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Term Life Insurance in Canada: The Ultimate Guide for Canadian

term life insurance what is term life insurance in canada how term life insurance work
term life insurance what is term life insurance in canada how term life insurance work

Term life insurance is one of the most popular forms of coverage Canadians rely on to provide financial protection for their loved ones.

Unlike permanent life insurance ( A type of life insurance in Canada ), term life insurance is pure without investment components. It pays your beneficiaries a lump sum death benefit if you pass away during a set coverage term or period. This money can be used to pay off debts, replace lost income, cover final expenses, and more.

Term life insurance premiums are significantly lower than permanent insurance since most policyholders outlive their term.

This makes it an affordable way to secure guaranteed coverage during the years when your family depends on your financial support and income.

In this comprehensive guide, we will cover everything you need to know about term life insurance and how to choose the correct term policy tailored to your needs as a Canadian.

What is Term Life Insurance ?

Term life insurance provides pure death benefit protection for a period or “term.” This temporary coverage lasts for periods like 10, 20 or 30 years.

If the insured individual dies during the active term, the policy pays out a tax-free lump sum to beneficiaries. The payout can help cover final expenses, mortgage balances, debts, and income replacement.

Term life insurance in Canada only pays if death occurs during the term. It does not build cash value like permanent life insurance.

Premiums and coverage expire if the term ends and the policy is not renewed.

Common Reasons Canadians Buy Term Life Insurance

There are several life stages and scenarios that make term life insurance valuable for Canadian families:

  • New Mortgage Protection – Covers the balance so your family doesn’t lose the home if you pass away prematurely. Aligns with a 15/20/25-year mortgage term.
  • Family Income Replacement – Funds ongoing living expenses if a breadwinner’s income is lost. Sets coverage at 5-10x annual income.
  • Estate Planning – Creates an estate to pass assets to beneficiaries and charities. 10 or 20-year terms work well.
  • Final Expenses – Covers funeral costs, medical bills, taxes. $50,000 tends to cover final costs sufficiently.
  • Business Loans – Pays off debts owed so a partner can continue operating. Match term length to loan payoff schedule.
  • Education Funding – Pays for a child/spouse’s future education. Time term ends to align with completed education.

Why Do Canadians Choose Term Life Insurance?

There are a few key reasons term life insurance appeals to Canadians seeking protection:

  • Affordability – Term life premiums are significantly lower than permanent insurance since most outlive the term. This makes it economical for coverage needed during working years.
  • Flexibility – You can match the term length to your specific need such as covering a mortgage or providing for children until they are adults.
  • Simplicity – Term life insurance provides straightforward, guaranteed death benefit protection without complex investment components.

How Does Term Life Insurance Work?

Term life insurance provides guaranteed coverage for a set length of time. Here are the critical details on how term life insurance works:

Premiums

  • Premiums are the monthly or annual amount you pay for coverage. Rates are based on age and health at the start.
  • Term premiums are initially very low, especially for young, healthy applicants.
  • Your rate is locked in for the entire term and can’t increase.

Underwriting

  • Insurers underwrite to assess your eligibility and set premiums based on health and lifestyle factors.
  • You’ll complete an application, medical history, and possibly medical exam and bloodwork.
  • Higher-risk applicants may pay more or be denied coverage altogether.

Coverage Amount

  • When applying, you select the death benefit amount paid to your beneficiaries if you pass during the term.
  • Aim for enough coverage to pay debts, fund expenses, and replace income your family would lose.
  • Term policies are available from $100,000 to $1 million or more.

Length of Term

  • Term lengths usually range from 10 years up to 30 years maximum.
  • Choose a term that aligns with the duration you expect to need coverage.
  • Longer terms have lower annual premiums but are only sometimes necessary.

Tax-Free Death Benefit

  • If you pass away during the term, the payout is tax-free to your designated beneficiaries.
  • Benefits can be used as your loved ones wish – expenses, investments, education, etc.

Types of Term Life Insurance in Canada

There are several varieties of term life insurance policies available to choose from:

Level Term Life Insurance

This is the most common type of term life policy. With a level term life insurance in Canada, the death benefit amount and premium payments remain constant for the entire term length.

For example, a 20-year $500,000 level term policy would have the same $500,000 payout if you died at any point in the 20 years, while premiums are fixed at the initial rate.

Level premiums make budgeting straightforward. Your rates will stay the same as you age during the term. This is the most popular option.

Decreasing Term Life Insurance

Also referred to as mortgage protection, the death benefit for decreasing term life insurance policies incrementally decreases over the term while premiums remain static.

This works well to parallel a debt like a steadily paid mortgage. The payout aligns with the mortgage balance if you pass away during those years.

Renewable Term Life Insurance

With renewable term life insurance, also called annually renewable term, the death benefit amount stays the same, but premiums increase yearly as you age.

