Term Life Insurance: What It Is, Who Should Buy It, Who Shouldn’t and What It Costs

Subject matter expert reviewed

Shopping for term life insurance can mean being overwhelmed with options. 

Do you need $250,000 in coverage or $1,000,000? What term length do you need? And how much should it really cost?

Understanding what options are available and what you actually need is important. Thankfully, we’ll give it to you straight. 

At PolicyMe we believe term life insurance is the best fit for most people and we have decades of experience in the life insurance industry to back it up. 

In this article, we'll explain what term life insurance is, who should buy it, how much coverage you might need and what it’s going to cost you. Let’s get to it.

What is term life insurance?

At its core, life insurance is a financial lifeboat for loved ones in case of an individual's death. Term life insurance is one of the types of life insurance available.

Term life insurance is coverage that lasts for a fixed time period, usually 10 or 20 years.

New to term life insurance? This quick explainer video is a great intro.

If the policyholder passes away during this term, the policyholder’s family receives a single tax-free payment, also known as a death benefit. The death benefit will be equivalent to the coverage you signed up for--$500,000, $1,000,000 etc.

Another good thing to know: your family can use the lump sum for whatever they want.

They can cover mortgage or rent payments, save for college tuition, pay off debt, keep up their standard of living or anything else.

You can buy an individual policy or a joint policy with a significant other. Some term policies offer additional coverage or optional benefits (riders) which will increase your monthly premium.

Who's eligible for term life insurance?

Age is the major factor that determines eligibility when you're looking for a term insurance policy. 

You must be 18 years old or older, and younger than 65 (usually) to qualify for term life insurance in Canada

In some cases, term policies may allow for coverage until age 69, but this isn't always the case. 

PolicyMe offers coverage up to the age of 85, with policies that can be started as late as age 75. We provide life insurance in Alberta, Ontario, B.C. and 8 other Canadian provinces and territories.

Find out if you’re eligible today.

Who should buy term life insurance?

The best part about term life insurance is that you're only paying for coverage while you actually need it. 

Life insurance coverage is supposed to provide a security blanket so that if something happens to you, your dependents don't struggle financially. 

If you’re below 45 years of age, with income earning potential, term life insurance could be exactly what you need. 

You should buy term life insurance if any of the following applies to you.

1. You have dependents

  • Children who won’t rely on you financially forever
  • Aging parents who are probably going to pass away first
  • Spouses or partners who aren’t income earners and won’t go back to work if you pass away, such as:
  • Stay-at-home parents
  • People with a chronic illness
  • People who do work and want to maintain the same standard of living
Mother smiling face-to-face with child for article about term life insurance

2. You have a mortgage  

If you’re over 30 years old and a nonsmoker, it’s cheaper to get term life insurance rather than mortgage insurance.

3. You have large loans 

Debt can be part of life, but it’s not forever. If you have any of the following loans, you’ll want coverage for it until it’s paid down.

  • Business loans or lines of credit 
  • Home renovation loans or other personal loans
  • Line of credit against the equity of your house
  • Student debt

Real-life example: Rukmini 

Rukmini is a 35-year-old high school math teacher living in Brampton, Ontario. She has a spouse and a mortgage and two rambunctious boys who are constantly destroying the house her mortgage pays for.

She buys a 20 year term life insurance policy with $1,000,000 of coverage at $25.44 per month. This means that her family receives a payout if she passes away within the next 20 years. 

For the duration of her 20 year term, her monthly premiums will remain the same ($25.44), even if new applicants have to pay more (or less) for an equivalent plan.

Rukmini will likely outlive her 20-year life insurance coverage, at which point her policy will expire. 

Mother holding daughter, both smiling at camera for article about term life insurance

At that point, Rukmini’s mortgage payments are lower and her kids are out of the house, paying their own expenses and living their own lives. 

Now she can put the cost of her monthly premiums towards things like retirement savings, that European river cruise she’s always dreamed of, presents for those grandkids that better come along soon--whatever she wants.

