Ben Nguyen 
5-year term life insurance is one of the most popular types of temporary life insurance coverage purchased by Canadians. With guaranteed premiums and death benefit payouts for five years, it provides affordable financial protection for your family during short-term needs or as a supplement to permanent policies.
This guide will examine 5-year term life insurance specifically within the Canadian context. We’ll review the key features and benefits, costs, top providers in Canada, who needs coverage, and tips for purchasing the right policy. Whether you’re considering term life insurance for the first time or looking to optimize your current coverage, use this guide to gain expertise in 5-year term life insurance.
What is 5-Year Term Life Insurance?
Definition & Overview
A 5-year term life insurance policy provides a guaranteed death benefit payout to designated beneficiaries if the insured person passes away within a 5 year coverage term. The policy cannot be cancelled by the insurer during the 5 year period, even if health conditions develop.
At the end of the initial 5-year term, the policy owner has the option to renew for another 5 years. Renewability continues until an age limit, usually 75 to 80 years old depending on the provider. Premiums often increase upon renewal as the insured ages.
The death benefit provides tax-free funds to pay funeral costs, debts like mortgages, daily living expenses and more. This can help protect families from financial hardship if a wage-earning spouse or parent dies prematurely.
Key Features
Six key features of 5-year term life insurance policies in Canada include:
- Guaranteed Level Premiums: Premiums remain fixed for each 5-year term.
- Guaranteed Coverage: The insurer cannot cancel the policy or change terms during a 5-year period.
- Death Benefit Payout: Provides lump-sum payment to beneficiaries if death occurs within a term.
- Renewability: Policies can be renewed until age 75 to 80 with higher premiums.
- Conversion Options: Ability to convert to permanent insurance with no medical underwriting at renewal.
- Living Benefits: Some policies offer advanced payouts for terminal illness diagnosis.
Policy Options
5-year term policies are available in both individual and group formats in Canada:
- Individual Policies: Coverage is customized for a specific person’s needs. Ideal for primary income earners.
- Group Policies: Offered through employers, associations, unions etc. More standardized but with lower group rates.
- Mortgage Life Insurance: A decreasing term policy to pay off the remaining mortgage loan balance if you die before the mortgage is fully paid off.
Why Do Canadians Buy 5-Year Term Life Insurance?
5-year term life insurance serves 4 common needs for Canadian families:
Mortgage Protection
With approximately 66.5% of Canadian households owning their home (in 2021), a 5 or 10-year term policy provides affordable mortgage protection. This ensures the mortgage balance gets paid off if you pass away before building home equity. (source: https://www150.statcan.gc.ca/n1/daily-quotidien/220921/dq220921b-eng.htm)
Income Replacement
The death benefit can help replace lost income from the primary earner’s salary to maintain the dependents’ standard of living. This income protection is especially important for young families.
Final Expenses
At a minimum, the death benefit can pay funeral costs, unpaid medical bills, and other final expenses so loved ones are not left with these burdens.
Temporary Needs
The lower premiums make 5-year term life insurance affordable for short-term needs like covering a car loan, paying for childcare costs, or saving for college tuition.
Advantages of 5-Year Term Life Insurance
There are 5 advantages that make 5-year term insurance policies a popular choice in Canada:
Lower Premiums
With no cash value accumulation, term life insurance generally has more affordable premiums, especially for shorter 5 or 10-year terms. This makes it very budget-friendly temporary coverage.
For example, a 30-year-old woman seeking $750,000 of coverage may pay approximately $330 annually for a 10-year term policy. Extending that to 20 years might be $550 per year. A permanent whole-life policy with the same coverage could cost $1200+ per year.
So in this scenario, the 5 or 10-year term has yearly premiums around 25-50% of a permanent policy cost. This can provide substantial savings for those who only need short-term coverage.
Coverage When It’s Needed Most
The policy provides protection during a specific period when your dependents would need it most in the event of your death. You can match it to the years when coverage is essential, such as while children are young or debts are outstanding.
Because the premiums are lower due to the short term, you may also be able to afford a higher coverage amount during this crucial period. This customized protection can be extremely valuable for your family’s financial security.
