Term Life Insurance Canada: What is Term Life Insurance?

Note: monthly price is calculated based on healthy individuals between 20-45 years of age in Canada for a $400,000 policy coverage amount. Monthly policy rates can vary based on age, gender, health status, coverage amount, and policy length.

Understanding Term Life Insurance

Term life insurance is a type of life insurance that provides coverage for a specified period, typically ranging from 10 to 30 years. It is designed to offer temporary protection to individuals who need coverage for a specific period, such as until their children are financially independent or until they pay off their mortgage. Term life insurance is often more affordable than permanent life insurance and can be converted to permanent coverage later in life.

Unlike permanent life insurance, which lasts a lifetime and includes a savings component, term life insurance focuses solely on providing a death benefit. This makes it a straightforward and cost-effective option for those seeking to protect their family’s financial future during critical years. Whether you’re looking to cover the years until your children graduate or ensure your mortgage is paid off, term life insurance offers the flexibility to match your needs.

How does term life insurance work?

Term life insurance is the simplest, purest form of life insurance. You pay a premium for a set number of years, and in exchange, the insurer promises to pay your family a fixed amount of money if you die before the policy term is up.

Canada Life offers a unique aspect of yearly policy renewals at lower initial rates, making it a notable provider in the term life insurance market.

The insurer determines your premiums based on the coverage amount and policy term. The more coverage you want, the higher your policy premiums. Likewise, the longer your policy term, the more you will pay.

The insurer also considers your age, gender, medical history, and family’s medical history. They may inquire about your smoking status, current medication hobbies, occupation, hobbies, and driving record. You may also have to take a medical exam to prove eligibility or qualify for the best rates.

Most term policies are sold as level-term policies. That means your premiums will remain the same throughout the contract. So, if you’re paying $24 a month for a 20-year term policy, that $24 will not increase for the entire life of your policy.

Your loved ones receive the death benefit, which is usually tax-free if you die within the policy term.

‍Note: The death benefit is not tax-free if made to an estate.

Your beneficiaries can receive the death benefit as a single payment or in installments. They are free to use this money as they see fit. If you outlive the term, you can convert or update your life insurance policy or let it expire. If you die after your policy has expired, your family will not get any death benefit.

Most term life insurance policies are renewable and convertible up to certain limits. However, expect to pay more at policy renewal because life insurance costs increase as you age. Similarly, if you convert your term life policy into a permanent one, you must pay higher premiums. You can renew or convert your life term policy without any additional underwriting or providing any medical evidence.

What are the main advantages of term life insurance?

Term life insurance offers five important benefits.

1. More affordable

Term life insurance rates are cheaper than whole life insurance because it offers coverage for specific years and doesn’t include a savings component.

2. Suitable for young families

Because it is more affordable than permanent life insurance, it often offers a better value for young families in Canada. Many young families are stressed by money, shouldering the costs of a mortgage, raising children, and other expenses. Term life insurance allows them to protect their family’s financial future without breaking the bank.

3. More Flexible

Term life insurance is highly flexible. You can pick the terms and coverage that best fit your needs. For instance, if you want to cover a long-term debt, like a mortgage, you can lock in low rates for the next 20 or 25 years. On the other hand, if you want to cover your tuition expenses, a 10-year term policy might be a good match.

4. Simplicity

Term life insurance policies are much easier to understand than permanent life insurance. You must make only three decisions: preferred insurer, coverage amount, and term length. The insurer provides you coverage for the entire term, provided you pay premiums on time.

5. Can be converted to permanent life insurance

Most term life insurance policies come with a “term conversion rider.” It allows you to exchange a term life policy for a permanent one without submitting proof of insurability.

Permanent insurance offers a long-lasting solution that not only provides lifetime coverage but also has the potential to accumulate equity and offer tax benefits. This option suits those seeking term insurance that can grow over time based on the chosen premium and coverage.

How much life insurance do I need?

All of us would like to leave our loved ones as much money as possible. However, the amount of coverage you choose impacts your premiums.

When evaluating life insurance options, it’s essential to consider different types of life insurance based on your personal needs and long-term goals. The more coverage there is, the higher the premiums will be. For this reason, it’s important to ensure it’s cost-efficient while still providing a safety net that’s adequate for your family’s needs.