As you can see, term life insurance has a lot of positives, especially when you stack it up against whole life, as this chart shows.

Term life insurance Whole life insurance
Low prices
Choice of policy length
Never expires
Rates locked in
Guaranteed death benefit
Accumulates cash value

Who shouldn't buy term life insurance?

Whole life insurance, as opposed to term life insurance, is beneficial in a few specific situations.

1. You have permanent dependents

Permanent dependents means you have someone who will rely on your income for their entire life, even if they outlive you.

This could be a child who requires permanent care or a dependent with a terminal illness.

2. You’re ultra-wealthy

Wealthy Canadians that have valuable assets to pass down to their families may find these assets would be heavily taxed after they pass away. 

In this specific case, whole life insurance can be an effective investment vehicle as it allows for tax-deferred wealth. 

Meaning: when your dependents receive a death benefit from your permanent life insurance, the money won’t be taxed. So you avoid paying taxes on the premiums you pay on the policy over the years.

3. You’ve maxed out your TFSA contributions

A TFSA is generally a better place to put your money to avoid taxation.

That said, some wealthy Canadians may max out their TFSA contributions and choose to use their whole life insurance policy as a place to put remaining money they want to pass on eventually to their beneficiaries. 

This strategy has its own risks and it;s against regulations for insurance providers to actively promote whole life insurance as an investment vehicle. 

4. You’ve run out of time to build your wealth

Let’s say you don’t have much time left to build up your wealth. For example, if you’re already over the age of 65 and you don’t have as much saved as you had hoped, you might opt for whole life insurance to protect and support any permanent dependents.

Still confused? Here’s a great rule of thumb 

If you have $500 to spend monthly on whole life insurance, you would be better off spending $50 on term life insurance instead and investing the remaining $450 for additional peace of mind.

Once your children grow up and become financially independent you may not need life insurance anymore. So why continue to pay for coverage?

Instead, you can use term policies to build up your liquid assets, rather than paying more for whole life insurance. 

What does PolicyMe offer?

At PolicyMe, we only sell term life insurance. This is because we believe that's what most people actually need, not permanent or mortgage insurance. 

We only recommend a permanent policy if you actually need it. If you don't, we'll always tell you upfront. 

And if you don’t need term life insurance either, we’ll tell you that too! Transparency and honesty is baked into who we are.

How much does term life insurance cost?

With any term life insurance policy, you know you'll pay less than you would for a permanent life insurance policy. This means you're already starting ahead.

Since each life insurance policy is highly personalized, the monthly premiums vary. 

Use the table below to compare average prices for different life insurance companies.

Term Life Insurance price comparison chart

Here’s what will determine your monthly life insurance premium:

  1. Length of the term
  2. Amount of coverage
  3. Age
  4. Biological sex/sexual identity
  5. Smoking status
  6. Health status

The first five factors form the base rate for your monthly premium. Health status is what can cause your premium to go up, sometimes significantly.

Your health status can increase your monthly premiums 50%, 100%, or 200% depending on your diagnosed illness.

Life insurance policies that are not fully underwritten may be cheaper, but they are risky. With fully underwritten term life insurance, it’s very rare for a claim not to be paid out.

Underwriting means the company fully assesses the chance you may pass away prematurely. So there’s less risk your payout will be denied if you pass away. 

Real-life example: Alfonso

Alfonso is a 35-year-old Fishery Officer who lives in Dartmouth, Nova Scotia. He has a spouse and his new baby boy is his whole world. 

As a 35-year-old male nonsmoker, his base rate would be $25.17 per month (at least with PolicyMe).

Father kissing cheek of smiling child for article about term life insurance

But, he has type two diabetes. Thankfully, it’s well-controlled. He takes his prescribed medications regularly, so his premiums would probably go up 50 percent.

