Unfortunately dealing with the consequences of death is a natural part of life. This may take shape in many forms, but one way that has long-lasting effects on our loved ones is deciding whether or not to take out life insurance.

While it is logical given its inevitability, a surprising 40% of Canadians do not have any form of life insurance policy.

Part of people’s reluctance is simply knowing where to start. For example, how does term life insurance work? Well in this post we will break down one of the most common options in the world of life insurance for you to be well informed for any decisions you decide to take.

How Does Term Life Insurance Work?

When it comes to life insurance there are two main types of policy you can take out. Permanent life insurance lasts throughout someone’s whole lifespan until a person passes away. Term life insurance however is only effective for a certain period.

If the policyholder were to die during this “term” any beneficiaries included would receive a payout called a death benefit. Once the term ends you would either need to renew or potentially take up the option of converting it to a permanent policy, if that is offered by your insurance company

Generally, payments are non-refundable, unless you have a “return of premium” policy.

Why Choose Term Life Insurance?

One of the biggest pulls for most people to consider term life insurance is the cost. Permanent policies can be anything from five to fifteen times more expensive. This is down to additional coverage, as well as what is called “cash value” which works as an additional saving account that you contribute towards and can use during your lifetime.

Also many people after doing some digging into how term life insurance work realize that having a set period is more beneficial. The reason?

Well, why do most people seek life insurance? It is usually because they have more people dependent on them than before. Having a family comes with additional burdens, and the peace of mind provided by knowing that one income will be covered should the worst happen is priceless.

Yet most children are not dependent on parents when they become adults. Therefore for many, it makes sense to have a policy only for when their absence will greatly affect the family economically, be it for 10, 20, or 30 years.

If you are interested but are still asking yourself “How does term life insurance work?” it may be best to speak to the experts. Find more here.

Making Term Life Insurance Work for You

It always pays to be prepared for the worst. Knowing the answer to “How does term life insurance work?” is just one of the steps you can take to get your house in order.

We hope you enjoyed our overview of term life insurance. For more great explainers please check out the rest of the articles on our site!