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Article Contents
Picture of By <span>Matthew Roberts</span>
By Matthew Roberts

Updated on March 27, 2024

Visit author page
Picture of By <span>Matthew Roberts</span>
By Matthew Roberts

Updated March 27, 2024

Visit author page

13 minute read

Article Contents

What Is Term Life Insurance?

Term life insurance is a type of life insurance that only provides death benefits if the policyholder dies during its specified term. When the term expires, the policyholder loses insurance coverage. They can either let the policy expire or renew its coverage. Term life insurance is popular among Canadians because it’s one of the most cost-effective life insurance types available.

Here, we dive deeper into what term life insurance is, who needs it, and compare it with other types of life insurance policies. You can also check our pages about universal life insurance and whole life insurance.

How Does Term Life Insurance Work?

Term life insurance works by providing a death benefit if the policyholder dies during its coverage period. A life insurance death benefit is a sum of money paid out to the policyholder’s beneficiaries after they pass away. Death benefits are typically used to replace the income of a lost loved one, settle their debts, and for other purposes.

In most cases, a term policy’s duration is set for a certain period like 20 or 30 years. You can also set your insurance coverage to end when you reach a certain age. Term life insurance coverage is limited to its duration, so your beneficiaries will only receive death benefits if you pass away while still covered.

You choose the policy’s duration and death benefit when you purchase a policy. The insurers will also set your premiums, or insurance costs, based on your health, statistics, and other factors. Generally, premiums are locked in when you finish the insurance purchase and won’t change for the entire term policy duration.

When your coverage term is over, you can simply let the policy expire or renew it with another term policy. Some insurers may allow you to convert your term policy into whole life insurance or universal life insurance.

The Different Types of Term Life Insurance

Coverage duration isn’t the only thing that can vary in a term policy. Each type of term life insurance caters to different needs and has different conditions.

Here’s a rundown of the most common types of term life insurance for Canadians you may find:

Level Term Insurance/Fixed Term Insurance

Level or fixed term policies are the most common type of term insurance. Your insurance costs are set at the beginning of the term and won’t change for the entire duration. This policy is usually best for people who need equal insurance protection during the entire coverage period.

Yearly Renewable Term Insurance

A yearly renewable term policy renews annually with a slight increase in premiums every year. Think of it as buying single-year policies every year, which makes it great for people who need insurance coverage on a short-term basis. It’s usually convenient in the short run, but the premium increases may make it very expensive in the long haul.

Decreasing Term Insurance

A decreasing term insurance policy generally has lower premiums than a fixed policy, but its death benefit decreases as time goes on. People usually buy decreasing term policies to ensure debts like student loans or mortgages are repaid even if they pass away.

Term Life With Return of Premium

As the name implies, this type of policy refunds your premium if you live past the coverage period. Term life with return of premium policies gives you long-term protection and the extra security of getting back the money you put into the policy. However, keep in mind that a return of premium policy can be more expensive than fixed term policies.

No Medical Exam Term Insurance

No medical exam term insurance lets you skip medical checks when insurers assess your risk. People often take this policy because they may not be able to qualify for insurance protection due to health problems. There’s a caveat to no medical exam term policies, though: its premiums are generally higher because the insurer takes more risk.

Group Life Insurance

You can usually get group life insurance through your employer or other organizations you’re a member of. Your company usually pays for group life insurance, but their benefits may be smaller than individual policies. Group life insurance coverage may also be dependent on your employment or membership, which means you’ll lose protection if you leave. 

Mortgage Life Insurance

Mortgage life insurance, true to its name, is designed to pay off your mortgage. Its term is usually matched with the mortgage’s term, and its death benefit goes down annually according to the mortgage’s balance. 

Convertible Term Life Insurance

Many insurers allow you to convert a term policy into a universal or whole life policy, but you likely need to pass the underwriting process first. A convertible term insurance policy lets you convert term coverage into whole life or universal coverage without additional underwriting. It’s convenient if you’re planning to get whole life insurance way ahead of time, but it also has higher costs than a regular term policy.

Common Term Life Insurance Additions

In addition to your main term life insurance coverage, you can buy extra coverage or riders to round out your insurance protection. Some of these additions can be bought as add-ons to your existing policy, or as separate insurance policies. Check with your insurer to learn which additions fit your risk profile and coverage needs.