His cousin has type two diabetes and high blood pressure, so his premium may double or triple. Or he could be declined outright, especially if he’s not taking his medications, his diabetes isn’t well-controlled and/or he’s not seeing a doctor regularly. 

Why do term life insurance costs vary so much between different people?

Each case is uniquely calculated, so life insurance companies are only able to estimate your true rate after you’ve submitted a full application. 

The good news: if you were given an increased rate, you can apply for your policy to be reevaluated after two years, especially if your health status has improved. 

More good news: if you do receive a higher rate than you expected or are declined for coverage, it won’t impact your ability to qualify for coverage in the future.

Why is PolicyMe the cheapest term life insurance option in Canada?

PolicyMe provides fully-underwritten term life insurance policies backed by Canadian life insurance giants. 

We’ve cut unnecessary distribution costs and underwriting steps and offer a streamlined online application process. Most people are approved instantly, with no medical exam required.

 This allows us to offer the most competitive pricing on term life insurance in Canada.

What are the pros and cons of term life insurance?

All life insurance options have both pros and cons. Let's discuss some of the advantages and disadvantages of a term policy.

Advantages of term life insurance

1. Fully underwritten term policies are straightforward and easy to understand, with no hidden fees or risks. 

Generally, underwritten policies are safer because the life insurance company has fully assessed the risk of covering you, so there’s less risk your dependent’s claim will be denied. That said, It’s very rare for claims to be denied.

2. They’re more affordable.

​​Term life insurance can be 6 to 10 times cheaper than the same amount of coverage from a whole life policy. 

The average cost is about $30 per month versus over $150 per month for whole life policies. Here’s a nifty little comparison:

$250,000 20-year term life insurance $250,000 whole life insurance
Male, aged 30 $18/month $135/month
Female, aged 30 $15/month $121/month
Male, aged 40 $28/month $204/month
Female, aged 40 $22/month $178/month
Male, aged 50 $72/month $327/month
Female, aged 50 $51/month $279/month

Here’s another way to look at it:

  • A 10-year term life insurance policy is generally 10 times cheaper than whole life policies for the same amount of coverage. 
  • A 20-year term is usually five times cheaper than whole life policies.

In the end, it depends on your age, as well as who is providing you with the term life insurance quote, especially with 20-year term policies. 

And people who are 20 to 40 years old generally pay less, while 40 to 60-year-olds pay more.

3. Policies can be cancelled at any time, without penalty

Term life insurance is more flexible than other types because you can cancel it whenever you want and not pay any penalties.

4. If you outlive the policy, the cost is minimal

Term life insurance is much cheaper than permanent life insurance, so the investment is much less. 

If you apply as a 30-year-old nonsmoking woman, your rate of $15 per month is locked in--for a 20 year term with $250,000 coverage.

Your rate for whole life insurance at the same age, same policy, would be about $121 per month. So at age 50, you’re paying $3,600 for term life versus $29,040 for whole life. 

With term life, you save a whopping $25,440.

That’s money you can put towards your retirement, your mortgage, whatever you want. The cost really is minimal, compared to the alternative.

5. Peace of mind that you’re protecting your loved ones

It’s unlikely anything could happen to you. But if it does, term life insurance is there in an instant to cushion your family against financial stress.

6. Set it and forget it.

You apply once, and it runs in the background; no maintenance required.

7. Once you have a policy, no one can take it away. 

As long as you pay your premiums, your life insurance provider cannot go back on their agreement, even if your health declines later on.

8. If your life insurance needs change, you can swap your policy any time within the first five years. 

For instance, you could extend your term to 20 years, or switch to a whole life plan. 

Don’t worry about making the wrong decision. Speak with an advisor to get the right recommendation and then you can make changes in future to adapt to new situations. 

Protect yourself now, and give yourself the peace of mind to know you can change the plan later based on your needs.

Disadvantages of term life insurance

1. If you outlive your policy, it will expire

This means having to extend existing plans, or register for new ones. 

