Key Takeaways

Term life insurance provides coverage for a period of time that you decide on, most commonly between 10 and 30 years.
Term policies are more affordable and flexible life insurance than permanent policies, partially because there's an end date.
Term is best suited to cover temporary financial responsibilities (mortgage, childcare).
The average Canadian family generally doesn't need permanent coverage.

What is term life insurance?

Term life insurance gives you coverage for a fixed period. You can choose the length and coverage amount and even have the option to renew or convert it to a permanent policy.

If you pass while the policy is active, your beneficiary will get a lump sum equal to the coverage amount. The amount they get is known as a “death benefit” or a life insurance payout.

Term life insurance meaning

The meaning of term life insurance is as follows: a type of life insurance policy that is temporary. Coverage lasts for the specific period you decide on at the time of application.

Term is the best type of policy to cover your family's temporary financial obligations and responsibilities (i.e. while you pay off the mortgage or have childcare costs).

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Features of term life insurance explained

There are two important decisions you need to make when getting a term policy: term length and coverage amount.

But there are definitely other things you should look out for before you choose a policy. Here are some key term life insurance features you should know, explained glossary-style:

Living benefits: Ability to access your death benefit in cases of severe illness
Building cash value: These policies include a tax-deferred savings account (cash value component) with guaranteed growth, independent of market performance.
Guaranteed renewal: You can switch to a permanent policy before a specified deadline.
Adjustability of coverage: Change coverage amount if needed (usually only downward).
Laddering life insurance: Covering different needs through multiple life insurance policies with varied expiration dates and coverage amounts.
Temporary insurance: Another way to refer to coverage that isn’t permanent in nature.

Take note that every policy is different and will likely not offer everything listed here! And you may not need all these features to get a term policy that suits you best.

How does term life insurance work?

Term life insurance works as financial protection for your loved ones in the event of your passing. When you're in the market for term life insurance in Canada, there are two things you will need to consider:

The amount of financial protection your family requires
The duration for which they need it

When do you need term life insurance?

You need term life insurance while your loved ones rely on you and your financial obligations are temporary. This includes things like:

Your spouse relies on your income‍
You’re starting a family
Your kids are young or your mortgage balance is still high‍
You’re buying a new home
You have high mortgage balance on an existing home
Planning ahead (funeral costs, provide for future income)

If you’re retired or don’t have any financial dependents, you might not have any use for a term policy (or any life insurance coverage for that matter).

How much does term life insurance cost in Canada?

Term life insurance costs will depend on your age, gender, smoking status and health. The first three things determine your rate. Your health will determine if this rate will go up.

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How term life insurance rates are calculated in Canada

In Canada, term life insurance rates are calculated based on coverage amount, policy length and personal characteristics.

“Your term life insurance rate will be based on two main categories: your personal factors (age, gender, smoking status) and the policy (coverage amount, term length) you choose.” ^{– Erik Heidebrecht, Licensed Life Insurance Advisor}

1. Term life insurance rates: coverage amount

The coverage amount is the sum your loved ones get if you pass during the policy term. A $1,000,000 policy means that if something happens to you, they get a tax-free payment of $1,000,000.

The more coverage you buy, the more your beneficiaries get if you pass away during your term. But the higher the coverage amount, the higher your premiums will be.

2. Term life insurance rates: policy length

Policy length refers to the amount of years your policy will cover you for starting from the age when you purchased it. You'll pay more each month if your coverage extends into your later years.

Why? You're more likely to pass between the ages of 20 to 50 than between 20 to 30, because more years are accounted for in the term. The chance of passing increases by 30 per cent once you reach the 40 to 75 range, finds a Statistics Canada study.

3. Term life insurance rates: personal characteristics

Personal characteristics refer to how risky you are to insure, which includes any factors that could increase the likelihood of passing away while holding the policy.

These factors can impact your term life insurance rate:

Age: Insurance premiums increase due to the higher risk of health issues or death as you age, making you a higher risk for insurance companies.
Gender: Men pay higher premiums because they have a statistically shorter life expectancy than women.
Health: If you have a pre-existing condition that increases your risk of passing, you'll pay more. This could include diabetes, a heart condition, or a family history of illness.
Risky hobbies: Anything that increases your chance of accidental death, like frequent skydiving or base jumping.
Smoking status: Smokers are more likely to pass earlier than non-smokers, so they pay higher costs. 10 per cent of Canadians said that they regularly smoke cigarettes in a Stats Can survey.

