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Term Life Insurance

Term Life Insurance

Life Insurance Canada.com Inc. provides Canadian’s with access to over 20 life insurance companies who offer term life insurance. Term life insurance is the most popular type of life insurance available in Canada mainly because of its affordability and flexibility.

You will find a large resource of information below which talks about how term life insurance works, who it is designed for, how it is priced and more.

Understanding Term Life Insurance

Life insurance in Canada is split into two broad categories, term life insurance and permanent life insurance. Permanent life insurance is often referred to a whole life insurance even though whole life is only one type of permanent life insurance available today. For a primer on the various types of life insurance, see our page on the different types of life insurance.

Term life insurance has premiums that are level for specific periods of time. The period of the time is the ‘term’. At the end of the term period, most term life insurance policies have premiums that increase to a new level, then are again level for another term.

For example, a 10 year term life insurance would have premiums that are level for 10 years, increasing every 10 years. You can think of term life insurance premiums as having premiums that look like a staircase, with steps going up every 10 or 20 years (or whatever the term is). The difference between most term life insurance products is how the premiums are structured- not the coverage amount.

How Term Life Insurance Works

Term life insurance is actually very straight forward and easy to understand once you take some time to
learn how it works.

Term life insurance is a type of life insurance that provides coverage for a specific number of years which is known as the term. The shortest term length available in Canada is 10 years. Typically, you will try to match the length of the term with how long you require life insurance.

If you pass away before the term comes due, the beneficiary of the policy (typically your spouse, children or estate) will receive a death benefit. The death benefit is paid out to the beneficiaries typically as a one-time, lump sum amount tax free. Many Canadians are unaware that life insurance is 100% tax free.

If you still need life insurance at the end of the term (e.g. 10 years), you have different options available…

  • If you no longer need life insurance at the end of the term, you can simply just cancel the policy.
  • Most life insurance companies offer an option to renew your life insurance policy at the end of the term. This means that the insurance company will continue to offer you insurance without requiring a health questionnaire or medical examination. Regardless of your health, they have to offer you insurance for another term. The issue with this is that the cost is very high. You will have to determine if it is worthwhile to pay this increase in cost. It may be wise to continue your policy if you are in very bad health and can no longer qualify for a new policy.
  • If you are in good health, you can submit a new life insurance application and complete a health questionnaire (and medical examination if it is required) to receive the lowest possible rates. This is what most people do if they still need life insurance at the end of the term. Once approved you can cancel your old policy and not have to pay the high renewal premiums as described above.
  • Many life insurance companies offer an option to convert your life insurance policy at anytime. This means that you can switch from a term life insurance policy to a permanent life insurance policy without requiring a health questionnaire or medical examination. We recommend speaking with one of our licensed brokers regarding this option as it can be quite complex.

Benefits of Term Life Insurance

Term life insurance has many benefits which is the reason why it is the most popular type of life
insurance in Canada.

  • Affordability. Term life insurance is the most affordable type of life insurance available in Canada. Rates are very competitive amongst most life insurance providers.
  • Tax Free Benefit. Provides the peace of mind knowing that your beneficiaries will receive a lump sum amount, tax free in the event of your death.
  • Guaranteed Rates. The rates (cost of the policy) are guaranteed to be level for the length of the policy term (e.g. 10 years, 20 years, 30 years, etc.).
  • Customizable. Policies are very customizable which allows you to ensure that your policy suits the needs of you and your family.
  • Flexibility. Most life insurance companies allow you to switch from a 10 year term policy to a 20 year term policy in the first five years of the policy. Other options are available as well.
  • Renewable. The majority of life insurance companies offer a renewal option within the policy.
  • Convertible. The majority of life insurance companies offer a conversion option within the policy.

Types of Term Life Insurance

Term life insurance products are available in a variety of terms. The most common terms are 10 year term life insurance, 20 year term life insurance and 30 year term life insurance. 5 year term life insurance is no longer available.

Ideally the best term length to purchase is the period that best reflects how long you expect to keep the insurance. If you intend to keep the insurance for 20 years, then 20 year term should be the product you should consider purchasing.

Cost of Term Life Insurance

As already mentioned, term life insurance is the most affordable type of life insurance in Canada. The costs for term life insurance are very competitive in today as life insurance companies adjust rates since humans are living longer and more companies enter the marketplace.

The longer the length of the term, the higher the cost of the policy will be. For example, a 20 year term life insurance policy costs more than a 10 year term. A 30 year term life insurance policy costs more than a 20 year term.

We recommend that you use our free online quoter to get an instant quote to see how much term life insurance costs for you. You can also contact us directly to speak with one of our awesome agents to get even more information.

Is Term Life Insurance Worth It?

Life insurance is not for everyone. It depends on your personal situation if it is worth it for you and your family. If you have someone who is relying on you financially then life insurance is 100% worth it. This could be a spouse, child (or children), parent, grandparent, friend, business partner, etc.

Term life insurance is a great solution to provide you and your loved ones with the peace of mind knowing that if you are not here tomorrow, there will not be any financial worries. Grieving over the death of a loved one is enough on its own. It is financially responsible to have the right life insurance coverage in place.