Chance to Re-Evaluate Later
After 5 years, you have the flexibility to re-assess your coverage needs and adjust if required. Life circumstances tend to change over time. Your dependents, debts, assets, and risks tend to look different after several years.
The end of a 5-year policy period provides the ideal milestone to re-examine your life insurance needs. You can then layer on additional policies, adjust coverage limits, or convert to a permanent policy. Having the built-in chance to re-evaluate is a bonus.
No Savings or Investment Element
Pure insurance protection with no cash value buildup can be simpler and align better with temporary needs. You don’t pay any extra premium costs for the cash value accounts associated with permanent life insurance.
If your sole need is life insurance protection, the cost savings from avoiding the cash value element allows more dollars to go toward maximizing your death benefit amount. This can optimize the value you get from your premiums.
Conversion Options
Many 5-year term policies allow converting to permanent life insurance without a medical exam before renewal. This gives you flexibility in case your needs change during the policy term.
Having this conversion option guarantees your insurability now, even if health conditions later arise making it more difficult to qualify for permanent life insurance after the term expires. So it provides options if your circumstances evolve.
Disadvantages of 5-Year Term Life Insurance
While there are benefits, drawbacks should also be considered when evaluating a 5-year term life insurance policy:
Coverage Expires
The biggest drawback is that coverage expires after 5 years if the policy is not renewed. This differs from permanent life insurance designed to provide lifelong protection.
So, it’s imperative to accurately assess how long you anticipate needing coverage. If you underestimate this duration, your loved ones could end up uninsured. Some financial obligations also extend beyond 5 years, so term coverage may be insufficient.
Renewal Uncertainty
Renewing a 5-year term policy after expiry often involves re-qualifying medically and potentially much higher premiums. Any health changes during the term could also prevent renewal entirely.
Unlike level-premium permanent life insurance, premiums tend to increase substantially upon renewal, especially beyond age 50. So renewal is not guaranteed, and it likely will have a cost increase.
Not Ideal for Long-Term Needs
For permanent, lifelong protection, a 5-year term policy is generally not the best solution. It can leave a protection gap if you live beyond 85 or 90 years old.
Certain financial needs like estate planning also require lifelong coverage. So for many families with dependents, permanent insurance is the way to go for full protection.
No Cash Value
There is no savings or investment component, unlike permanent life insurance plans. Any premiums paid into the policy provide pure insurance protection only.
This means if you cancel the policy during the 5-year term, you would not get any monetary value back. With permanent insurance, you’d at least get your accumulated cash value returned.
For temporary needs under 5 years, these downsides may be less concerning. But they should be carefully evaluated based on your specific situation and coverage needs.
5-Year Term Life Insurance Cost in Canada
The cost of 5-year term life insurance depends on 6 key factors:
Age
Younger ages qualify for lower premiums, as mortality risk increases as you age. Rates start rising around age 40 and increase more sharply at age 50 and beyond.
Gender
Due to differing life expectancy, premium rates are lower for women than men at younger ages but even out by the 50s and 60s.
Health
Any medical conditions you have, or lifestyle risks like smoking or high risk occupations will result in higher premiums compared to healthy individuals.
Coverage Amount
The higher the death benefit you purchase, the higher the required premiums to fund the policy.
Term Length
Premiums are lower for shorter 5 or 10-year terms compared to longer 15, 20 or 30-year terms.
Here are sample monthly costs for 5-year term life insurance by age and coverage amount:
| Age | $250,000 Coverage | $500,000 Coverage | $1,000,000 Coverage |
|---|---|---|---|
| 25 | $16 | $27 | $48 |
| 35 | $19 | $33 | $60 |
| 45 | $30 | $50 | $90 |
| 55 | $100 | $160 | $280 |
| 65 | $195 | $310 | $540 |
Premiums quoted are for a non-smoking male with no pre-existing health conditions. Adding health risks or choosing longer terms would increase these costs.
Provincial Differences
Premiums can also vary slightly by province. Rates are generally most affordable in Quebec, followed by Ontario, with Manitoba and Atlantic provinces being more expensive.