The insurer cannot cancel your coverage regardless of changes in health. Policies are typically renewable until age 85. Converting to permanent life insurance is often advised before costs rise substantially at older ages.

Convertible Term Life Insurance

Convertible term allows you to exchange the term policy for a permanent life insurance policy with the same company without providing updated medical evidence.

This guarantees future insurability even if health conditions develop during the original term that would otherwise make coverage unaffordable or unattainable.

Which is better: term life insurance or Permanent Life Insurance ?

Term life insurance and permanent life insurance serve different purposes:

Term Life Insurance

  • Lower cost pure insurance protection.
  • Coverage expires after a set term length.
  • No cash value accumulation.
  • Only pays if death occurs during the term.

Permanent Life Insurance

  • Provides lifelong protection.
  • Premiums stay the same until death typically.
  • Builds cash value that can be borrowed against.
  • It pays a death benefit whenever you pass away.

Many Canadians use the term and permanent insurance together as part of a balanced plan. Term meets temporary needs at the lowest cost, while permanent offers lifelong flexibility.

Term life insurance vs whole life insurance – what’s the difference in Canada ?

compare term life insurance vs whole life insurance in canada
compare term life insurance vs whole life insurance in canada
FactorTerm Life InsuranceWhole Life Insurance
OverviewProvides temporary death benefit protection for a set period of time (e.g 10, 20, 30 years). No cash value.Provides permanent protection for entire life. Builds cash value that can be borrowed against.
PremiumsTypically lower, but increase when policy renews. Based on age and health at time of purchase.Remain fixed and constant for life. Based on age when purchased.
PayoutDeath benefit paid only if death occurs during term. Policy expires after.Death benefit paid whenever insured dies. Policy does not expire.
UsesIncome replacement, mortgage/debt coverage, final expenses. Best for temporary needs.Lifelong coverage for estate planning and financial goals. Cash value accumulation.
Popularity in CanadaMost common. About 60% of individual life policies sold are term.Less common. Whole life is around 15% of policies.
Cost Example$250,000 20-year term for 40 year old = $30/month$250,000 whole life for 40 year old = $150/month
Tax BenefitsPremiums not tax deductible. Death benefit not taxable.Premiums not tax deductible. Death benefit not taxable.
Cash ValueNone. Pure insurance product.Policy builds cash value that earns tax-deferred interest at about 4-6% per year.

The main advantages of term life insurance are lower cost and the ability to match term length to temporary needs.

A whole life insurance is better for permanent protection and leveraging the cash value for loans and accumulation. The right choice depends on individual financial goals and budget.

What Does Term Life Insurance Cost in Canada?

Term life premiums are based on personal factors like age, health, gender, and smoking status. However, here are some average monthly costs for healthy, non-smoking applicants:

Term Life Insurance Pricing and Costs in Canada

Option 1

  • 30 year old male, $500,000 coverage for 20 years = $29.33/month
  • 30 year old female, $500,000 coverage for 20 years = $22.99/month
  • 40 year old male, $400,000 coverage for 15 years = $43.55/month
  • 50 year old female, $300,000 coverage for 10 years = $44.25/month

Exact rates are determined through an application and underwriting process.Use an online quote tool to estimate your specific premium based on your situation at Life Insurance Quote in Canada website.

Option 2

Term life insurance rates for healthy non-smokers may range*:

AgeSample Monthly Premiums for $500K Coverage
30$25
40$35
50$70
60$200
Source: Forbes Advisor research
  • Premiums depend on age, health, gender, lifestyle, and other risk factors.
  • Use online comparison sites to find the most competitive rate for your profile.
  • Strategies to reduce premiums include exercising regularly, maintaining healthy weights, and testing negative for nicotine.

Pros and Cons of Term Life Insurance in Canada

Pros of term life insurance:

  • Low cost premiums
  • Customizable term lengths
  • Large death benefit payouts
  • Simple to understand
  • Available for almost all age groups up to around 75 years old
  • Can get extensive coverage amounts to millions of dollars
  • There are many options to customize coverage and terms.
  • Includes living benefits riders in some policies

Cons of term life insurance:

  • Temporary coverage, expires after term ends
  • Premiums rise as you age
  • No cash value accumulation
  • Health changes may prevent renewal
  • Insurers may deny coverage due to pre-existing health conditions
  • Require periodic medical exams to renew and maintain coverage
  • Late payments can lead to a lapse in coverage
  • Payout is limited only to death benefits during the term

Comparing Term Life Insurance Policy Types

prons and cons of types term life insurance policy
life buzz quote in canada new 8 1
prons and cons of types term life insurance policy in canada
PolicyProsConsBest For
Level TermPremiums stay the sameNo flexibility to decreaseBudgeting, income replacement
Decreasing TermMatches decreasing debtsLess useful after debt repaidMortgages, loans
Renewable TermGuaranteed lifetime renewalPremiums increase annuallyLong-term income protection
Convertible TermCan convert to permanentSlightly higher premiumsLong-term flexibility

When Does Term Life Insurance Make Sense?