Thankfully, many term life insurance policies allow for policy extensions without having to undergo additional medical testing or underwriting. 

Choosing a term length and coverage amount

Determining the best term policy and the amount of coverage for you will depend on your personal and financial circumstances.

For example:

  • If you have children, you'll want to cover their childhood years and university tuition. 
  • You'll also want to protect your spouse until their retirement. 
  • If you have a mortgage, you'll want coverage until it's completely paid off.

The older you are, the shorter the term you'll require. 

That's because you'll likely be self-sufficient by the time of your retirement, assuming you're regularly contributing to your registered investment plans, like RRSP or TFSA. 

Plus, your kids will probably be out of the nest and financially independent by then (thank goodness).

How much term life insurance do I need?

You’ll want to guarantee that your coverage will replace your income. 

This involves considering all of your family's needs, assets and liabilities. Some experts recommend having 10 to 15 times of your annual income covered. 

Alternatively, you can calculate all of your liabilities and the lengths of time they require financial protection in order to come up with the death benefit amount that best suits your needs.

At PolicyMe, we believe it's worth consulting either a fee-only financial advisor or a non-commissioned advisor to get an honest and detailed estimate. 

You can also take our recommendation quiz online to see exactly how much coverage and what policy length you need.

Can I reduce or increase my term life coverage?

Yes, you can change the length of your term, or cancel your term policy at any time. 

You can increase the term of your coverage without providing additional medical evidence.

However, if you adjust the terms of your policy, such as reducing your term or increasing your death benefit, your premium payment amount may change as well.

Are there any exclusions for term life insurance?

Term life insurance plans may not cover certain types of deaths, including:

  • Suicide in the first 2 years (all companies in Canada). For a fully underwritten term life insurance policy, all other causes of death are covered.
  • Acts of war or terrorism are sometimes seen as exclusions, but not through PolicyMe. Always check your policy’s fine print!

What happens when term life insurance ends?

If you don't extend your policy term, when your entire term ends, your life insurance will expire. 

There's no action required from you when this occurs, but you will no longer have a term life policy. 

You can prevent this by extending your existing policy or signing up for a new one. You can also consider convertible term life insurance, which lets you convert some or all of your term life insurance policy into a permanent life policy.

How to choose a term life insurance company

Now that you know more about term life insurance, it's time to start exploring your options. 

Determining the best life insurance in Canada for your needs isn't easy. It always helps to get the advice of an expert, such as a noncommissioned advisor or a financial planner. 

They can help you figure out your most efficient and affordable coverage options, as well as what length of term insurance makes the most sense for you.

With that said, it's important to keep a few things in mind when shopping around for a policy.

1. Check how prices are calculated

How much coverage are you paying for? Whether it's $250,000 or $1,000,000, coverage will be the same across the board, no matter where you get your insurance. However, the monthly premiums may differ between providers. 

It’s important to ask how the costs of a life insurance plan are calculated and whether extra fees mean extra benefits for you. 

Some traditional life insurance companies have inflated premiums because of unnecessary expenses and processes involved in the process.

At PolicyMe, we’ve cut these unnecessary steps and expenses to offer the most affordable term life policies in Canada, with the backing of Canadian insurance giants.

2. Make sure the policy is fully underwritten

Some providers will offer a no-medical term life insurance. In this case, your premiums will be higher because the insurer doesn’t have the complete details of your health history, so they’ll just assume you’re a higher risk.

Applying for a fully underwritten term life insurance policy means you may need a physical exam, especially if you have ongoing health issues.

That said, it's always worth having a medical exam performed. Here’s why:

  1. Companies like PolicyMe cover the cost of the medical exam. You get an update on your overall health, which you can share with your doctor for further review.
  2. Even if you have health problems that you believe could disqualify you, there's no way to know for sure until you've completed the application process. It's worth the effort to find out whether there may be a life insurance policy that best fits your needs
  3. No-medical life insurance means higher premiums.

