Term Insurance

Term insurance is a form of life insurance, i.e. a contract that pays a sum upon the death of the life insured. Term insurance gets its name because the contract is in effect only for a specified length of time, typically from one to twenty years. As long as premiums continue to be paid during the contract term, the contract will pay off should the covered person or persons die before the term expires (cf. Permanent insurance). At the end of the term, the contract is typically renewable for a further term, usually for a higher premium because the life insured is now older, but without proof of continued good health. Life insurance proceeds, including those from term insurance, are generally received free of tax by beneficiaries.

The most common term insurance policies are employment benefits and are typically one year renewable. If an employer pays some or all of the premium on such policies, a taxable benefit arises for the employee.

Those with term insurance needs over and above employer-provided coverage should contact an insurance agent. Costs for term insurance can be approximated using an online service such as Term4Sale.

Definitions

Insured

the owner of the policy, responsible for the premiums, and who must have an insurable interest

Life insured

the person whose death will cause payment under the policy

Beneficiary

the person(s) paid upon the death of the life insured

Group products

Many employers offer group life insurance as part of their employee benefits package. These packages typically break down the offerings into employee term insurance, dependent term insurance, and optional term insurance. The terms of the plan also may provide for group life conversion, within specific time limits, if their group insurance ends, say through job loss. There are tax implications for group insurance, depending on who is paying the premiums. If an employer pays some or all of the premium on such policies, a taxable benefit arises for the employee.

The terms and conditions of group products vary by provider and by employer. You should review and understand the terms and conditions that apply for your specific plan.

Employee term insurance

Coverage is for the plan member only and various benefit levels are available, typically a multiplier of annual salary.

Dependent term insurance

Plan members’ spouses and dependent children are covered and the coverage amount is usually fixed to an amount designed to pay for the insured's last illness and funeral expenses, not to replace the deceased's future lost income.

Optional term insurance

This coverage provides additional coverage options for the plan member and possibly spouse. You have the opportunity to increase existing insurance coverage, at low group rates, to reflect their individual needs. As part of prudent planning, you should be aware your insurance coverage is now tied to your employment, although most group products do allow conversion, within specific time limits, to an individual policy without providing medical evidence of insurability.

See also

• Disability insurance
• Employee benefits

External links

• Canadian Income Tax Treatment of Employee Benefits