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Term life insurance

Term life insurance is the most common type of life insurance in Canada, but there are important things to consider before you make a purchase.

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What is term life insurance

What is term life insurance?

Term life insurance is a life insurance product that covers you for a specific period of time, typically from 5 to 30 years. When you buy term life insurance, you lock in your premium and coverage for the entire term. When your term expires, you may have the option to renew your policy at a higher cost premium or let your coverage expire. Some policies also let you convert to whole life insurance or universal life insurance, typically between one and five years before the policy ends.

When you buy term life insurance, you choose the term length (how long you want to be covered for) and your coverage amount (how much you want your beneficiary to receive when you die). If you die within the term set out by your policy, your life insurance company will pay the coverage amount, also known as the death benefit, to your beneficiary.

When should you buy term life insurance?

Term life insurance is best for people who have a temporary need for life insurance, but temporary can extend for many years. Some examples include:

  • If you have a mortgage, and want to leave your family enough money to pay it off if you die (assuming you don't have mortgage life insurance).
  • If you have young children who need to be provided for if you pass. Life insurance can pay for their education. 
  • If you’re planning to retire and only need coverage for as long as you expect to work. You can get a 25-year term life policy starting at age 40. This way, you have coverage in critical times of raising kids and paying down a mortgage. 
  • Your partner is going back to school, but you can't be left without cashflow if they pass. A 5-year term life insurance policy would be smart. 

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Renewable vs. convertible term life insurance

Renewable term life insurance is coverage that automatically renews at the end of the term. If your coverage expires after 10 years, you’ll automatically be renewed into a new 10-year term. When you choose renewable term life insurance, your premiums will increase at renewal, so it’s a good idea to compare life insurance quotes for term life insurance before your term expires.

Convertible Term Life Insurance gives you the option to convert your term life insurance policy to a permanent life insurance policy. The primary benefit of having a convertible policy is that you won’t have to pass a medical exam to get permanent coverage. If you’re diagnosed with a serious illness while you have a convertible term life insurance policy, you can convert to a permanent life insurance policy you might not otherwise have been able to get. Learn more about this on our renewable and convertible life insurance article.

The right life insurance coverage for you

One of the most important choices in choosing a life insurance policy is deciding how much coverage you need. There are a number of different questions to ask that will influence your decision:

  • Your family situation: If you have young children, how much money would it cost to raise them?
  • Your debts: How much do you owe on your mortgage and other loans? Who will be responsible for making payments if you pass away?
  • Your income: How much do you make after-tax each year? How long will your family need your income to be replaced?

Learn more here: How much life insurance do I need?.

Case Study: Be like Mike

Mike is 35 years old, earns $70,000 a year, is married, has 2 children under 5, and has a mortgage with 20 years left to pay with $350,000 outstanding.

  • Cost to raise 2 children to age 18: $500,000
  • Mortgage: $350,000
  • College tuition for two children: $50,000
  • 5 years income replacement: $350,000
  • Total Coverage:$1,200,000

In this scenario, Mike’s major expenses are the cost of raising children and his mortgage. In this case, it makes sense for Mike to choose a 20-year term. After 20 years, his kids will be over 18, and his mortgage will be paid off. At that time, he can save money on life insurance by renewing into a lower coverage amount. The amount of coverage you choose is up to you. You might decide to buy enough term life insurance to replace your salary for a certain number of years, enough to pay off your mortgage, or just enough to cover funeral expenses. There’s no rule against having multiple life insurance policies, so you can buy additional coverage any time you need it.

Additional term life insurance coverage

Some term life insurance providers allow you to purchase extended coverage, or riders, to cover you for other circumstances:

  • Critical illness provides payout if you develop a life-threatening illness like heart disease, stroke, or cancer.
  • Disability insurance in case you're unable to work for 3 months or more. 
  • You can add a Children’s rider which pays out in the event your child dies.
  • Accidental death pays an additional benefit if your death is the result of an accident.
  • Disability waiver of premium allows you to stop paying your premiums if you become disabled.

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Compare quotes today

Term life insurance rates can vary wildly, and you can't know what you're eligible for until you get a quote. Receive multiple quotes today so you have all the information you need.

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Common questions about term life insurance

Which is better term life or whole life?

What is the best term life insurance to buy?

What happens to term life insurance at the end of the term?

Can you cash in your term life insurance?

Author Bio

Matt Hands, Business Director of Insurance

Matt started his professional career at CARPROOF where he honed his marketing and analytical skills for over 3 years. Matt then took his wealth of experience to Ratehub.ca’s Toronto offices, working with insurance providers, agents, and brokers to grow and expand the Insurance business unit. He is a thought leader in the community and a valuable insurance resource to respected publications like the Globe & Mail, Toronto Star, Huffington Post, Yahoo News, and 680 news radio in Toronto.

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