Here are examples of common riders you can add to a term life insurance policy in Canada:

Taking this rider means your beneficiaries will receive more money if you die in an accident. The coverage scope is relatively narrow because it only pays out if you die due to certain circumstances. However, it’s a good idea to get accidental death insurance if you have a dangerous job or hobby.

Adding a children’s insurance rider to your policy extends your coverage to your kids. A single children’s insurance rider typically covers all children in your family, whether they’re biological or adopted. Your children don’t have to pass a medical exam, but you may need to answer questions about their health.

If your child passes away while coverage is still active, you can use the death benefit to pay for their funeral, seek counselling, and take some time off work. Child rider death benefits are generally smaller than your own policy, and protection ends when they turn 25.

If you have critical illness insurance, you can receive a lump sum if you’re diagnosed with a covered critical illness. Some illnesses that may fall under this rider’s coverage include stroke, heart attack, major organ failure, and cancer. Taking a critical illness rider means you can benefit from insurance protection while you’re alive since you can use the money to cover medical bills and other financial obligations.

Disability insurance riders provide income replacement if you’re rendered disabled due to injuries or illnesses. This type of insurance add-on usually provides 60 to 85% of your regular income and has predetermined amounts and time limits. Generally, there’s a waiting period before the insurer pays out your benefits, which can range from a couple of weeks to several months.

A disability waiver of premium is a rider that eliminates the requirement to pay premiums if the policyholder is disabled. This means you don’t have to give up your insurance policy if you become disabled, but you may need to pay higher premiums to include this waiver.

Parent protection rider death benefits can help you pay debts and cover funeral expenses after your parents pass away. Unlike a child insurance rider, parent protection riders only cover one parent. If you want to protect both parents, you need to purchase this add-on twice.

A spousal insurance rider extends your insurance coverage to your spouse, which means both of you will be protected with the same policy. Spousal insurance riders are usually cheaper than full-fledged insurance policies, but the coverage amount is usually smaller.

How to Choose Your Term Insurance Length

One of the main challenges of getting term life insurance is determining your term length. Getting the most value out of your insurance coverage means finding the right amount of coverage without paying too much on premiums.

To help you decide, here are four elements to consider when determining your term insurance length:

Age

One of the primary purposes of life insurance is income replacement. This means your death benefit will provide for your loved ones in your stead. As you get older and have a retirement plan set up, you may not need long insurance terms. For example, you may only need a 15-year policy if you’re 50 years old and plan to retire at 65. Once your 15-year term insurance ends, you and your family can live off your retirement funds.

Insurance Cost

Term life insurance has static premiums, and younger people usually get lower premiums because they’re less of a risk to insure. Getting life insurance at a young age means you can save money, but overinsuring yourself might mean paying too much for coverage you don’t actually need.

Children

Think about your children when determining your term insurance length. Most people get insurance to ensure their children are financially stable until they can provide for themselves. 

Different people have different definitions of when a child becomes self-sufficient. Some people end their term life insurance policies when their child turns 18, but others may take longer policies to ensure their child’s student loans and housing expenses are covered.

Mortgage & Debts

Many people take life insurance to ensure their mortgage or debts are paid. However, a 30-year mortgage doesn’t mean you need a 30-year policy. Adjust your term length and coverage amount to ensure you don’t leave your loved ones with lots of debt if you pass away.

What Are the Pros & Cons of Term Life Insurance?

Every kind of insurance product has its benefits and drawbacks. Here’s a look at the pros and cons of term life insurance:

Pros of Term Life Insurance

Affordable

Term life insurance is generally cheaper than other insurance types, especially if you can lock in good rates at a young age.

Easy to understand

Term insurance policies are very simple because there aren’t a lot of moving parts, making them easy to learn and manage.

Multiple coverage options

You can choose whichever term length fits your needs best and not have to worry about getting too much insurance protection. There are also multiple types of term insurance coverage to satisfy unique protection requirements.

Potential to convert policies

Some insurers give you the option to convert an expiring term insurance policy into a permanent or universal one, meaning you don’t have to lose your insurance protection if you still need it.

Fixed premiums

Most term insurance policies have fixed costs, which means you don’t have to worry about being blindsided by sudden cost changes.

Tax-free death benefits

Life insurance death benefits are tax-free, so everything from your policy can go to your loved ones.

