice as long as they are making an informed decision. The truth is that there are many differences between term products. If you’re not speaking with a well-trained life insurance broker, you are not being exposed to your full range of options. Lengthy conversations with life insurance providers disclose the specific needs of clients and ultimately the best policy for your family.
The following are typical discussions Insurance Direct Canada has with clients who have previously made ill-informed life insurance purchases:
- Frequently, both partners in a family need coverage yet one is seriously under insured.
- Many single people would be better served with disability, critical illness, or long term care insurance before buying life insurance, even if they have a mortgage.
- When buying a ten year policy, it is important to use companies that will permit the conversion to a 20 year policy in the first 5 years without a medical examination. This can effectively extend it to a 25 year policy without a medical exam.
- There are options for layered policies where part of the coverage is for 10 years and the other part is for 20 or even 30 years.
- There is much more to life insurance than covering the mortgage. Having sufficient funds to provide for the loss of income when a partner dies is equally important.
- A 10 year term policy is commonly far from the best solution. Forty percent of the policies Insurance Direct Canada sells are for 20 years.
In most cases, they are far better solutions once the true purpose of life insurance is understood.
It is common for people whose ten year policy is coming up for renewal to develop a serious medical issue, rendering them unable to purchase a new policy. While there are guaranteed renewal rates in every ten year term policy, they are frequently in the order of 5 times the previous 10 year rate. To avoid these situations, the best alternative is to purchase a policy that goes to age 65 which combines extended policies of 10 and 20 years to provide coverage right through to retirement at an affordable price.
Life insurance does not address the unstated risk of disability. This is the primary risk to a family’s financial health and even the stability of the marriage itself. Statistics from Manulife Financial suggest that a 40 year old male has an 18% chance of having a disability that lasts over 90 days and the average duration is over two years. Less than half the families have the cash on hand to survive a month without an income. Disabilities are one of the leading causes of marriage failure.
In summary, there are many alternatives to a ten year term life insurance policy. The important thing is having numerous discussions with professional financial advisors to coax out the unseen repercussions of a potential purchase. To know the options at your disposal is to be empowered with optimal financial planning.