For many Canadians, these will be the expenses they have to cover until their kids have grown up and their mortgage is paid off. Your needs may differ based on your family's specific circumstances.

How much term life insurance coverage do you need?

Confused about what length of time to choose for your term life insurance policy? To pick the perfect term length consider your financial obligations.

Then choose a term that matches that timeline. This includes things like:

Your mortgage
Your total debts
Childcare
Education/tuition
Any other expenses

Is term life insurance a good idea?

Term life insurance is a good idea for the average Canadian family since it provides affordable and customizable coverage to secure their loved ones' financial future.

Here are some reasons that you might consider term a good idea:

Affordability: Since the coverage is for a set time, premiums are typically more reasonable than you'd find with whole life policies.
Flexibility: You can choose the coverage amount and term length that fit with your specific needs, no matter what stage of life you’re in.
Simplicity: The policy terms are typically easy to understand, and beneficiaries can use the tax-free payout however they see fit.

Ultimately, term life insurance is worth considering, especially if you have people that rely on you financially.

If denied coverage, you can apply with one of the many companies that offer no medical life insurance.

Term life insurance use case examples

Here are a few examples of why people have chosen terms to protect their families.

Mo wants to make sure his aging parents have the funds they need to cover their medical expenses and care.
Jake wants to provide for his partner's retirement and ensure they can live comfortably in their golden years.

Olivia wants to make sure her beloved fur babies are taken care of if she were to pass away unexpectedly.

Lisa wants to protect her co-signer on a loan from having to repay it if she passes away.

Devi and Samantha want to make sure their kids can pursue their passions in sports and the arts without financial worry.

Real-life example: term life insurance in Canada

Kaylee Giffin-Logan, wife, mom, and blogger at The Blondielocks, shares her story of getting life insurance in a blog post “It All Started with A Motorcycle."

“[It was hard] to invest in life insurance because it isn’t a tangible item that I can reap immediate benefits from. [But] having a child means protecting them at all costs.
One of the things we often don’t want to think about, is protecting them financially…in case something happens to their protectors.”

– Kaylee Giffin-Logan from The Blondielocks

Types of term life insurance: 7 most common in Canada

We’ll define each type of term life insurance below so you can make an educated choice on your family’s financial safety net.

1. Direct term life insurance: Direct term life insurance is a type of insurance coverage, also referred to as a “direct-to-consumer” policy. This means it is purchased without a broker or agent.
2. Term to 100 or T100 life insurance: Term to 100 (T100) life insurance is a permanent policy that guarantees coverage until age 100 with fixed premiums.

It's a viable choice for covering end-of-life expenses or maximizing your estate. It's usually the cheapest form of permanent insurance because there is no cash value.
3. Convertible term life insurance You can switch to a permanent policy before a specified deadline.

Convertibility keeps the previous health rating, so there's no medical exam. Usually, you have to decide by age 70 if you want to convert.

But it would be pretty costly if you decide at that point! And on top of that, permanent coverage is more expensive than term.
4. Extended term life insurance: Extended term life insurance is a policy feature rather than its own type of policy.

It gives you the option to extend your policy, which isn’t a stipulation included in every policy, so read your paperwork before signing!
5. Yearly renewable term life insurance (YRT) Yearly renewable term life insurance covers you for one year, after which it is renewed. It's ideal for short-term coverage and offers the flexibility to renew without a medical exam.

But premiums can look deceptively affordable at first. Because the policy renews every year, you'll pay more for as the years pass if you don't opt out.
6. Decreasing term life insurance Decreasing term life insurance is a type of policy in which the death benefit gradually decreases over the policy's term. But the premiums remain constant throughout the term.

This policy can be used to cover a specific debt or obligation that decreases as time passes.
7. Group term life insurance Group term life insurance is a type of life insurance offered by employers.The cost of agroup term life policy is shared between the employer/group and the individual members.

As a general rule of thumb, the coverage amount will total 1-2x your annual salary. The biggest drawback? If you leave your job, you’ll lose your coverage.