When to Consider Term Life Insurance

There are certain life stages and financial circumstances where term life insurance is often a practical choice:

New Parents

When Canadian couples first have children, their financial commitmencts expand rapidly. Term life can provide affordable income replacement if the unexpected were to occur. The payout helps cover living expenses, future education costs, and more.

Purchasing a Home

Homebuyers often get term life policies with coverage amounts matching their new mortgage balance. This ensures the mortgage gets paid off for remaining family members if they pass away before the home is wholly owned.

Debt Consolidation

Term life insurance can cover the balance for consolidating higher-interest debts like credit cards or personal loans into a lower fixed loan. This prevents burdening family with new debt repayments if the borrower dies.

Supplementary Income Protection

Work-provided group life insurance may not fully replace income lost in the event of a primary earner’s death. Term life brings income up to the desired level for living expenses, childcare, and daily needs.

Key Employee or Partner Insurance

Business partners commonly take out term life insurance on each other. Known as “key person” insurance, the payout helps the business endure if an owner, high-revenue employee, or partner dies.

Funding Education

Term life insurance benefits can be used to finance a child or spouse’s future education costs if you pass away before those expenses come due. The right coverage can keep their academic dreams on track.

Essentially, term life helps secure your family’s financial future at specific life stages when others are depending on your continued income and support.

What Affects Term Life Insurance Rates?

Several key factors determine the monthly or annual premiums you will pay for term life insurance coverage:

what factors to effects term life insruance rates
what factors to effects term life insruance rates

Age at Purchase

Age is the primary driver of term life prices. Premiums are lowest in your 20s and 30s, steadily rising each year as you age. Buying earlier locks in lower rates.

You can learn in-depth about insurance for each age group such as: Life insurance for kids, life insurance for parents, …

Health Profile

Insurers will collect your medical history through exams and application forms. Conditions like heart disease or cancer may increase rates or prevent qualification.

Lifestyle

Dangerous hobbies, marijuana use, or high-risk occupations like law enforcement also impact insurability and increase premiums.

Gender

Statistically, women have lower mortality rates than men at most ages. This allows females to qualify for lower term life rates compared to males.

Term Length

A 30-year term will have lower annual premiums than a 10- or 15-year one since the insurer collects payments longer before a potential payout.

Coverage Amount

More considerable death benefit amounts equal higher premiums. Rates for $1 million in coverage will be more than a $100,000 policy for the same individual.

Nicotine Use

Insurers charge much higher premiums for tobacco users due to increased mortality risk, according to actuarial statistics.

Tips for Buying the Right Term Life Policy in Canada

Follow this checklist when purchasing term life insurance in Canada:

Get Quotes

Compare rates from multiple insurers before deciding. Prices can vary greatly.

Pick the ideal term length

Choose a term that covers your needs rather than one that is substantially longer.

Calculate Sufficient Coverage

Consider all income that must be replaced plus debts.

Select Reputable Carrier

Find a company with strong financial stability ratings.

Read the Fine Print

Review exclusions, options for renewal and conversion, etc.

Consider Riders

Add benefits like critical illness insurance and disability coverage.

Work with a Agent

Life insurance agent, advisor, broker ensures you get unbiased advice and the best policy.

Managing Your Term Life Insurance Policy

Don’t just set it and forget it. Actively manage your term insurance by doing the following:

Monitor Ongoing Need Term life insurance in Canada

Re-evaluate your coverage needs periodically as your debts, income, and dependents change.

Adjust Coverage Amount

Increase or decrease your death benefit when appropriate to avoid over/under-insuring.

Renew Before Expiry

If your need continues, renew early to avoid gaps in coverage. Be prepared for higher rates.

Convert if Permanent Needed

For lifelong protection, convert to permanent insurance before term renewal if you have a conversion option.

Proper management ensures the right coverage remains in place until no longer required.

Is Term Life Insurance Right for me ?

Term life insurance in Canada makes sense when you have temporary insurance needs like:

  • Replacing income depended on by others
  • Covering a mortgage balance, you don’t want to be passed on
  • Funding future education expenses if you pass early
  • Meeting short/mid-term estate planning objectives
  • Covering expenses and debts owed at an affordable rate

Permanent life insurance is better suited for lifelong protection needs, business/succession planning, and maximizing long-range estate value.

Speak with an independent life insurance broker to assess your specific situation.

