I often encounter a scenario where young families, eager to protect their futures, invest in term life insurance while their children are small, only to face uncertainty when the term expires.
Term life insurance, available in 10- or 20-year policies, offers an affordable solution for those seeking coverage without the burden of high premiums. This makes it particularly appealing to younger couples and parents in the early stages of their careers, those with modest incomes, or those shouldering significant mortgage responsibilities.
As the expiry of the term insurance approaches, individuals must assess their health, financial situation, and ongoing dependent responsibilities to determine the need for continued coverage and seek the most competitive rates from insurers.
Some clients may opt to discontinue their life insurance if it's no longer deemed necessary, thereby reallocating financial resources towards other investments, saving for vacations, or reducing other debts. While I recommend that you should always keep some life insurance coverage, this decision is not unreasonable.
Upon the expiry, here are my recommendations:
Conduct a comprehensive review of your financial and family situation upon term insurance expiry. Evaluate the necessity for continued insurance based on: ongoing mortgage obligations, current debt levels, future family planning, health conditions
Assess life insurance coverage provided through employer benefits packages
Consider adjusting the level of life insurance coverage, often reducing it from the original amount to better match current needs. Maybe you don't need $1 million anymore, maybe you just need $500K
Be aware that many insurers offer automatic renewals for term life insurance. This can be advantageous for those with health issues as it avoids the need for new medical evaluations. However, automatic renewals come with a significant increase in premiums, so if you're in good health, I don't recommend this.
For individuals in good health, it's advisable to shop around and compare prices with the help of an advisor to ensure the best possible rates.
Consider Permanent Life Insurance
Another strategy is to opt for permanent life insurance from the start, which offers lifelong coverage irrespective of health changes. Permanent insurance, which includes whole and universal life policies, features a savings component that accumulates value over time. For the majority of Canadians, term solutions are good enough. Permanent insurance needs to be structured right and cannot be touted as a solution for everything in life, as some advisors out there may be telling you. Talk to me first before you decide to buy permanent life insurance.
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