How to Choose the Right Life Insurance Term Length

How to pick the best life insurance term length

Term life insurance is designed to cover your loved ones during the period they depend on you for financial support, typically from your early twenties to your age of retirement. Your policy’s “term” is the number of years your coverage will last; when your term ends, your beneficiaries will no longer be eligible for a payout. 

The right term length for your life insurance policy is the one that lasts until your children are grown and you have no significant debts. 

Because financial needs and goals can vary so much from household to household, there’s no “one-size-fits-all” term life insurance policy length. To estimate how long your family might need the financial protection of a term life policy, take the following steps: 

1. Take stock of your financial obligations. Do you have dependents, a mortgage, or other major debts and expenses? If you have children, do you want your life insurance policy to cover only their essential needs up to age 18, or do you also want to plan for post-secondary education costs? 
2. Estimate how long your financial obligations will last. How many years from now will your children likely be financially independent? When do you expect to pay off your mortgage? 
3. Ensure that you don’t need permanent life insurance. Most Canadians don’t need permanent or whole life insurance, but you may want to consider a lifelong policy if you have children who will always be dependent or if you’re in need of complex estate planning options.

Term life insurance by life stage

The life insurance term you need generally depends on the stage of life you and your family are in. While every family follows a different trajectory, we’ve mapped out some common stages of life and the unique insurance needs they carry. 

Don’t see yourself in that chart?

Your insurance needs might be a little different from the norm. For instance, if you just had your first child in your 40s, you likely need a longer life insurance term, such as 30 years, to cover them until they reach financial independence. Or, if you have children or other family members who will depend on you for their entire lives, you may want to speak with a financial advisor about extending your coverage to a permanent life insurance option.

Life insurance costs by term length

Keep your age and budget in mind when selecting a life insurance term. Young applicants get the best rates for term life insurance because they’re less likely to die during their policy term —- so if you’re able to lock in a low rate when you’re young, you’ll benefit from the savings over the course of the entire term. 

Term life insurance rates may reflect the age, smoking status, gender, and occupation of the applicant, along with other key factors such as the amount of coverage purchased. 

Compare life insurance rates for women

* Average monthly PolicyMe rates for female non-smoking applicants with $500,000 in term life insurance coverage.

Compare life insurance rates for men

* Average monthly PolicyMe rates for male non-smoking applicants with $500,000 in term life insurance coverage. 

These average rates are meant to be illustrative only. Real quotes vary by carrier, coverage amount, health/smoking status, province, and more. 

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The longer the term, the more you pay, but…

But you could still save money by selecting a longer term length. If you choose a shorter term and decide to renew your coverage when the term expires, your coverage will be underwritten at an older age, meaning higher premiums for the renewed term.

Life insurance term lengths, explained

There’s a life insurance term for everybody — let’s find yours.

PolicyMe offers term lengths of 10, 15, 20, 25, and 30 years, as well as a term to 100 (T100) option to convert your term life insurance policy to a permanent plan. Other Canadian life insurance providers may offer different term lengths, so do your research before requesting life insurance quotes. 

5-year term life insurance

Who it’s for: People nearing retirement, anyone with short-term financial obligations

Pro: Cheap coverage

Con: Rates locked for a short period

Alternatives: Life insurance may not be needed for short-term financial obligations. 

Less common than other term lengths, 5-year term life insurance may be a good insurance solution for people nearing retirement or others who only need cover for a short period of time. Not all Canadian life insurance companies offer this term length, however, so you may want to consider if you have other ways to ensure financial security for your loved ones. 

10-year term life insurance

Who it’s for: Families seeking affordable coverage for short mortgages or older children

Pro: Low premium payments

Con: Insufficient coverage for many families

Alternatives: Some families need a longer term length to fund their children’s education.

If you expect to pay off your mortgage within the next decade, 10-year term life insurance might be right for you. It may also be a good choice if your children are in their teens and need a coverage bridge to shelter them into adulthood. 

15-year term life insurance

Who it’s for: Anyone stuck in between 10- and 20-year term lengths

Pro: Inexpensive middle ground

Con: May be unavailable from some insurers

Alternatives: If you can’t find a 15-year term from your chosen insurer, opt for the closest term that will meet your family’s financial needs. 

While it’s not always offered among Canadian insurers’ life insurance plans, 15-year term life insurance is the sweet spot for some families. There’s a big gap between 10- and 20-year terms; if you find yourself in that gap, choosing a 15-year term can help you avoid overpaying for coverage you don’t need.

PolicyMe offers 15-year term life insurance policies, with rates as low as $20.28/month for $500,000 in coverage.

20-year term life insurance

Who it’s for: Most Canadian families with a typical financial plan

Pro: Most cost-effective option to cover children’s education and mortgage expenses

Con: May not cover the full length of a mortgage

Alternatives: 30-year coverage could help families starting their financial planning early to lock in lower life insurance premiums.

A 20-year policy term is the most popular option for Canadian life insurance shoppers, especially for parents in their mid-twenties and thirties. If your youngest child is under age 5 and you have less than two decades left on your mortgage, a 20-year term policy should be enough to secure your family’s financial future until the kids graduate college. It’s also significantly more affordable than more long-term coverage options like whole or universal life insurance. 