Cons of Term Life Insurance

Time-limited coverage

Term life insurance coverage ends when your term finishes, and you may need to convert your policy or re-qualify for a new one if you still want to be insured.

No cash value component

Your term life insurance policy has no investment component or other ways to build value. In most cases, when your insurance term ends, you get nothing back.

More expensive for older people:

Qualifying for term life insurance as an older person is generally more expensive, since you may have health issues that make you a bigger risk to insurers.

Who Should Consider Term Life Insurance?

People who need insurance protection should consider term life insurance. Generally, you should think about getting term life insurance if you have dependents that rely on you to stay financially stable, or you have debts to repay.

Here are several examples of people who can greatly benefit from a term life insurance policy:

Breadwinners

A family losing its breadwinner might lead to serious financial consequences. Term life insurance can protect the deceased’s family by ensuring their financial stability while the surviving family members get back on their feet.

Business owners

Losing a business owner can be detrimental, especially for small companies. A business owner’s death benefit can ensure the company stays afloat as it looks for new leaders to replace the deceased.

People with significant debts

Term life insurance can ensure your mortgage or student loans are paid off, saving your family from having to repay those large debts. 

Stay-at-home parents

Stay-at-home parents usually don’t make money, but they provide invaluable help by taking care of their home and children. A stay-at-home parent’s death benefit can pay for childcare and housekeeping to make up for their absence.

Young married couples

Getting insurance as a young couple means you can get better rates since you’re less likely to have serious health conditions. Having insurance as a young couple also means you can still pay for your home and take care of your children if you or your spouse passes away.

If you’re doubting whether life insurance is right for you, read our article on why life insurance is important.

Do You Need Term or Whole Life Insurance?

You need term life insurance if you want simple, affordable insurance coverage that lasts a limited amount of time. Meanwhile, you need whole life insurance if you’re looking for insurance coverage with an investment component and don’t mind paying extra for it.

Check out our deep dive into the differences between term and whole life insurance to learn more.

What Is Term Life vs Whole Life Insurance?

FeaturesTerm life insuranceWhole life insurance
Coverage periodTerm life insurance provides
a limited coverage period,
depending on your chosen term.
Whole life insurance has lifetime
coverage, from the start of your
policy until you pass away.
Coverage needsBest for limited-time coverage
needs, like paying a mortgage or
ensuring your family’s financial
stability until your children grow up.
Best for lifelong insurance
coverage and wealth building.
Cash valueNo cash value.Comes with a growing cash
value that you can withdraw
from or use to increase your
death benefit.
Death benefitFixed death benefit, determined
when you purchase the policy.
Variable death benefit that may
grow over time if your policy’s
cash value grows. A payout is
also guaranteed when you pass away.
WithdrawalsNo withdrawals.You can withdraw or borrow
against the cash value during
your lifetime.
CostTerm life insurance is affordable
since there’s no cash value
component and it isn’t guaranteed
to pay out.
Generally more expensive due
to the cash value component
and guaranteed payout.

How Much Is Term Life Insurance in Canada?

The cost of term life insurance is influenced by various personalized factors such as the term length, coverage amount and medical status meaning prices will vary.

We have compiled some example term life insurance rates collected in the first half of 2024 here at MyChoice which are listed in the table below. The dollar amounts mentioned are estimated monthly premium costs, with the following policy details:

  • A coverage amount of $500,000
  • Policyholder is based in Ontario and is a non-smoker.

As you can see the price of term life insurance increases substantially as the policyholder gets older and longer term options will cost more than shorter ones.

AgeGender10-Year-Term20-Year-Term30-Year-TermAvg. Savings w/ MyChoice
20-year-oldMale$20.46$26.98$31.57$2.15
Female$14.72$19.41$23.47$1.00
30-year-oldMale$21.03$27.60$40.67$2.43
Female$15.41$20.86$31.06$0.99
40-year-oldMale$26.29$42.15$79.58$4.19
Female$20.10$32.56$61.57$1.11
50-year-oldMale $55.97$107.40$211.20$13.58
Female$39.55$77.45$154.22$6.48
60-year-oldMale$156.22$320.82N/A$14.23
Female$108.62$241.73N/A$41.77

What If Your Term Life Insurance Policy Has Expired and You’re Still Alive?

If you’re still alive when your term life insurance policy expires, your coverage ends. You won’t receive any death benefits, either. You may receive a refund on your premiums if you choose a return of premium policy.