3. Consider the approval time

If you're planning to start a family or thinking about getting a house, you'll want to start shopping around for a term life insurance policy. Just don't forget to factor in the application process into your timeline.

From medical exams to background checks, it can take some time to receive an offer on a policy. Compare providers to see how long they take on average to come up with a quote. 

Many providers take weeks, or even months, to tell you if you’ve been approved for life insurance.

At PolicyMe, our approval time works like this:

  • No additional underwriting needed: 1-2 days
  • Medical exam needed: 1-2 weeks
  • Medical report needed: 3-4 weeks

Ready to see your rate for term life insurance? Fill out our handy quiz below.

What to do when you get your term life insurance policy 

1. Pay attention to your bill

Once you've purchased your policy, make sure you pay your monthly premiums on time and in full. 

The last thing anyone wants is a cancelled term life insurance policy, especially since you’d have to reapply and would likely face higher premiums.

Most providers, such as PolicyMe, do offer a grace period of 30 days before ending coverage. As long as you catch up on your missed premium in the following month, there's no lapse in coverage. 

But don’t make this a habit. You don’t want to accidentally go beyond that 30 day grace period and lose your coverage.

2. Let your beneficiaries know

Make sure your beneficiaries actually know that you have a life insurance policy. It's important that they’re aware that they’ll be supported financially in case anything happens to you. You’ll also want them to know who they can contact for support.

Talking about life insurance may be uncomfortable, but a quick conversation with them now will save them hours of uncertainty and stress later if the unlikely happens.

Also important: keep documents of your term life insurance policy in a place that's safe and easy to find. 

In summary

Life insurance is tough to think about. No one wants to contemplate what would happen if the unthinkable happened. 

That’s why applying for term life insurance should be simple and straightforward with affordable protection. You should be able to get honest advice about how much coverage you need (or don’t need), from a noncommissioned advisor.

And you should feel confident that your coverage is running in the background, backed by a trusted provider, there if you need it.

In other words, you should be able to set it … and forget about it.

Key takeaways

  • Term life insurance is a type of insurance that covers the policyholder for a set length of time. Usually, these are offered in 10, 20, 25, or 30 year terms.
  • For the average Canadian, term life insurance is more than enough coverage. Permanent life insurance only benefits a select few and it's a lot more expensive. 
  • Your term life insurance price is affected mainly by term length and amount of coverage, as well as your age, biological sex/gender identity and health/smoking status.

Term life insurance FAQ

Does term life insurance cover accidental death?

Yes, in many cases, a term policy will cover accidental death. That said, if you have risky hobbies such as skydiving, rock climbing or scuba diving that you do frequently, your rate or policy could be affected. This is because you’re at a higher risk of accidental death than the average Canadian who doesn’t have these hobbies.

Does term life insurance cover disability?

No, a term life insurance policy doesn't cover disabilities. You’ll want to get disability insurance or long-term disability benefits to help protect you and your loved ones if you're living with a disability.

Is there any cash value with a term life insurance policy?

No, there is no cash value associated with term insurance policies. Once the policy expires, the coverage ends. And if you don’t die before your term expires, you or your beneficiaries don’t get a payout either, nor do you get any of your premiums back. There are also no refunds in the event of the policy lapsing or if you choose to cancel your policy early. 

How can I pay for my term life insurance policy?

You can choose to arrange automatic monthly payments for your term life insurance policy. This prevents you from being late or missing payments, as long as there are enough funds in your account to cover the premium each month.

You can also choose to pay manually through online banking each month. We don't recommend this option as it's much easier to forget payments, which can result in losing your coverage.

Laura McKay

COO & Co-Founder

About the Author

Laura brings 7 years of experience working in insurance & strategic operations as a management consultant at Oliver Wyman, after experiences at Manulife and Munich Re. In 2017, she launched a successful initiative for the World Economic Forum focused on innovation in insurance, working closely with insurers, tech pioneers, and policy-makers.

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