What is Term Life Insurance in Canada? (2023)

Peer reviewed by Tobin Tuff, Certified Life Insurance Advisor
In This Article

Term life insurance in Canada is a type of life insurance that gives you coverage for a fixed period of time, such as 10, 20, or 30 years.

In this post, we’ll look at what term life insurance is, and how to choose the right term length and coverage for your family at the right price.

How does term life insurance work in Canada?

Term life insurance in Canada works like this: you select the term length and the amount of coverage you want based on your needs. 

Then, if you pass away while your policy is still active, your insurance company will pay the person named in your life insurance policy (the beneficiary) an amount equal to your coverage.

This payment is called a death benefit. Your beneficiaries will receive your death benefit as a tax-free lump sum, also referred to as a life insurance payout.

They can use this money however they want: to fund your kids’ college education, to pay the mortgage, to buy essentials like groceries, etc.

What is term life insurance in Canada? definition image

Here’s the good news: Your monthly premium and coverage amount will be locked in for the entire term, no matter the length of your policy. 

This means that the life insurance company can’t change how much you pay per month during your term, even if your health status changes. Now that’s a relief.

What happens after term life insurance expires?

After your term life insurance expires, you have the option to reapply or you can forgo additional coverage. 

Term life insurance is intended to cover you during the years you need it most. So when the plan expires, your life insurance needs should be different.

What is direct term life insurance? 

Direct term life insurance is a type of life insurance policy that provides coverage for a specific period of time. Like with any term insurance, if you pass away while the policy is active, your family (your beneficiaries) will receive a cash payout or death benefit that they can use to support themselves financially.

Direct term insurance is a “direct-to-consumer” policy, where the insuree buys directly from the provider without a broker or agent.

What is term to 100 life insurance?

Term to 100 (T100) life insurance is a type of policy with guaranteed permanent life insurance coverage or a permanent life insurance protection plan. The term length is for 100 years with guaranteed premiums payable for the full term. 

If the policyholder outlives this policy, the insurer may pay the cash value of the full coverage amount to the policyholder.

One of the key differences between term life insurance and permanent life insurance is the premium cost over time.

Two graphs comparing term and permanent life insurance

What is term life insurance used for?

Term life insurance is used to support your beneficiaries financially in case you pass away.

If your financial obligations are temporary, you should get a term life insurance policy. If you’re retired or don’t have any financial dependents, a term life insurance policy might not benefit you.

But there are certainly exceptions to this.

Real-life example: term life insurance in Canada

Kaylee Giffin-Logan, wife, mom, and blogger at The Blondielocks, shares her experience with purchasing life insurance, in a blog post called “It All Started with A Motorcycle”. 

She explains:

“It felt difficult to bring myself to invest in life insurance because it isn’t a tangible item that I can reap immediate benefits from.

All of that aside, having a child means protecting them at all costs. Whether that be holding their hand when they’re crossing the street, catching them before they fall, or helping them cope with big feelings, we want to protect our children from all of life’s unknowns.

One of the things we often don’t want to think about, but that we should, is protecting them financially…in case something happens to their protectors.” 

For example, for a term life insurance policy for a:

  • 30-year old woman 
  • Non-smoker 
  • 10-year term 
  • Coverage amount of $500,000

She could expect to pay monthly premiums of $14.78 with PolicyMe. That’s roughly one monthly takeout lunch, a cost that would cover your family in a worst-case scenario.

Is term life insurance a good idea in Canada?

Term life insurance is a good idea in Canada because it's an affordable way to protect your family’s financial future.

Term life insurance offers protection for a predetermined time, so premiums are more affordable than whole life premiums. 

Term policies are also more flexible than other types of life insurance because you can choose the coverage amount and term length that suit your particular needs.

Other advantages of term life insurance include: policy terms are easy to understand and beneficiaries can use the tax-free payout for whatever suits their financial situation.

In short, term it's worth it, especially if you have people in your life who rely on you financially.

What about pre-existing health conditions?

Pre-existing health conditions won’t necessarily prevent you from getting term life insurance. Sometimes you can be eligible for term life insurance policies without a medical exam. 

You’ll likely have to pay much higher premiums, though. And you’ll still need to answer health questions. This option is usually called no medical life insurance or simplified life insurance.

It’s a good idea to apply for a traditional policy first. With streamlined life insurance like PolicyMe, most eligible applicants are approved instantly. In fact, 52% of applicants weren't required to do any additional medical follow-ups.

Even if you are flagged as high risk, it’s a good idea to do the medical exam. You could still qualify for lower rates and higher coverage than with simplified life insurance. The cost of the medical exams is covered by the insurer in Canada.

