When shopping for life insurance, you’ll often come across a term 20-year policy. This affordable policy provides peace of mind and aligns with your financial goals for two decades, even if your health changes. However, 20 years may seem like a long time. What happens when your term expires? What if your financial responsibilities change? This guide will answer all your pressing questions about term 20-year life insurance in Canada.
What is Term 20-Year Life Insurance in Canada?
Team 20-year life insurance is a sub-category of term life insurance that provides essential coverage for 20 years. This policy offers financial protection to beneficiaries in case the policyholder passes away during the 20 years. The death benefit can cover funeral costs or pay outstanding mortgages, bills, and debts.
Unlike permanent life insurance, a term 20-year policy has no cash value component. However, it is the cheapest policy to buy.
How Does a 20-Year Term Policy Work?
A 20-year term policy works by providing policyholders with a fixed coverage amount or death benefit over 20 years. The policyholder assigns beneficiaries to receive the death benefit in case of their untimely death.
When the policy expires, so does the coverage, and the beneficiaries won’t receive protection. Policyholders can renew, though premiums will typically rise significantly. You can also convert term 20-year life insurance to a permanent policy.
How much coverage you get for a 20-year term policy will depend on your financial goals. For example, you might purchase enough coverage to pay off a mortgage or provide income replacement for your loved ones in case of your death.
How Does Term 20 Life Insurance Compare to Other Popular Life Insurance Products?
If you’re considering term 20-year life insurance, here’s how it compares to other popular options.
| Term 20-Year Life Insurance | Whole Life insurance | Universal Life Insurance | |
|---|---|---|---|
| Coverage period | 20 years | Lifelong | Lifelong |
| Cash value accumulation | No | Yes | Yes |
| Price | Cheapest | More expensive than term life | More expensive than term life |
| Income tax-free death benefit | Yes | Yes | Yes |
Pros & Cons of Term 20 Life Insurance
Like all life insurance policies, term 20-year life insurance has its advantages and disadvantages. Here’s what you should consider before buying a term 20 life insurance policy.
How Much Does a 20-Year Term Life Insurance Policy Cost?
Below are the average monthly rates for a term 20-year life insurance policy for non-smoking males and females of average health.
| Age and Gender | $250,000 Coverage | $500,000 Coverage | $1,000,000 Coverage |
|---|---|---|---|
| 35-year-old male | $19.32/mo $0.26 saved with MyChoice | $29.50/mo $1.92 saved with MyChoice | $48.45/mo $2.53 saved with MyChoice |
| 35-year-old female | $15.12/mo $0.18 saved with MyChoice | $23.04/mo $0.91 saved with MyChoice | $36.89/mo $2.71 saved with MyChoice |
| 45-year-old male | $40.26/mo $2.27 saved with MyChoice | $65.90/mo $5.69 saved with MyChoice | $107.94/mo $4.56 saved with MyChoice |
| 45-year-old female | $29.84/mo $0.54 saved with MyChoice | $50/mo $1.30 saved with MyChoice | $85.09/mo $6.99 saved with MyChoice |
| 55-year-old male | $109.31/mo $13.80 saved with MyChoice | $177.75/mo $5.72 saved with MyChoice | $320.14/mo $22.76 saved with MyChoice |
| 55-year-old female | $78/mo $5.89 saved with MyChoice | $123.44/mo $7.06 saved with MyChoice | $226.69/mo $1,91 saved with MyChoice |
How Do I Know if a 20-Year Term Policy Is Right For Me?
What happens after the 20-year term is over?
After the 20-year term is over, your coverage expires and you no longer have financial protection.
Can you extend a term 20-life policy?
You can extend a term 20-life policy until you reach the age of 95. Some companies may have a guaranteed renewability feature allowing policyholders to extend their coverage without undergoing a new underwriting process. However, your insurance premiums will likely rise significantly, especially if you become diagnosed with a chronic illness or start smoking.
Can I convert my term 20 policy to a permanent policy if I change my mind?
You can convert your term 20 policy to a permanent policy anytime. Most Canadian insurance policies offer convertible plans without a medical exam.
Is term 20 life insurance generally cheaper or more expensive than term 10?
Term 20 life insurance is generally more expensive than its term 10 counterparts because it provides coverage for a longer period. A longer coverage period increases the risk of an insurance company having to pay out a death benefit, which higher premiums compensate for.
Is term 20 life insurance generally cheaper or more expensive than term 30?
Term 20 life insurance is generally cheaper than a term 30 policy because the coverage period is shorter. Thus, the chances of an insurance company paying out a death benefit with a term 20 policy are lower than with a term 30 policy.
What happens if I die while my 20-year term life policy is still active?
If you die while your 20-year term life policy is still active, the insurance company will pay out your death benefit to your beneficiaries. Your beneficiaries would receive this amount as a tax-free lump sum, and they can use it to cover funeral costs or pay for other financial needs.
Do you need a medical exam for a 20-year term life insurance policy?
You don’t necessarily need a medical exam for a 20-year term life insurance policy in Canada. Many Canadian insurance companies offer exam-free policies for smaller coverage amounts, though the underwriting process may involve accessing medical records and require applicants to answer health-related questions.
You may have to undergo a medical exam if you have certain health conditions, drink alcohol, or are a smoker.
What are some alternative options to 20-year term life insurance?
Some alternative options to 20-year term life insurance include the following:
– Shorter-term insurance, like term 10, if you feel you only need coverage for a shorter period;
– Longer-term insurance, like term 30, if you feel you need coverage for a longer period;
– Permanent life insurance, like whole life insurance, if you want to accumulate cash value;
– Guaranteed issue life insurance, if you’re having trouble obtaining coverage due to health issues;
– Final expense insurance, if all you need is to cover funeral costs, medical bills, and outstanding debts at the end of your life;
– Group life insurance, if you’re looking for a more cost-effective option;
Can I cash out my 20-year term policy before the end of the term?
No, you can’t cash out your 20-year term policy before the end of the term, as term insurance policies don’t accumulate cash value. However, you can typically cancel term insurance anytime, if you feel you no longer need it.