Laura McKay is the co-founder and COO of PolicyMe, Canada's fastest-growing digital life insurance company. In 2021, she was named one of the Women of the Year by Bay Street Bull. Laura has a Bachelor of Mathematics from the University of Waterloo. Her degree focused on Actuarial Science, which included learning about mortality risk, the basis of life insurance pricing and valuation. After her degree, she was employed by Manulife and Munich Re in Actuarial Science. Laura then worked at famed management consulting company Oliver Wyman in New York from 2013-2018. In this position, she worked with many Fortune 500 life insurance companies and helped them develop growth strategies and solve operational problems and regulatory issues.
Term life insurance provides coverage for a period of time that you decide on, most commonly between 10 and 30 years.
Term policies are more affordable and flexible than permanent policies, partially because there's an end date.
Term is best suited to cover temporary financial responsibilities (mortgage, childcare).
The average Canadian family generally doesn't need permanent coverage.
What is term life insurance?
Term life insurance gives you coverage for a fixed period. You can choose the length and coverage amount and even have the option to renew or convert it to a permanent policy.
If you pass while the policy is active, your beneficiary will get a lump sum equal to the coverage amount. The amount they get is known as a “death benefit” or a life insurance payout.
Term life insurance meaning
The meaning of term life insurance is as follows: a type of life insurance policy that is temporary. Coverage lasts for the specific period you decide on at the time of application.
Term is the best type of policy to cover your family's temporary financial obligations and responsibilities (i.e. while you pay off the mortgage or have childcare costs).
Features of term life insurance explained
There are two important decisions you need to make when getting a term policy: term length and coverage amount.
But there are definitely other things you should look out for before you choose a policy. Here are some key term life insurance features you should know, explained glossary-style:
Take note that every policy is different and will likely not offer everything listed here! And you may not need all these features to get a term policy that suits you best.
How does term life insurance work?
Term life insurance works as financial protection for your loved ones in the event of your passing. When you're in the market for term life insurance in Canada, there are two things you will need to consider:
When do you need term life insurance?
You need term life insurance while your loved ones rely on you and your financial obligations are temporary. This includes things like:
Your kids are young or your mortgage balance is still high.
If you’re retired or don’t have any financial dependents, you might not have any use for a term policy (or any life insurance coverage for that matter).
How much does term life insurance cost in Canada?
Term life insurance costs start at $22.44 per month with PolicyMe for a non-smoking woman aged 40, for $500,000 in coverage over 15 years.
The cost of term life insurance in Canada depends on your age, gender, smoking status and health.
The first three things determine your rate. Your health will determine if this rate will go up. Here are some sample quotes for a term life insurance policy:
Why is PolicyMe some of the most affordable term life insurance in Canada?
We're on a mission to make it easier to get life insurance at rates lower than the market – up to 20 per cent less than competitors on average, without compromising on quality.
How term life insurance rates are calculated in Canada
In Canada, term life insurance rates are calculated based on coverage amount, policy length and personal characteristics.
Let's explore these factors. Prices will be based on industry average rates for a 35-year-old man (non-smoker, $500,000 in coverage, 20-year term where applicable).
1. Term life insurance rates: coverage amount
The coverage amount is the sum your loved ones get if you pass during the policy term. A $1,000,000 policy means that if something happens to you, they get a tax-free payment of $1,000,000.
The more coverage you buy, the more your beneficiaries get if you pass away during your term. But the higher the coverage amount, the higher your premiums will be.
2. Term life insurance rates: policy length
Policy length refers to the amount of years your policy will cover you for starting from the age when you purchased it. You'll pay more each month if your coverage extends into your later years.
Why? You're more likely to pass between the ages of 20 to 50 than between 20 to 30, because more years are accounted for in the term. The chance of passing increases by 30 per cent once you reach the 40 to 75 range, finds a Statistics Canada study.
3. Term life insurance rates: personal characteristics
Personal characteristics refer to how risky you are to insure, which includes any factors that could increase the likelihood of passing away while holding the policy.
These factors can impact your term life insurance rate:
Age: Insurance premiums increase due to the higher risk of health issues or death as you age, making you a higher risk for insurance companies.
Gender: Men pay higher premiums because they have a statistically shorter life expectancy than women.
Health: If you have a pre-existing condition that increases your risk of passing, you'll pay more. This could include diabetes, a heart condition, or a family history of illness.
Risky hobbies: Anything that increases your chance of accidental death, like frequent skydiving or base jumping.
Smoking status: Smokers are more likely to pass earlier than non-smokers, so they pay higher costs. 10 per cent of Canadians said that they regularly smoke cigarettes in a Stats Can survey.
For many Canadians, these will be the expenses they have to cover until their kids have grown up and their mortgage is paid off. Your needs may differ based on your family's specific circumstances.
How much term life insurance coverage do you need?
Confused about what length of time to choose for your term life insurance policy? To pick the perfect term length consider your financial obligations.
Then choose a term that matches that timeline. This includes things like:
Your mortgage
Your total debts
Childcare
Education/tuition
Any other expenses
Is term life insurance a good idea?
Term life insurance is a good idea for the average Canadian family since it provides affordable and customizable coverage to secure their loved ones' financial future.
Here are some reasons that you might consider term a good idea:
Affordability: Since the coverage is for a set time, premiums are typically more reasonable than you'd find with whole life policies.
Flexibility: You can choose the coverage amount and term length that fit with your specific needs, no matter what stage of life you’re in.
Simplicity: The policy terms are typically easy to understand, and beneficiaries can use the tax-free payout however they see fit.
Ultimately, term life insurance is worth considering, especially if you have people that rely on you financially.
Here are a few examples of why people have chosen terms to protect their families.
Real-life example: term life insurance in Canada
Kaylee Giffin-Logan, wife, mom, and blogger at The Blondielocks, shares her story of getting life insurance in a blog post “It All Started with A Motorcycle."
A 30-year old, non-smoking woman can get a 10-year term policy with a $500,000 coverage amount for just $14.54 per month with PolicyMe.
That's the cost of one monthly takeout lunch, which is a small price to pay for protection and security.
Types of term life insurance: 7 most common in Canada
We’ll define each type of term life insurance below so you can make an educated choice on your family’s financial safety net.
Here’s a comparison of industry standard rates for whole (a type of permanent coverage) and term policies from Winquote:
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