Term life insurance or whole life? Do you want a 20 or 25 year term? And how much coverage do you need – $1,000,000 is a huge difference from $250,000, but do you need it?

Shopping for life insurance isn’t easy. There’s different types of life insurance, so many options for providers, and, pretty frankly, it’s a little morbid. Nobody wants to think about death, especially their own. 

While it’s hard to do much to ease in the discomfort that surrounds planning for death, you can take control of the first two and hopefully make yourself feel better! 

In this article, we’ll go over what term life insurance is, how it differs from a permanent life insurance policy, and what to look for when trying to decide between different providers. 

Let’s dive in!

Key Takeaways

  • Term life insurance is a type of insurance that covers the policyholder for a “set term”, usually in 10, 25, 25, or 30 year terms
  • For the average Canadian, term life insurance is more than enough coverage required. Permanent life insurance only benefits a select few and costs a significant amount more 
  • The main factors that contribute to your term life insurance price are term length and coverage, biological sex, and health/smoking status

What is Term Life Insurance?

In essence, life insurance is a financial lifeboat for loved ones in case of an individual’s death.

It ensures that the policyholder’s family gets a payout, also known as a death benefit, if they pass away while they have coverage. The death benefit is disbursed as a one-time lump sum, tax-free, in the amount equivalent to the policy’s coverage. 

Now, the "'term’ in term life insurance refers to coverage that lasts for a fixed period of time, usually years. If a person has a 20-year term life insurance, for example, their family receives a payout if they pass away in the 20 years. If they outlive the 20 years – which is the hope! – the policy will simply expire. Nothing gets refunded.

The great thing about term life insurance is that you’re only paying for coverage while you actually need it. The point of life insurance is to provide a security blanket so that if something happens to you, those who depend on you financially are not struggling. Once you no longer have these dependents (your children grow up and get jobs, for example), you don’t have a need for life insurance. Your financial dependents are no longer dependent on you, so why continue to pay for coverage. 

On the other hand, you have whole life insurance. This product is valid for the policyholder’s whole life. Because it exists for life, the insurance company knows they have to pay out the death benefit. For this reason,  whole life insurance is far more expensive than term life insurance – you’re looking at up to 15 times the cost of term life monthly premiums, depending on the age and health of the applicant. 

Cost Comparison: Term Life VS Whole Life Insurance

But how big is this price difference between the two products?

Depending on your age and gender, you’re looking at hundreds a month – just think what you could do with that money each month instead! 

Look below to see exactly how big a price difference there is between term and permanent life insurance policies per month.

$250,000 20-year term life insurance $250,000 whole life insurance Price Difference
Male, aged 30 $18/month $135/month $117/month
Female, aged 30 $15/month $121/month $106/month
Male, aged 40 $28/month $204/month $176/month
Female, aged 40 $22/month $178/month $156/month
Male, aged 50 $72/month $327/month $255/month
Female, aged 50 $51/month $279/month $228/month

Term Life vs. Whole Life: Which One Do You Need? 

a woman is thinking while working on her laptop for PolicyMe's article on term life insurance

Consider first what you need life insurance for. What are you protecting against?

At the heart of it, life insurance ensures your loved ones who depend on you financially don’t end up in a terrible financial situation if something happens to you. 

And while there will always be somebody who is emotionally hurt by your passing, there won’t always be people who end up in a horrible financial situation. Those who depend on your

If you want to protect against the possibility of your family losing a house, or your children deferring an education, or your partner scrambling to secure extra funding for childcare because they have to return to the workforce after you’re gone—it’s safe to say that a term life insurance policy would be sufficient. Term life insurance is ideal for securing everyday life expenses that your income would have otherwise covered, at least up until your retirement. It is also more affordable, with monthly premiums averaging at about $35 for healthy individuals in their 30s and 40s.

For the most part, permanent life insurance is really only beneficial for a few specific situations. These include: 

  • People with permanent dependents: This is somebody who relies on your income for as long as they are around, even if they outlive you. An example would be a child who requires permanent care
  • Tax-free transfers of wealth: For extremely wealthy Caadians who have valuable assets to pass down that may be heavily taxed, a permanent life insurance policy can be used to pay off the taxes associated

So if you’re looking out for an affordable and cost-effective policy to insure your loved ones’ financial security, we recommend term life insurance. 

Still unsure? Here’s a breakdown of some of the major differences. 

A chart comparing and contrasting Term vs Whole Life insurance

How Long Should My Term Life Insurance Cover You For?

Determining the term of your policy and the amount of coverage you need will depend on your personal and financial circumstances. If you have children, you’ll want to cover their childhood years and university tuition, for example. You’ll also want to protect your spouse until retirement age. If you have a mortgage, you’ll want coverage for that until it’s fully paid through.

The older you are, the shorter the term you’ll need. That’s because you’ll likely be self-sufficient by the time of your retirement – assuming you’re regularly contributing to your RRSP—plus, your kids will also likely be financially independent by then, and out of the nest.