What can you do when you outlive your term life insurance? Generally, you have four options:

  • Let your insurance coverage lapse and live without insurance coverage.
  • Let your current policy lapse and purchase a new term or whole life insurance policy. This might be more expensive since you’re older and likely have more health issues, making you a bigger risk to insurers.
  • If you have renewable term life insurance, renew your policy with your current insurer without any medical exams. However, you may be charged higher premiums after renewal.
  • If you have a convertible term life policy, convert your term life coverage into permanent life coverage.

FAQs

What happens when term life insurance expires?

When term life insurance expires, your coverage lapses. You can either let the coverage lapse and go uninsured or renew your protection through multiple means.

Depending on your insurer and the clauses available on your policy, you can renew insurance coverage or turn your term policy into a whole life policy. You can also re-qualify for a new term or whole life insurance policy.

Do you get your money back at the end of a term life policy?

In most cases, you don’t get your money back at the end of a term life policy. However, you can get your premiums back if you have a return of premium clause on your term life insurance policy.

What happens if you outlive your term life policy?

If you outlive your term life policy, your insurance coverage ends. If you have a return of premium clause, you’ll get a refund on your premiums.

Once your term life policy expires, you can either go without insurance or renew your coverage by re-qualifying for a new policy or renewing your existing one.

How to make a claim for term life insurance?

You can make a claim for term life insurance in Canada by contacting the deceased’s insurer and submitting proof of death. From there, the insurer will guide you through the steps until you receive the insurance payout.

Can a senior obtain term life insurance?

Seniors in Canada can still get term life insurance. However, the maximum age for you to purchase term life insurance is 75. If you’re over 75, you can only purchase permanent policies. Term policies also expire when you turn 85.

What is the most popular term life insurance?

The most popular term life insurance in Canada is the 20-year term policy. It’s popular because most parents want to protect their children until they’re self-sufficient, which generally happens once they turn 18. It also helps people with debts to settle them in case they pass away. 

Is term life insurance better than whole life?

Term life insurance isn’t necessarily better than whole life insurance. However, term life insurance in Canada is more affordable for people who only need insurance protection for a certain amount of time and don’t need the wealth-building component offered by whole life insurance.

Can I sell my term life insurance policy in Canada?

Depending on where you are and what insurers you use, you can sell your term life insurance policy in Canada. However, it’s harder to sell term life insurance policies since there’s no guarantee that the death benefit gets paid out. It’s generally easier to convert your term policy into a permanent one before selling it to somebody else.

As an alternative to selling your term policy, you can ask the insurer to reduce its coverage amount or just cancel the policy altogether.

How much term life insurance should I buy?

There’s no definitive answer for how much term life insurance you should buy. Everybody has different insurance protection needs, so you should consider all the factors and find the ideal coverage amount and term length for you.

Can I cash in my term life insurance policy?

You can’t cash in your term life insurance policy since there’s no cash value component. In most cases, the only way somebody earns money from a term policy is if the policyholder passes away during its coverage period.

If you want to invest in life insurance, consider buying whole life or universal policies.

Does term life insurance cover accidental death?

Term life insurance in Canada covers accidental death. If needed, you can take an accidental death rider to increase your life insurance payout if you pass away due to an accident.

Does term life insurance cover disability?

Term life insurance doesn’t cover disability. However, you can take disability riders to receive income replacement or premium waivers if you become disabled.

Can I cancel my term life insurance policy?

You can cancel your term life insurance policy by submitting a cancellation form, contacting your insurance provider, or stopping premium payments. Cancelling a term policy is easier because there’s no cash value involved.

How do I buy term life insurance online?

You can buy term life insurance in Canada online by visiting an insurer’s site. From there, you can navigate to its term life insurance page and follow the listed instructions to get an insurance quote and apply for a policy online.

When do term life insurance policies payout?

Term life insurance policies in Canada payout after the deceased’s beneficiaries file an insurance claim. In most cases, death benefits can be paid out within 30 to 60 days.

Is term life insurance tax-deductible?

Term life insurance premiums aren’t tax-deductible, since they’re classified as personal expenses. Life insurance payouts are similarly tax-free, which means your beneficiaries won’t lose a chunk of the money to taxes. Read our deep dive into the tax implications of life insurance to learn more.

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