If you're denied coverage, then go ahead and apply with one of the companies who specialize in no medical life insurance in Canada.

How much does term life insurance cost in Canada?

The cost of a term life insurance policy in Canada depends on: 

  1. Your age
  2. Your gender identity
  3. Whether you smoke
  4. Your health status

The first three factors determine your base rate. Your health status determines if this base rate will go up. For example, if you have diabetes or have had a heart attack, your monthly premium will likely go up. Because every life insurance provider has their own approach to calculating the risk of covering you, premium rates will vary.

Below, you'll find some sample quotes from different life insurance companies for a term life insurance policy for:

  • A non-smoking man 
  • Coverage of $500,000 
  • For 10 years
Chart showing term life insurance in Canada price comparison between companies.
Pricing based on publicly-available rates as of November 2021. Terms and conditions may apply.

Why is PolicyMe the most affordable term life insurance solution in Canada? With a traditional life insurance policy, roughly 40% of the rate is wasted on unnecessary distribution costs and underwriting steps.

PolicyMe has streamlined the traditional insurance process by removing unnecessary steps and costs so that your same-quality policy is at a lower rate than other policies in Canada.

How term life insurance rates are calculated in Canada

In Canada, term life insurance rates are calculated based on these factors: coverage amount, policy length and your personal characteristics. Let’s dive into what each of these factors mean.

1. The coverage amount you choose

Coverage amount means how much you want your beneficiaries to receive if you pass away during your term.

A $1,000,000 policy means that if the unthinkable were to happen, your beneficiaries would receive $1,000,000 in one tax-free payment.

The more coverage you buy, the more your beneficiaries receive if you pass away during your term.

But, here’s the thing: if you want your insurer to pay out a larger death benefit if you die, you have to pay higher monthly premiums.

2. The policy length you choose

Policy length means how long you want your coverage to last from your current age. 

If your coverage extends into the later years of your life, you’re going to pay more every month. This is because you're more likely to die between ages 20 to 50 than between ages 20 to 30. Statistically, that’s the cold hard reality.

So, if you buy a policy at age 20 and want coverage for 30 years, you'll pay more than if you were to choose coverage for only 10 years (until you're 30 years old).

3. Your personal characteristics

Personal characteristics means how risky are you to insure. This includes whether there’s anything that would increase the likelihood that you die while holding your policy.

Here’s what can make your rate go up (or down):

  1. Age: Your premiums increase as you age. If you buy a policy at age 40, you're more likely to die during a 20-year term than if you buy the same policy at age 20.
  2. Gender: Men pay higher premiums than women do because, statistically, they tend to die at a younger age.
  3. Health: If you have a pre-existing condition that increases your risk of dying early, you'll pay higher premiums. This could include diabetes, a heart condition, or a family history of illness.
  4. Risky Hobbies: Anything that increases your chance of accidental death, like frequent skydiving.
  5. Smoking Status: In general, smokers are more likely to die earlier than non-smokers, so they are charged higher premiums.

There’s no reason to guess what your cost might be. Our life insurance calculator empowers you to make confident coverage decisions for your family.

Can I really afford to add life insurance to my list of expenses?

Because of how term life insurance works (it gives you coverage for a fixed period of time only), it's the most affordable type of insurance on the market. 

At PolicyMe, we’re intentional with the life insurance we offer because we know parents are intentional with how they spend, save and invest their money.

That means we choose to sell affordable coverage that works well for most Canadian families: term life insurance. Simply put, term life insurance gives you financial security during the years you need it.

Every life insurance solution is different, but with PolicyMe, the average cost of life insurance for a man is $32 monthly for a 20-year term for coverage of $500,000.

What kind of term life insurance coverage is right for you?

The term life insurance coverage that’s right for you will depend on:

  1. The amount of financial protection your family needs
  2. The length of time they need it for

For many people, this ends up being equal to the expenses they need to pay until their kids have moved out and their mortgage is paid off.

That said, your needs may differ from others depending on your family's situation and your preferences. 

For example, if you want your kids’ post-secondary education to be covered, you'll need a longer policy term.

When you're thinking about your coverage amount, it's also important to consider expenses that may not be a factor right now.

Should you buy 10- or 20-year term life insurance? 

You should buy 10- or 20-year term life insurance depending on which years you’ll most need coverage. We tend to recommend a term that covers the length of your financial obligations, like childcare, mortgage, etc.

For example, if your mortgage is mostly paid off and your children are teenagers and you want your insurance to cover them through their post-secondary education, you might consider a 10-year term life insurance plan. Not sure how much you need? Try our life insurance calculator.