What happens after my term life policy expires?

When your term life insurance policy expires, you can renew or reapply for coverage.

Keep in mind that term life insurance is designed to provide coverage for a specific period, so your insurance needs may change once the policy expires.

But make sure to read your policy closely to check whether you have automatic renewals or not! After your policy has ended, you have a few options to consider.

Renew your policy: You may have the option to renew your term life insurance policy for another term, but remember that your premiums will likely increase as you get older.
Convert to a permanent policy: Some term life insurance policies can convert to a permanent policy, which can offer lifelong coverage and a savings component.

Find a new policy: If your life circumstances have changed, it may be worth shopping around for a new policy that better suits your current needs and budget.

Forgo additional coverage: wants to protect her co-signer on a loan from having to repay it if she passes away.

What are some term life insurance alternatives?

Permanent life insurance can act as an alternative to your term life insurance coverage, depending on what specific needs you’re looking to fulfill with the policy.

Take note: Generally, we recommend permanent coverage for exceptionally high income earners that have already maxed out their TFSA and RRSP contribution limits or those that have permanent needs, like a disabled dependent.

Here’s a breakdown of the main categories of permanent coverage:

Whole life insurance: Offers a guaranteed death benefit and a minimum rate of return on the cash value. Premiums are level and the death benefit won't decrease.
Universal life insurance: Provides lifelong coverage and can build cash value. Policyholders can adjust premiums, investment options and death benefit within certain limits. These policies aren't a good idea for people who are risk averse.

This is how these alternatives to term life insurance compare:

To insure or not to insure, that's the question. In some cases, you may not even need insurance at all. So when is that?

"If you are out of school, don't have any dependents, mortgage, student debt, or even a car, you probably don't need term life insurance right now." ^{– Javade Williams, Licensed Life Insurance Advisor}

Should you get permanent life insurance instead of term?

Whether you should get permanent life insurance instead of term will depend on your financial circumstances.

‍Permanent life insurance might be a good idea if your coverage needs are not temporary, like if you're providing for a disabled family member or are a business owner.

But be careful not to be over-insured! Term life insurance coverage is generally a wiser choice for the most Canadian families. It'll likely save you money over time and can be tailored to your specific needs.

Next steps: what is term life insurance Canada

Decide how much coverage you need by adding up the expenses you want to cover and subtracting your current assets.
Choose a term length that covers the years you need coverage.
Use our term life insurance calculator for coverage in Canada to see how much coverage you need.
Shop around and compare policies from insurance providers. Look beyond the price and consider specific policy features.
Apply to the one that fits your needs best. If you're denied, you can try another insurer.
When you've been approved, read your policy and sign on the dotted line!

FAQ: Term life insurance in Canada, explained

What is the maximum age for term life insurance in Canada?

Can I extend my term life insurance coverage in Canada?

How much term life insurance coverage can you get?

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

Is term life insurance halal?

You need facts, not fluff. Our goal is to provide you with honest, trustworthy information to help you make informed decisions. While our content is created with insurance experts, it is for educational purposes only and should not be considered definitive professional financial advice.

We recommend seeking the counsel of a licensed financial advisor before making any decisions regarding insurance or personal finance.

PolicyMe's editorial guidelines

The prices listed in this article have researched and fact-checked with both internal and external sources. Prices are based on publicly available rates.

‍Our Sources:

Canadian Tobacco and Nicotine Survey, 2021. (2022, May 5). StatCan. Retrieved March 7, 2023, from https://www150.statcan.gc.ca/n1/en/daily-quotidien/220505/dq220505c-eng.pdf?st=ZqquHe1_

Giffin, K. (2021, September 1). It All Started with A Motorcycle. Our Journey to Buying Life Insurance | The Blondielocks | Life + Style. The Blondielocks | Life + Style. https://www.theblondielocks.com/it-all-started-with-a-motorcycle-our-journey-to-buying-life-insurance/

Ginter, E., & Simko, V. (2013). Women live longer than men. Bratislavske lekarske listy, 114(2), 45–49. https://doi.org/10.4149/bll_2013_011

Statistics Canada. Table 13-10-0394-01 Leading causes of death, total population, by age group

WinQuote®. (February, 2023). https://www.winquote.net/