To calculate how much insurance coverage you require, ask yourself: for how long will your income need to be replaced?

Will the payout be needed until your spouse finds employment? Until your kids become financially independent? Or until any long-term debt, like a mortgage, is paid?

Next, consider your annual salary and multiply it by the number of years for which your family will need the funds.

Now, consider any debt you may have (mortgage, vehicle loans, credit loans, etc.). Subtract the value of all your current savings from the total amount you owe and add this figure to the previous one. The resulting figure is a rough estimate of the amount of coverage you need.

Our intuitive life insurance calculator can crunch the numbers for you. Simply plug the numbers in our life insurance calculator and get a recommendation tailored to your needs.

How much will term life insurance cost me?

Term life insurance has an end date, which is less expensive than permanent life. How much you pay depends on many factors, such as:

• Age: Insurers give younger applicants better rates than older shoppers. Generally speaking, life insurance costs go up by 5% to 9% per year.
• Health: Insurance companies reward healthy applicants with lower premiums.
• Coverage amount: Premium rates go up as the coverage amount increases.
• Term length: The greater the term length, the more coverage will be paid.
• Occupation/Hobbies: If you have a job or a hobby that puts you at risk, expect to pay more.
• Tobacco usage: Insurers charge smokers two or three times more than non-smokers.
• Family history: Insurers examine your family’s medical history because many diseases have a hereditary component. A family history of heart disease or cancer can push your premium rates up.
• Your gender: Women live longer than men and, as such, get better life insurance rates.

The best recommendation is to buy early.

Life insurance gets more expensive as you age. Buying and looking at quotes early and while you are healthy helps you save on premiums when you get older.

Here is a sample of monthly insurance rates for a non-smoker based on a Standard health rating. This coverage is for monthly premium rates for policies offered by Dundas Life in 2020.

Types of term life insurance

Broadly speaking, term life insurance comes in many varieties.

Level-premium term life insurance

Premiums and the death benefit remain the same throughout the policy term.

Annual renewable term life insurance (ART)

The term lasts one year. You can renew the policy at the end of the term. Each year you’ll pay more than the previous one. ART policies are best for covering short-term debt obligations. For example, if you have a car loan but plan to sell it in the near future, an ART policy offers an affordable way to protect yourself within this period.

Decreasing term life insurance

The death benefit decreases over time, while the premiums usually remain unchanged. People buy decreasing-term life insurance to cover a specific debt, like a mortgage, though we prefer life insurance.

No medical exam term life insurance

You don’t need a medical exam to get coverage, though you may have to answer a few health-related questions.

Group Term Life Insurance

Group term life insurance is a policy that is available for free or at a low cost through your work. It is an excellent option to consider if your workplace provides it.

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Term Length Options

Term insurance policies come with various term length options, allowing you to choose the duration that best fits your needs:

• 10-year term: Suitable for individuals with short-term financial responsibilities, such as students or car loan payments. This option provides temporary coverage at an affordable rate.
• 20-year term: Ideal for individuals with longer-term financial responsibilities, such as newly married couples or families with young children. It offers a balance between cost and coverage duration.
• 30-year term: Best for those who need coverage for an extended period, such as until their children are financially independent or their mortgage is paid off. This option provides long-term peace of mind.

Selecting the correct term length ensures that your policy aligns with your financial goals and obligations, providing the necessary protection when needed.

Five Common Term Life Insurance Riders

Riders refer to additional features added to a term insurance policy to address specific concerns or needs. Large insurers, such as Manulife and RBC Insurance, provide many of these riders. Some riders — like term conversion — are built into your term life policy. For others, you have to pay extra.

• Term conversion rider — A free add-on that lets you convert your term life policy into a permanent one without a medical exam up to a certain age.  
• Return of premium rider — Pays some or all of the premiums you’ve paid if you survive the policy term.
• Accelerated death benefit rider — You receive part of the death benefit if you become terminally ill and have only one to two years to live.  
• Disability waiver of premium — Protects your policy from lapsing if you get seriously injured and can’t make premium payments.
• Accident death benefit — Your family receives two or three times the payout if you die due to an accident.

Finding the best companies for term life insurance

Once you’ve got a handle on your life insurance needs, it’s time to hunt for the right insurer.