How to Shop for Term Life Insurance for Canadians

Purchasing term life insurance involves researching different policies and companies to find the best rate for your situation:

Compare Quotes

Use online comparison platforms like PolicyMe and Kanetix to get sample rates from over 15+ insurance providers side-by-side. This simplifies the process of finding affordable options.

Work with a Broker

Independent brokers have access to policies from many insurance carriers. They can advise you on products fitting your budget and needs. This personalized service is free to consumers.

Look for Established Insurers

Consider reputable insurance companies like Sun Life, Canada Life, RBC Insurance rather than unfamiliar insurers. Check provider financial strength ratings.

Calculate Coverage Amount

Add up debts, income to replace, final expenses and education costs. This provides an estimate for the term life death benefit you need.

Review Policy Details

Carefully inspect the policy terms before signing. Understand grace periods, renewals, exclusions, conversions to permanent insurance, and anything else that impacts coverage.

Regularly Re-Evaluate

Re-examine your policy upon life changes to ensure you have adequate, affordable coverage that meets evolving needs.

Strategies for Lowering Your Term Life Rates

Some tactics can potentially decrease your costs:

  • Improve health and lifestyle factors like quitting smoking and losing weight
  • Opt for longer terms like 20 or 30 years for lower annual premiums
  • Choose higher deductibles and lower face amounts if those still meet your needs
  • Purchase during a promotional rate sale period
  • Maintain an excellent credit history, which can lower pricing
  • Group coverage through employer plans or associations may offer lower rates

Read More : your term life insurance policy expires in Canada

Frequently Asked Questions of topic Term Life Insurance in Canada

How long should my term life insurance length be?

Choose a term length that matches the period you expect to need life insurance. Popular terms are 10, 15, 20, 25 and 30 years. The longer the term, the lower the annual costs.

Can I renew my term life insurance?

Many term life policies are renewable for an additional term when the initial term expires. However, renewal rates increase as you age. There is usually a maximum renewal age of around 80-85.

Is term life insurance cheaper than permanent life insurance in Canada ?

Yes, term life almost always has significantly lower premium costs than permanent life insurance for equivalent death benefit amounts.

Does term life insurance build cash value?

No, term life insurance is pure protection without investment components. Only permanent life policies build cash value that you can borrow against.

Does term life insurance pay for suicide?

Most term life policies will not pay the death benefit within the first 1-2 years if the death is from suicide. After the initial exclusion period, death by suicide is usually covered.

What happens at the end-of-term life policy in Canada?

You can renew coverage at a higher premium, convert to permanent insurance if you have that option, or let the policy lapse if no longer needed.

When does term life insurance payout in Canada?

The death benefit pays to beneficiaries if the insured dies while the policy is in force during the set term period.

What does convertible term life insurance mean?

A convertible term allows you to switch your term policy to permanent insurance with no medical exam required. This guarantees you can get lifetime coverage even if health issues develop.

What happens if I miss a premium payment of term life insurance in Canada?

You have a 30-day grace period to catch up on missed payments before the policy lapses. Most insurers allow 1-2 missed payments per year.

Can I cancel my term life insurance policy anytime?

Term life policies accumulate no cash value, so cancelling early results in a lapse. However, you can convert term policies to permanent insurance without underwriting in many cases.

The bottom line

For personalized quotes and expert advice on choosing the right term life insurance policy for your needs and budget, visit LifeBuzz at website : lifebuzz.ca or speak with one of our professional advisors at 1-800-555-1234. 

LifeBuzz provides access to top Canadian life insurers and can simplify the shopping experience so you get tailored coverage at the best rate. Contact us today to protect your family’s financial future.

Article Source

This article is referenced from leading reputable sources on the topic of term life insurance, such as:

  1. Term Life Insurance – wikipedia
  2. Term life insurance – bankrate
  3. What is term life insurance – CNN
5/5 - (2 votes)

Written by Ben Nguyen

Ben Nguyen is an award-winning insurance expert and industry veteran with over 20 years of experience. He is the chairman and director of IDC Insurance Direct Canada Inc., one of Canada's leading online insurance brokerages.

Ben is renowned for his extensive knowledge of life, health, disability, and travel insurance products. He is the prolific author of over 1,000 educational articles published on LifeBuzz, BestInsuranceOnline, and InsuranceDirectCanada. His articles provide Canadians with advice on making smart insurance decisions.

With a Bachelor's degree in Actuarial Science and a Fellow of the Canadian Institute of Actuaries (FCIA) designation, Ben is frequently interviewed by media as an insurance industry spokesperson.

He has received numerous honors including the Insurance Council of Canada’s Pivotal Leadership Award, the Canadian Insurance Hall of Fame induction, and the President’s Medal from the Canadian Institute of Actuaries.

Ben continues to shape the vision and strategy of IDC Insurance Direct as chairman. He is dedicated to advancing the insurance industry through his insightful leadership.

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