Should You Buy 20-Year Term Life Insurance? Here's the Scoop!

Is a 20-year life insurance term right for me?

A 20-year term life insurance policy may be the right term length for you if: 

• You have a mortgage with 15 to 25 years of payments remaining
• You expect to retire in 20 years
• You want to maximize your life insurance coverage while on a budget
• You have children under the age of 5 

Your life insurance term should last as long as your major financial obligations. In order to decide if 20 years is right for you, you’ll need to estimate how long you’ll have dependents, mortgage payments, and other significant financial burdens.

‍

Our take

A 20-year term is the most popular life insurance option for a reason. It’s the sweet spot that covers you while you’re paying off your mortgage or raising kids without leaving you overinsured (or over budget!).

20-year term life insurance rates in Canada

The cost of a 20-year life insurance term varies depending on your age, gender, health, smoking status, and other factors like location and carrier. To help you budget for this purchase, let’s start by comparing average monthly rates for different age groups. 

A 20-year term life insurance policy is cheapest for people in their 20s or early 30s. Buying a 20-year term at this life stage allows you to lock in low rates early. 

* Average monthly rates for a non-smoking applicant with $500,000 of coverage. 

Term life insurance rates also vary by the amount of coverage you carry. The average life insurance amount per Canadian household is just under $500,000, but you may need more or less than that amount. The tables below compare average rates from five of Canada’s top-rated life insurance companies for 20-year term policies at various coverage levels. 

Not sure how much term life insurance coverage you need? PolicyMe’s online life insurance calculator is designed to help you take stock of your insurance needs and estimate the coverage amount and term length that’s right for you.

20-year term life insurance rates: $750K in coverage

* Average monthly rates for a 30-year-old applicant with $750,000 of coverage. 

20-year term life insurance rates: $500K in coverage

* Average monthly rates for a 30-year-old applicant with $500,000 of coverage. 

20-year term life insurance rates: $250K in coverage

* Average monthly rates for a 30-year-old applicant with $250,000 of coverage. 

20-year term life insurance rates: $100K in coverage

* Average monthly rates for a 30-year-old applicant with $100,000 of coverage. 

Who should choose a 20-year life insurance term?

If you fit into one of the categories below, you may want to request life insurance quotes for 20-year term policies.

A 20-year term might not be the right choice if…

• You’re under 20 years old and plan to have kids in the future

• You’re less than 20 years from retirement

• You don’t own a home or don’t have kids

• You have a high net worth or complex estate planning needs

How to choose a term length: 20 vs. 10 vs. 30 years

When buying term life insurance, the length of your term should match your financial future. As long as your loved ones are dependent on your income, you need an active life insurance policy. 

To figure out the right term length for you, follow these steps: 

• Think about your kids. If you have children, when will the youngest graduate college? If you want your term life insurance plan to cover your children’s education, your policy needs to last until that date. 
• Check your mortgage timeline. If you own a home, how many years are left until the mortgage is paid off? Choose the term length that’s the best match for your remaining payments. 
• Consider laddering. Let’s say your mortgage will be paid off in 10 years, but your kids won’t graduate college for 20 years. You have the option to purchase both a 10-year term life insurance policy and a 20-year policy so that you have a higher level of coverage while both financial obligations are in play, but don’t end up overpaying for the second half of your policy term. 

Don’t have kids or a mortgage? You may not need a 20-year life insurance policy unless you have other temporary financial obligations, such as a spouse that’s dependent on your income for living expenses. 

How to choose a coverage amount 

The coverage amount on your policy is the lump sum that gets paid out to your beneficiaries if you die before the policy period is up (assuming you’ve kept up with your premiums!). Everyone needs a different amount of coverage based on their income, debts, and financial goals. 

A quick equation that can help you estimate your coverage needs is the DIME method: Debt + (Income x years of coverage) + Mortgage + Education. 

In other words, add up the total cost of your non-mortgage debts, your income multiplied by the years you’d need it replaced, your remaining mortgage payments, and the total cost of your children’s education. The resulting sum is a decent estimate of the amount of life insurance coverage you should be carrying.

Riders and options (and when they’re worth it) 

You may have the option to add various riders, or endorsements, to your 20-year term life insurance policy. Common riders include:

• Accelerated death benefit rider: Allows you to access part of your death benefit early if you’re diagnosed with a terminal or critical illness. 
• Long-term care rider: Allows you to access your death benefit early to pay for healthcare costs if you’re diagnosed with a chronic illness. 
• Child rider: Provides life insurance for your kids, which can be converted to a permanent life insurance product later. 
• Return of premium (ROP) rider: Allows you to get all your paid insurance premiums back if you don’t die during your policy term. 
• Guaranteed insurability rider: Lets you purchase more coverage in the future without the need for an updated medical exam. 

All of PolicyMe’s 20-year term life insurance policies include $10,000 of child coverage as a no-cost benefit.

‍

Our take

While the benefits that come with life insurance riders are attractive, they will raise your premiums. For most Canadians, lower premiums make a policy without riders a more realistic, cost-effective option.

What happens when the 20-year term ends? 

If you choose a 20-year term for your life insurance policy, your coverage will end when that period of time expires unless you renew the policy. 

Your life insurance company will notify you when your term is about to end. You’ll have a few options: 

• Let the policy expire: If you no longer need life insurance, you can simply let your policy end. You won’t owe any more premiums, and your coverage will end — meaning that your loved ones won’t get a payout when you die. 
• Renew your policy: Your premiums will likely go up if you choose to renew your coverage, but this can provide short-term coverage to bridge the gap if you’re close to being free of debts and dependents. 
• Convert to a permanent life insurance policy: Some term life insurance policies can be converted to permanent life insurance, such as whole life insurance or term-to-100 life. 

If you’re not sure where you’ll be in 20 years, good news, you’re not alone. Insurance advisors help policyholders make decisions about how to handle the end of their policy term every day, and you’ll have plenty of options to choose from. 

FAQs: 20-year term life insurance