Examples of Term Life Insurance

Scenario
A young family in their late 20’s have recently purchased a house with a mortgage and have two young children. They are seeking life insurance for family protection to be able to provide financially for the surviving spouse and children in the event of death as well as cover their mortgage debt. They want coverage until the children are fully financially independent and the mortgage has been paid off.

Recommendation
A term life insurance policy with a term length of anywhere between 20 to 30 years should be considered.

Scenario
A family in their late 30’s with young children are seeking life insurance for family protection to be able to provide financially for the surviving spouse and children in the event of death. They want coverage until they are both retired.

Recommendation
A term life insurance with a term length of 20 years should be considered. They could also consider purchasing a term life insurance policy that has level premiums to Age 65.

Scenario
A couple in their early 50’s are seeking life insurance coverage until their mortgage is completely paid off, children are through post-secondary school and they are close to retirement.

Recommendation
A term life insurance policy with a term length of 10 or 15 years should be considered.

Scenario
A married couple in their 60’s are seeking life insurance coverage to cover a short term debt such as a line of credit or small mortgage balance.

Recommendation
A term life insurance policy with a term length of 10 years should be considered.

Renewable Option

Renewable term life insurance policies are policies that automatically renew at the end of the term. For 10 year term life insurance, in year 11 the insurance will automatically renew for another 10 years (though at higher premiums). In the past renew-ability was an important feature of term life insurance, however it has become less important in the last 15 years. Basically, every single life insurance company in Canada offers this option. The issue is that the renewal premiums are so high that most consumers are unwilling to pay the premiums at renewal. Up to the mid 90’s renewal premiums were much lower and it made sense to simply renew your term policy rather than start shopping for a new one.

Convertible Option

Conversion however, is still an important feature in today’s term policies. Convertible term life insurance offers a policy provision where (up to a specific age) you can swap your term policy for a permanent policy, without a medical exam. You can think of this provision as a ‘waiver of medical evidence’ option. While this may not be a feature you intend to use, it’s a must-have provision to be used in some worst-case scenarios.

For example, if you have a term life insurance policy and later develop a medical condition that renders you uninsurable, a convertible term life insurance policy allows you to swap your term policy for a permanent life insurance policy with no medical exam. Conversion is offered by most Canadian life insurance companies for free with their term policies.

Term Life Insurance vs. Whole Life Insurance

Even though term life insurance is suited for the majority of Canadians, it is always a great decision to do your research when buying life insurance to determine what is the right product for you.

Term life insurance provides life insurance coverage for a period of time at an affordable price. It is designed for those who need life insurance for a set amount of years perhaps while they have a young family, debt levels are high or simply for peace of mind.

Whole life insurance is a type of permanent life insurance which means that it lasts your entire life and does not expire (unlike term life insurance). As long as the premiums are being paid, you will always have your whole life policy- it will last your entire life.

Whole life insurance can also have a “cash value” or “cash surrender value” which is essentially a side investment account or savings account attached to the policy. The cash value will accumulate in value over time. Most whole life insurance policies have guaranteed values built into the cash value so the value of the cash value will increase every year- guaranteed (it will never decrease). This cash value can be accessed through different ways such as a withdrawal or loan which will affect the policy.

The added benefits of whole life insurance (lasts your entire life, investment portion, guarantees, etc.) means that the cost is much more than term life insurance. Term life insurance is strictly insurance, no added bells or whistles. Whole life can be 5 – 10 times the cost of comparable coverage with term life insurance (or even more!).

As a result, financially it makes the most sense for people to purchase term life insurance. It is actually very rare where we will recommend that our clients purchase a whole life policy rather than term life insurance. It is a very complex product and is designed to suit the needs of specific individuals who are quite successful financially. We highly recommend that you speak with one of our licensed life insurance brokers to discuss what is right for you.

Group / Employer Life Insurance

It is very common for employers to offer a group health plan for their employees which can include coverage for life insurance, dental coverage, health benefits, vision care, etc.

If you participate in one of these plans it is typically mandatory to have life insurance included with your benefits. The rates for life insurance are discounted (compared to an individual term life insurance policy) due to the fact that it is being purchased as a group basis with all of the employees.

Although it is great to have additional coverage at a discount from your employer, there are a few things to consider…

  • Temporary Coverage. This coverage usually reduces at age 65 by at least half and then expires at a certain age. You will not have this coverage your entire life.
  • No Ownership. You do not own the policy so you cannot control what happens with it. If your employer stops offering benefits, you will lose your life insurance coverage. If you switch employers, you will also typically lose your life insurance coverage.
  • Low Coverage Amount. The amount of life insurance coverage that is provided through your employer is usually very minimal such as $25K or $50K or possibly a multiple of your annual income.

Summary

Term life insurance is the most popular product in Canada for many reasons. Its affordability combined with flexibility allows it to fit the needs of most Canadians who need life insurance. If you have a family, someone financially dependent on you, debt or are just looking for piece of mind- term life insurance will more than likely suit your needs.

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