Page 46 - A Canuck's Guide to Financial Literacy 2020

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Types of Life Insurance Policies

Term Insurance

Term insurance is as the name says. It's life insurance that provides protection for a
specified number of years. Is it one of the least expensive forms of insurance and
recommended for individuals who need protection but have limited cash flow. Term
insurance stated period can vary as terms may be 1 year, 5 years, 10 years, 20 years, 30
years. At the end of the term, the insurance policy is either terminated or renewed at a
higher premium. Term insurance can be converted to a permanent insurance in order to
cover longer term needs.

Term-to-100 Policy

There is term insurance policy that may go to age 100. These policies are often seen as
permanent policies but have similar characteristics of term policies. They're considered one
of the most economical ways to cover taxes payable at death. Note that these insurance
policies don't build cash value or pay dividends. They provide a death benefit to age 100
and have a steady premium regardless of changes in age or health.

Renewable Term Insurance

Renewable term insurance policies have a feature that guarantee the right to renew the
policy for another term. The renewable term is often for the same duration, without providing
proof of insurability. However, keep in mind that at the time of renewal, premiums may
increase but they cannot increase because a change of insurability (i.e. health). Renewal
rates could be as is or at a renewable term as in the policy.

Convertible Term Insurance

Convertible term insurance is term insurance that allows the policy holder to convert it to a
permanent insurance without providing proof of insurability. The features of the policy
usually stay the same and the amount of the death benefit may not increase. If an individual
wants to make any changes to the policy, such as increase in the death benefit, they have
to start a new application. Life insurance companies that offer convertible insurance have
their own policies and requirements that must be met such as limit on the time holding the
policy, health status and age. These type of insurance contracts are more expensive as it
exposes the insurance company to more risk.