What you want to guarantee is that your coverage will be able to replace your income sufficiently, considering all family needs, assets and liabilities. Some experts recommend having 10 to 15 times of your annual income covered. Here at PolicyMe, we think it’s worth consulting a fee-only financial advisor to get a better estimate—we don’t want you to be overpaying your monthly premiums!

How Much Can You Expect to Pay for a Term Life Policy? 

With any term life insurance policy, you know you’ll pay less than you would if you get a permanent life insurance policy. So you’re already starting off in a good spot!

Since life insurance is such a personal product, however, term life insurance costs vary for each individual person. Here are some of the things that affect the cost of your term life insurance policy:

1. Term and Coverage

The bigger the coverage, and the longer the term, the more expensive the policy will cost, naturally. Most folks in their 30s and 40s get coverage ranging from $250,000 to $1,000,000, although coverage can also start from $20,000. 

2. Age

A term life insurance policy is cheaper when you purchase it at a younger age, because the risk of dying young is relatively low. So even if you opt for a longer, 30- or 40-year term life insurance policy, the monthly premiums will be relatively inexpensive. 

Conversely, purchasing life insurance at 50 will be more expensive, even if you’re opting for a 10-year term life policy. 

3. Gender

Because the mortality rate of males is statistically higher, they pay slightly more for life insurance compared to females.

Sorry guys!

4. Health Status

Health conditions, such as diabetes and obesity, can drive up the cost of life insurance because they pose mortality risks. 

5. Smoking Status 

Whether it’s nicotine or marijuana you’re smoking, on a social or daily basis, your life insurance providers will want to know. Since smokers have higher chances of a handful of health issues, this can raise your monthly premium. 

Shopping for a Term Life Insurance: 5 Things to Keep in Mind

Now that you know more about term life, it’s time to start shopping around. 

When it comes to buying the best life insurance in Canada for your needs, it always helps to get the advice of an expert, such as an insurance broker or a fee-only financial planner. They can help determine just how much coverage you need and the length of your term policy.

That said, it’s worth keeping a few things in mind when shopping around for a term life insurance policy:

1. Price is King 

How much are you paying for the coverage you’re getting? Whether it’s $250,000 or $1,000,000, coverage will be the same across the board wherever you get your insurance. But the monthly premiums may differ between providers. It’s always worth asking why – and whether the extra fees mean extra benefits.

2. Take the Medical Exam

Even if you have health issues, it’s always worth going through a medical exam. This is important for two reasons. 

The first reason is because even if you have a health issue you feel will disclude you from coverage, you never know until you try! When you go through the process, 

Some insurance providers are willing to forego the medical exam before providing you with coverage, which may seem like the kind of service you want: easy and convenient. But in doing so, they’re taking a risk with you, so they’re likely to charge higher monthly premiums. 

If you can, take the medical exam when purchasing a term life insurance policy. If you’re healthy and post no healthcare risks, you’re also likely to get a better deal on your policy (read: cheaper monthly premiums!)

3. Consider the Approval Time

From medical exams to background checks (including your driving history, for example), it can take weeks to get an offer on a policy. Compare providers to see how long they take on average to come up with an offer. The point of getting insurance is to protect loved ones against an unknowable future – that future being tomorrow to the next 20 years. But it could very well be tomorrow!

That said, if you’re planning to start a family or about to get a house, you’ll want to start shopping around for a term life insurance policy as well, and factor in its application process in your timeline.

4. Pay Attention to Your Bill

Once you’ve purchased your policy, be vigilant about paying your monthly premiums on time, in full. The last thing you want is a cancelled term life insurance policy… at the worst possible time. (And we know that’s how life works!). 

Most providers do offer a grace period before ending coverage – if you catch up on your missed premium in the following month, there’s no lapse in coverage. However, this isn’t a habit you want to regularly get into.

5. Let Your Beneficiaries Know

Aside from looking out for your insurance bills, be sure to keep documents of your term life insurance policy in a place that’s safe and easy to find – and let your beneficiaries know about it! Even if it feels like a morbid thing to do, it’s important that they know about the financial lifeboat available to them in case anything happens to you. 

Final Thoughts on Term Life Insurance

Life is a beautiful thing, except for the part where it does, unfortunately, come to an end. Whenever that should happen, we want to ensure our loved ones will be taken care of financially. Getting a term life insurance policy is one of the more affordable and cost-effective ways to do that. If you don’t have a term life insurance policy yet and have loved ones depending on you financially, we highly encourage you not to put it off.

Even if all you can afford at the moment is a small coverage, go for it. Because we don’t know what tomorrow will bring, getting term life insurance is better sooner rather than later. You’ll still want to offer your family a life raft after you’re gone, even if it’s small, rather than have them swim back to shore on their own.

Laura McKay

COO & Co-Founder

Laura brings 7 years of experience working in insurance & strategic operations as a management consultant at Oliver Wyman, after experiences at Manulife and Munich Re. In 2017, she launched a successful initiative for the World Economic Forum focused on innovation in insurance, working closely with insurers, tech pioneers, and policy-makers.

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