25-year term life insurance

Who it’s for: People with more than 20 years of mortgage payments left

Pro: May bridge the gap between 20- and 30-year terms

Con: Not always available from Canadian insurers 

Alternatives: A 30-year term may cover the full length of your mortgage if you can’t find an insurer offering 25-year term insurance.

Like 15-year term life, a 25-year term life insurance policy fills a gap between more common coverage lengths. In particular, this term length may be a good fit for people whose kids will be financially independent in 20 years or less but whose mortgage has more than 20 years of payments left to go. 

PolicyMe offers 25-year term life insurance plans, with rates as low as $25.96/month for a $500,000 policy.

30-year term life insurance

Who it’s for: New parents, homeowners with long mortgages

Pro: Low fixed premiums for three decades

Con: Financial needs can change significantly during the policy term

Alternatives: If you’re not sure you want to lock in 30 years of life insurance at once, consider buying a shorter term and renewing or extending your coverage down the road. 

If you’re getting started early, a 30-year life insurance term comes with big advantages: peace of mind for three whole decades, with low premiums locked in at a young age. But it may not be the right choice for everyone: a 30-year term comes with higher premiums, and you run the risk of overpaying for coverage you don’t need if your financial future doesn’t play out as expected. 

40-year term life insurance

Who it’s for: Young adults with long-term goals, such as financing future children’s college education.

Pro: Longest coverage length for non-permanent life insurance

Con: Higher premiums, hard to find

Alternatives: A 30-year term may meet your insurance needs if you’re unable to find or afford a 40-year term. 

A 40-year term is for big dreamers; young adults with ambitious financial plans that extend past the 30 years. It’s the longest term available from many Canadian life insurers. For most people, a 30-year term is enough to cover even long-term goals, but locking in low payments for 40 years has its advantages, especially if you’re buying life insurance before age 21. The caveat: even young applicants will pay a higher premium because the odds of death during the policy period rise with such an extended term. 

Term 100 life insurance 

Who it’s for: People in search of a guaranteed death benefit with straightforward coverage

Pro: Lifelong coverage if you die before 100, cheaper than permanent life insurance 

Con: No cash value, more expensive than true term policies 

Alternatives: T100 life insurance is a niche product; whole life or traditional term life insurance are better options for most Canadians. 

We’ll be honest; term-to-100 (or T100) life insurance isn’t a popular life insurance product, and there’s a reason: it’s more expensive than a traditional term life insurance policy while lacking some key benefits of a permanent life insurance plan, such as a cash value component. With T100 life, your beneficiaries are guaranteed a tax-free payout if you die before age 100, but the policy won’t build value. If your insurance needs change and you want to convert a term policy to lifelong coverage, this may be an option to consider — but in most cases, it’s not the right fit. 

What about permanent life insurance? 

If you prefer to have more comprehensive long-term coverage, a permanent life insurance policy might seem like a better fit than a term policy. However, this type of life insurance typically isn’t a good fit unless you have: 

• A high individual net worth
• Unique, complex estate planning needs
• Lifelong dependents (e.g. children in need of full-time disability care)

Unless you fall into one of these minority categories, it’s likely that a 30- or even 40-year term policy is still a better (and more affordable!) fit for your life insurance needs. Remember, if your financial situation changes and you find yourself in need of permanent life insurance down the road, you still have the option to convert your term policy.

How to lower your life insurance costs

Affordability is a key concern when buying life insurance. After all, most term life insurance policies don’t pay out — meaning that it’s best to find the most cost-effective way to meet your insurance needs without overpaying for coverage you hope not to use. Here are a few strategies that can help: 

Laddering

We’ve talked about a range of term lengths in this article, but you don’t have to choose just one — with the laddering strategy, you can buy multiple life insurance policies with different term lengths and coverage amounts so that your life insurance adapts over time to meet your changing finances.

For example, let’s say that your kids are in their teens, but you recently bought a home and the mortgage won’t be paid off for 20 more years. Laddering a 10-year term policy with a 20-year policy could help you maintain a high level of coverage while you’re still managing the kids and mortgage together, with a reduced coverage amount once your kids are out of the house. 

A big plus of the laddering strategy is that it allows you to avoid the underwriting process, including medical exams, involved in purchasing a new policy or renewing existing coverage, thus saving money.

Separate policies for two-income households

If you’re shopping for life insurance as a couple, you’ll have the option to buy a joint policy that pays out a single death benefit (either when the first insured person dies or when both die). While a joint policy offers some convenience, you could end up overpaying if you don’t earn the same amount. 

Instead, consider buying separate policies tailored to your individual finances. If one member of your household makes $70,000 per year while the other makes $200,000, splitting policies to cover each earner proportionally could save a considerable amount of money. 

Don’t buy insurance you don’t need

Term life insurance is a good investment for most Canadians — but not all. 

If you have no dependents, no significant debts, and no loved ones whose financial future would be in jeopardy if you died, you might not need life insurance at all. If you’re not sure whether you really need life insurance, you may want to speak with a licensed insurance advisor for their insight. 

FAQs: Term life insurance lengths