How much term life insurance coverage can you get? 

You can get term life insurance coverage for as little as five years or as much as 40 years depending on the insurance company and their policy offerings.

But, just because you can get term life insurance for longer periods doesn’t mean you should. As mentioned above, consider the length of your family’s financial needs when deciding the length of your term life insurance to avoid paying more than you have to.

What's the best term life insurance in Canada?

To find the best term life insurance in Canada, here are some questions to ask yourself while comparing term life insurance providers:

1. How trustworthy is the insurer?

Like a marriage, buying life insurance is a long-term commitment. You want to be sure that your insurer will be around to pay out your death benefit even if you don't die until you're 90% of the way through a 30-year term policy. 

That's why you want to choose an insurer that's financially stable enough to survive the test of time.

The good news is that life insurance is heavily regulated in Canada. This means that almost every Canadian life insurance company is in excellent financial health.

Plus, all Canadian life insurance companies are required by government regulators to be members of Assuris. If the insurer fails, Assuris will make sure you get 85% of your promised life insurance benefits.

PolicyMe is backed by Canadian Premier Life Insurance Company, which is an Assuris member.

We provide life insurance in Ontario, Alberta, Manitoba, Saskatchewan, B.C. and 8 other Canadian provinces and territories.

Learn more and get reviews of the best term life insurance companies.

2. What coverage options are there?

Different Canadian insurers will offer different features on their term life insurance policies. 

To make sure you get the best policy, look for one with: 

  • Robust coverage (i.e., coverage over $100,000)
  • Limited exceptions or exclusions 
  • The option to renew your policy down the road

At PolicyMe, we offer coverage from $100,000 to $5,000,000. The only exclusion is suicide within the first two years of the policy. And you can extend your coverage anytime within the first five years.

Read more about how much term life insurance you should buy.

3. Do they accept electronic applications?

Online applications for life insurance are not only easier to fill out, but they also get processed more quickly.

In fact, filling out a paper application can increase your application processing time by up to six to eight weeks. That’s just plain annoying.

Moral of the story: look for an insurer that offers online applications for a smoother, faster application process. At PolicyMe, most applications are approved in seconds, not weeks.

4. Are they competitive on price?

It's common in Canada to see a wide range of prices from different insurers for what's essentially the same term insurance policy. 

Thankfully, a lower price doesn’t mean the policy is a scam or the policy is inferior in some way.

There’s no reason to pay more than you need to for a term life insurance policy, regardless of what some insurers may claim.

For PolicyMe, cutting out the unnecessary steps in the traditional life insurance process doesn’t only make getting life insurance easier, it makes it more affordable. We offer families some of the lowest rates for term policies in Canada. Get the protection you need and at a price that you can afford.

We're devoted to removing barriers that make buying life insurance tedious and expensive. Plus, we’re backed by Canadian life insurance giants, for your peace of mind.

In summary: term life insurance works best for the average Canadian family

Term life insurance works best for the average Canadian family because it’s designed to give you financial security during the years when you really need it.

In a recent PolicyMe survey, we found that for Canadian parents with kids under the age of 18:

Usually, you need term life insurance if:

  1. You have young kids who depend on you financially
  2. You have a mortgage that would be hard for your family to pay without your income
  3. You take out a large loan to start a new business, for renovations to your home, etc.

Many Canadians decide to buy term life insurance when they start having kids or when they buy their first home. These are two life events that many Canadians experience!

Read more: Term vs. Whole Life Insurance, Explained.

FAQs: What is term life insurance in Canada?

Can I extend my term life insurance coverage in Canada?

Yes, you can extend your term life insurance coverage in the first five years of your policy (with PolicyMe). After five years, or when you reach the end of your term, you’ll need to reapply. 

If you renew your policy, it's almost guaranteed that you'll pay higher premiums. Why? Because now that you're older, your risk of dying is higher. And that makes it more likely that your insurer will have to pay a death benefit during your renewed policy term.

You can also apply for convertible term life insurance, which gives you the option to convert your term policy to a whole or universal policy.

What is the maximum age for term life insurance in Canada?

Most term life insurance policies in Canada will offer coverage up to the age of 65.

PolicyMe actually allows you to sign up for term life coverage until the age of 75, with coverage lasting as long as age 85 (a 10 year policy). 

If you’re 70 years old, you can buy a 10 or 15 year policy. If you’re 65, you can buy a 10, 15 or 20 year policy etc.

Laura McKay

COO & Co-Founder

About the Author

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