Read more: Strategies for Lowering Your Term Life Rates
5-Year Term Life Insurance Providers in Canada
When shopping for 5-year term life insurance, these are 5 of the top national life insurance providers in Canada to consider:
Sun Life Financial
- Offers renewable and convertible 5-year term life insurance
- Available for ages 18-80
- Death benefit amounts up to $50 million
- Can add optional critical illness and disability insurance
- Online instant quote calculator
Read the full review: Sun Life Insurance Canada
Canada Life
- Affordable 5-year term life insurance plan
- Option for the 10-year renewable term is also available
- Can add critical illness and disability insurance
- Access to Best Doctors services included
- Policies available entirely online
Read the full review: Canada Life Insurance
RBC Life Insurance
- A 5-year term life policy can be renewed annually up to age 90
- Option to convert to RBC permanent life insurance
- Add accidental death and dismemberment rider
- Get insurance bundled with RBC banking products
Read the full review: RBC Life Insurance
BMO Insurance
- 5-year renewable term life insurance policy
- Tailored for mortgage protection needs
- Option for 15-year term also available
- Must be a BMO banking client to apply
Read the full review: BMO Life Insurance
Manulife Financial
- 5-year term life insurance can be renewed annually until age 105
- No medical exam is required for renewals
- Conversion available to a Manulife permanent life insurance policy
- Access to the Manulife Vitality program for rewards and premium savings
Read the full review: Manulife Life Insurance
When comparing providers, look at premium rates, underwriting process, ability to bundle with other policies, online servicing capabilities, and financial strength ratings. An independent broker can help you find the best option for your specific situation.
Who Might Want 5-Year Term Life Insurance?
5-year term life insurance can be suitable for certain individuals who only require life insurance coverage for a short duration. Here are 5 examples of who might consider this type of policy:
Individuals with Short-Term Financial Obligations
If you have a debt that you plan to pay off within 5 years, such as a vehicle loan, student loan, small mortgage, or a personal loan, a 5-year term policy can provide coverage just for that period.
For instance, if you take out a $50,000 loan that you plan to repay over the next 5 years, you may want to take out a matching 5-year term life insurance policy for $50,000. This would ensure that if tragedy struck, your loved ones would not be left paying off a loan you expected to be done within 5 years.
Having even small debts paid off can provide loved ones with greater financial security. A 5-year term life insurance policy tied specifically to a short-term loan repayment period can help facilitate this.
Budget-Conscious Shoppers
The lower premiums of term life insurance can appeal to those wanting temporary coverage on a tight budget. A 5-year policy may be more affordable compared to longer terms of 10, 15, 20 years or permanent life insurance.
For example, a 40-year-old male seeking $500,000 in coverage could pay approximately $480 annually for a 5-year term life policy. Extending that to 20 years may cost closer to $960 annually for the same coverage amount. A permanent life insurance policy could be upwards of $1,500 per year.
So, for budget-conscious consumers, that 5-year term is half the yearly cost of permanent insurance, providing substantial savings. This can make short-term life insurance accessible to those with limited budgets.
People Between Jobs or Careers
If you are in between jobs or switching careers, a 5-year term policy can provide temporary coverage until you get established. When facing employment uncertainty, life insurance may be even more crucial to protect your family.
For instance, if you plan to go back to school for 2-3 years and then start a new career, a 5-year term life insurance policy could cover that transition period. This can give you peace of mind, knowing that your family is protected while you go through a career change.
The lower cost of 5-year term insurance allows you to maintain coverage even with the potentially reduced income during a transitional career stage. Then, you can re-evaluate your needs once your employment situation stabilizes.
New Parents
New parents may want life insurance coverage just while their kids are very young. This covers the crucial early dependency years where the premature loss of a parent could be especially devastating.
Many parents are most concerned about their new baby or toddler being provided and cared for. So they may choose a 5-year term to cover the initial few years until their children reach school age and reduce their dependency. This can provide parental peace of mind when it is wanted most.
Once the kids grow older, the coverage needs and costs may change. So, a short 5-year term allows new parents to match their life insurance coverage to the periods they feel it is essential.