Remember, not all insurance companies are created equal. To find the best life insurance, evaluate various providers based on their offerings, customer reviews, and premium prices. Some boast solid financial standing, while others offer excellent customer service. Pick the term life insurer that excels in areas most important for you.

Here are some ways to compare insurance companies to determine which is best for you.

Check out the insurer’s financial rating

You want to select a company with the financial wherewithal to honor long-term contracts. Checking an insurer’s financial strength is one way to ascertain if you can trust it.

Look at the AM. The best rating of each cannot be considered. A rating of A- or higher indicates that the insurer can make good on its promise.

Check their customer service

You want a life insurance carrier that serves customers well right from when they request a quote until a claim is made. To understand an insurer’s customer service, you can look up its ratings and reviews on the Better Business Bureau website.

Compare rates

For most people, term life insurance boils down to cost. Since each applicant has unique needs, no insurer is the low-price leader for everyone. One carrier that’s cheapest for one person may be the most expensive option for another. Comparing rates of multiple players is the only way to ensure you get the best bang for your buck.

How to buy a life insurance policy?

Term life insurance isn’t complicated, but choosing the right policy may require serious research. Instead of going solo, it may be best to partner with an experienced independent broker like Dundas Life. A broker will help you locate a Canadian insurer that provides the best possible life insurance coverage at the best possible price.

The process of buying life insurance involves three steps:

• Fill out the application form

The application form will have questions about your health history, family medical history, and occupation. Answer these questions truthfully. Also, specify the desired coverage amount and the policy term.

• Take a medical exam

You must take a medical exam if you opt for fully underwritten life insurance. A paramedical examiner will collect your blood and urine samples and measure your height, weight, and blood pressure.

Consider a no-medical term life insurance policy if you don’t want a medical exam.

• Pay the first premium.

If you are eligible for coverage, the insurer will send you the policy papers. However, the policy will become active after you pay the first premium.

Term life insurance vs. Whole life insurance

Term life insurance is easy to understand. It is also more affordable because it has an end date and no cash value. For most people, it’s the right choice. However, whole life insurance can be a better fit for certain people, like someone with a lifelong dependent or a high net worth.

Here’s a quick comparison chart to simplify the differences between term life and whole life insurance.

Is term life insurance worth it?

Yes, it is. Consider the potential advantages and disadvantages of term life insurance and whole life insurance.

If there’s someone you care about who depends on you financially, purchasing life insurance should be at the top of your to-do list. And since life insurance provides coverage at an affordable price during the years your family needs it most, you should strongly consider it.

For less than the cost of a cup of coffee a day, you can put financial protection in place for your family.

Frequently Asked Questions (FAQs)

Do term life rates get higher?

It depends on what kind of policy you have. In the case of a level-term life policy, the premium stays the same throughout the contract. If you bought an annual renewable term life, your premium would increase yearly. That’s because life insurance costs increase as we grow older.

What happens if I live longer than my term life insurance?

You have four options in front of you.

• Let the policy expire. If you no longer need life insurance, you can let your term life policy expire and go without coverage.
• Convert your policy. When your policy is near the end of its term, you can convert it into permanent life insurance coverage. You will not have to submit proof of insurability. This option is available till a certain age, which may vary from insurer to insurer.
• Renew your term life policy. You don’t need to take another medical exam. You can exercise this option till a certain age, which may vary from one carrier to the next.
• Apply for a new policy. Healthy people may benefit from buying a new policy at lower rates instead of renewing the existing one.

Is it possible to cancel a term life insurance policy at any time?

Yes, absolutely. You can cancel your term life policy by stopping premium payments. You won’t be charged any cancellation fee.

Would I get my cash back if I cancel my term life insurance policy?

No, you won’t. That’s because it doesn’t build cash value. So when you end it, there’s no refund.

How long should my life insurance coverage last?

Life insurance needs aren’t one-size-fits-all. So there’s no one correct answer to this question. It all depends on your reason for purchasing term life in the first place.

Are you buying coverage until retirement? In that case, the term should last as many years as your retirement. Do you want a term life policy to protect a mortgage? Then, the policy should be in force for the number of years you would need to pay off the loan.

Term life insurance may be a good option if you want protection for a specific time. It is typically cheaper than whole-life insurance, so it may be a better choice if you are looking for affordability.