Term Life Insurance in Canada

What is Term Life Insurance?

Term life insurance is a life insurance product that offers a guaranteed death benefit, providing the insured dies within the policy term and they paid their premiums.

At expiry, the policyholder may renew for another term, convert it to a permanent policy, or allow it to lapse.

Typical policy terms are 10, 20, 25, and 30 years.

What’s Covered?

Term life insurance provides a guaranteed, non-taxable death benefit to your beneficiaries if you die within the policy’s timeframe.

It does not provide medical benefits or other coverages.

A term life policy does not have a savings component and does not hold value beyond the death benefit itself.

Your beneficiaries can use the payout in whatever manner they choose.

For instance, they may want to pay off funeral and healthcare costs, settle outstanding debts such as a mortgage or credit cards, or use the funds to replace your lost income.

However, a term life insurance policy only provides a payout if the policyholder dies within the policy term.

The policyholder may renew when it expires, but new premiums are higher since they are based on the individual’s age, health, and life expectancy at renewal.

Eligibility Requirements

Every insurer uses its own criteria to determine eligibility and premiums.

Coverage is readily accessible from many insurers, both on and offline.

Some insurance companies may require a medical exam, however, no medical exam policies can be slightly more expensive.

Generally, insurers consider factors such as your age, health, and gender.

However, some insurance companies may demand in-depth information regarding your occupation, medications, hobbies, family history, smoking, and more. 

With so many options available, most people can find many term life insurance options for their needs, even if they have health issues.

Premiums and coverage limits vary greatly, so it pays to shop around.

Benefits of Term Life Insurance

1. Low Cost

Generally, term life insurance is the least expensive life insurance option.

This is because it only provides a guaranteed death benefit for a set time, which reduces insurer risk.

Consequently, insurance companies can offer much lower premiums than a permanent life insurance equivalent.

Policyholders can buy more coverage for less money, but they aren’t insured for life.

According to TD Insurance, a 35-year-old non-smoking female can get $400,000 of coverage for as low as $20.00 per month.

The same permanent life insurance coverage could easily cost ten times that amount.

2. Ideal for Temporary Coverage

Term life insurance is an attractive option for policyholders that only need extra financial security for a limited time.

For instance, if you anticipate you will pay off a significant debt such as a mortgage or student loan, or your child’s educational expenses will end within ten or twenty years, you may only want higher insurance coverage during this time.

You can reassess your needs when the term expires, renew, convert, or buy another, smaller term life policy.

3. Convertible

Many term life policies can be converted to permanent coverage before reaching a specified age.

This allows you to enjoy lower premiums during the period when you have the most financial obligations and then convert to permanent coverage when your term life policy ends.

Convertible policies usually do not require additional or new screening, regardless of the policyholder’s medical condition.

However, premiums will increase as the new policy provides lifetime coverage.

Did You Know?

Term life insurance premiums increase as you age. If you’re looking for long-term protection, permanent life insurance may cost you less overall if you buy a policy when you’re young.

Insurance broker supporting life insurance policies for clients

Term vs Whole Life Insurance

Term life insurance covers a predetermined period and is generally the least expensive form of life insurance.

Typical term lengths are between 10 and 30 years, and many policies are renewable for a higher cost.

However, an insurer may refuse renewal if the policyholder develops a severe illness.

This coverage does not have a savings component and only offers a tax-free death benefit should the insured die within the policy term.

Conversely, whole life insurance provides coverage for the policyholder’s entire life.

It provides permanent protection regardless of health changes, providing the policyholder pays their premiums.

A whole life policy also includes a savings component, with cash value accumulating on the policy.

Most policies offer a growth guarantee, and some also pay dividends.

However, these policies rarely rival other financial investments.

Nevertheless, they can offer steady, tax-deferred cash value growth for stability within a volatile market.

They also provide tax-free access to the cash portion of the policy.

You can borrow against the balance or withdraw gains, providing you maintain a specified amount within your cash account.

Frequently Asked Questions

  • What happens if you live longer than your term life insurance?
  • Do you get your money back at the end of a term life insurance?

Charlene Royston has written extensively for the private, public, and non-profit sectors for over ten years. Her experience working with a trust company led to a special interest in personal finance, including mortgages, investments, and retirement options. By simplifying the complex, she hopes to empower others to make more informed decisions.