Young Adults Starting Out
As a young adult just getting established financially, a short-term policy can provide budget-friendly coverage for the first few unstable years. This gives young adults some protection during the early career-building and family-starting phases.
For example, newlyweds may want joint coverage to protect each other while they begin married life together. Or a recent graduate may want a safety net while navigating their first major job. The lower cost 5-year term insurance allows for coverage during these transitional times without a large financial commitment.
Starting life insurance at a young age also comes with long-term advantages. In the future, when seeking permanent life insurance, having an early start age will likely mean lower premiums. So, beginning with a 5-year term policy can set young adults up for lifelong coverage.
How to Buy 5-Year Term Life Insurance
Follow these key steps when purchasing a 5-year term life policy:
Determine the Right Coverage Amount
Consider all expenses you want to cover, debts like mortgages, income replacement needs, and existing assets and insurance. This will tell you how much coverage to buy.
Get Quotes From Insurers or Brokers
Reach out to insurers directly or use a broker to get personalized quotes. Compare rates from at least three providers.
Complete the Application Process
You’ll answer detailed questions about your health, family history, occupations, hobbies, and other lifestyle factors.
Undergo Medical Underwriting
This may involve a doctor’s exam, bloodwork, and requesting medical records depending on your age and coverage amount.
Receive a Policy Offer
If approved, you’ll receive a policy offer to review terms, confirm beneficiaries, and sign to move forward.
Submit Your First Premium Payment
This payment activates the policy. Make sure to pay all future premiums on time to keep the policy active.
Where to Buy 5-Year Term Life Insurance
There are 4 options to purchase 5-year term life insurance coverage:
Directly From Insurers
You can buy policies directly from major insurance companies like Sunlife, RBC Insurance, and Manulife through their website or by calling their sales team. This allows you to get quotes and apply entirely online or over the phone.
Through an Independent Insurance Broker
Independent brokers can shop rates from a large network of insurers to find you the most competitive pricing. They also provide personalized advice on the right policy and coverage for your needs. Most offer online quotes as well.
Via Affinity Partners
Some employer or association group plans include access to discounted group term life insurance rates. Alumni organizations, credit unions, and other membership groups may also partner with insurers to offer special pricing.
Using an Online Insurance Brokerage
There are various online insurance platforms that allow you to compare quotes from multiple insurers through a single application process. This offers convenience and makes it easy to compare rates.
Tips for Buying 5-Year Term Life Insurance
If you determine a 5-year term policy may suit your short-term insurance needs, here are 9 helpful tips for purchasing the right coverage:
Compare Quotes Extensively
Rates for the same applicant and coverage amount can vary dramatically between insurers. Get quotes online through insurance marketplaces. An independent broker can also provide you with shop rates from multiple companies.
Calculate the Right Coverage Amount
Too much coverage adds unnecessary cost, while too little leaves your family underinsured. Consider all debts, income to replace, funeral costs, family expenses and don’t just take the maximum amount.
Consider Optional Riders
Riders like critical illness insurance, disability insurance, and dependent children coverage can enhance a term life insurance policy for minimal added cost.
Read the Fine Print
Understand the policy renewals, conversions, exclusions, limitations, clauses for qualifying events like suicide, and other details of the contract. An advisor can explain these clearly.
Lock In Young, Healthy Rates
Buy your initial policy when young and healthy to secure the lowest premiums. Rates increase as you age and renew terms.
Maintain a Healthy Lifestyle
Your health, as well as any lifestyle factors like smoking, will be re-assessed if renewing after the 5-year term. Keeping your health on track can help ensure renewal eligibility.
Work With an Advisor
An independent life insurance advisor provides guidance to ensure this policy truly aligns with your insurance needs, both now and in the future.
Review Financial Strength Ratings
When selecting an insurer, review ratings from firms like A.M. Best that assess the company’s financial strength and ability to pay claims.
Bundle for Added Savings
You can often save more when bundling your term life policy with home, auto or other insurance policies from the same provider.
Making a Claim on 5-Year Term Life Insurance
If faced with having to make a death benefit claim, here is the process:
Documentation Needed
- A certified copy of the death certificate
- The original policy contract
- Personal identification for beneficiaries
Completing Claim Forms
The beneficiaries or executor will need to complete claim forms and authorization for the insurer to access medical records as part of assessing the claim.
Review and Investigation
The insurer will review the claim information, confirm the validity of documentation, pull medical records, and investigate any discrepancies.
Payment Issued
Once approved, the death benefit will be paid out to designated beneficiaries as a tax-free lump sum. This is typically within two weeks.
The simplified claims process is one benefit of purchasing coverage from a top rated insurer. Reputable providers have experience managing claims quickly and compassionately.
There are also longer-term options to consider. Read our valuable articles about Term 10 life insurance, Term 20 life insurance, Term 30 life insurance, Term 40 life insurance, Term 25 life insurance, and Term to Age 65 life insurance to understand the differences in cost, coverage duration, conversions, and best uses for each policy term length.
Summary
A 5-year term life insurance policy can be an affordable way to secure valuable temporary coverage for Canadians with short-term insurance needs under 5 years.
While not a fit for permanent lifelong protection, 5-year term life insurance serves a key purpose in providing budget-friendly coverage for those starting out, going through job changes, repaying debts, or just wanting protection while children are young.
Finding the right 5-year term life insurance comes down to accurately calculating your coverage needs, comparing quotes to find the best value, and evaluating renewal terms and conversion options closely. Working with an experienced advisor is the best way to ensure you select adequate coverage that truly aligns with your family’s needs and long-term financial security.
Frequently Asked Questions
What medical tests are required for 5-year term life insurance?
For policies under $500,000, you may only need to complete a questionnaire if you are under age 50. Over $500,000 or age 50+ may require a paramed exam, bloodwork and doctor records.
Why is 5-year term life insurance cheaper than permanent insurance?
Term life premiums are lower because the policy only pays out if you die within five years. Permanent insurance lasts your entire life, so premiums are higher.
When should I renew my 5-year term life insurance policy?
You'll receive a renewal notice before your term expires. Renew at least 30 days in advance to avoid a lapse in coverage. You can renew until age 75-80 depending on insurer.
Can I convert my 5-year term life policy to permanent insurance?
Most term life policies allow you to convert to a permanent life insurance policy within a conversion period, often 10-15 years from the issue date, without new underwriting.
Do 5-year term life insurance premiums go up every renewal?
Yes, premiums increase at each 5-year renewal as you enter a new age band. Renewing young and healthy keeps premiums lower over time.
Is a medical exam required to renew 5-year term life insurance?
You may need to provide an updated medical history or undergo new underwriting at renewal. Good health keeps renewal costs lower.
Can I renew my 5-year term policy after age 75?
Most insurers stop renewals at 75-80 years old. Some allow renewals to age 90 but with significantly higher premiums.
How long does it take to get approved for 5-year term life insurance?
Approval can take 1-2 weeks with simplified underwriting. It may take 4-6 weeks if a full medical exam and records are required.
Can I get a 5-year term life insurance quote online?
Yes, you can get quotes on insurer websites or use online insurance brokers to compare rates from multiple companies.
Who needs to be my beneficiary for 5-year term life insurance?
You can name any person or entity as your beneficiary. Common choices are spouses, children, parents, trusts, or charities.
What conditions disqualify you from 5-year term life insurance?
Serious conditions like cancer, heart disease and stroke may disqualify you from term life insurance or lead to higher premiums.
Can I renew my 5-year term life policy if I develop a health condition?
As long as you continue paying premiums, the insurer cannot cancel your term policy even if your health declines.
Is a 5-year term life insurance payout taxable income for beneficiaries?
No, life insurance death benefit payouts are not considered taxable income. Beneficiaries receive the full payout tax-free.
Can I get 5-year term life insurance after age 65?
It becomes difficult to qualify after 65 due to age and health. Some final expense policies are available but with higher costs.
Is there a grace period if I miss a 5-year term life premium payment?
You usually have a 30-day grace period after a missed payment before the policy lapses. Make sure to pay before the grace period ends.
Can I deduct 5-year term life insurance premiums from my taxes?
Unfortunately, term life insurance premiums are not tax deductible in Canada, unlike some permanent cash-value life insurance policies.
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