What is Term Life Insurance in Canada? (Your 101 Guide)

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In This Article

Key takeaways:

  • 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 life insurance 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).

what is term life insurance?

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 spouse relies on your income
  • You’re starting a family
  • Your kids are young or your mortgage balance is still high
  • You’re buying a new home
  • You have high mortgage balance on an existing home
  • Planning ahead (funeral costs, provide for future income)

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:

table comparing term life insurance costs from canada

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:

  1. 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.
  2. Gender: Men pay higher premiums because they have a statistically shorter life expectancy than women.
  3. 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.
  4. Risky hobbies: Anything that increases your chance of accidental death, like frequent skydiving or base jumping.
  5. 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.

If denied coverage, you can apply with one of the many companies that offer no medical life insurance.

Term life insurance use case examples

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:

average cost for term vs whole life insurance in Canada

7. Group term life insurance
Group term life insurance is a type of life insurance offered by employers.
The cost of a group term life policy is shared between the employer/group and the individual members.

As a general rule of thumb, the coverage amount will total 1-2x your annual salary. The biggest drawback? If you leave your job, you’ll lose your coverage.

What happens after my term life policy expires?

When your term life insurance policy expires, you can renew or reapply for coverage.

Keep in mind that term life insurance is designed to provide coverage for a specific period, so your insurance needs may change once the policy expires.

But make sure to read your policy closely to check whether you have automatic renewals or not! After your policy has ended, you have a few options to consider.

What are some term life insurance alternatives?

Permanent life insurance can act as an alternative to your term life insurance coverage, depending on what specific needs you’re looking to fulfill with the policy. 

Here’s a breakdown of the main categories of permanent coverage:

  • Whole life insurance: Offers a guaranteed death benefit and a minimum rate of return on the cash value. Premiums are level and the death benefit won't decrease.
  • Universal life insurance: Provides lifelong coverage and can build cash value. Policyholders can adjust premiums, investment options and death benefit within certain limits. These policies aren't a good idea for people who are risk averse. 

This is how these alternatives to term life insurance compare:

alternatives for term life insurance

To insure or not to insure, that's the question. In some cases, you may not even need insurance at all. So when is that? 

Should you get permanent life insurance instead of term?

Whether you should get permanent life insurance instead of term will depend on your financial circumstances.

Permanent life insurance might be a good idea if your coverage needs are not temporary, like if you're providing for a disabled family member or are a business owner.

But be careful not to be over-insured! Term life insurance coverage is generally a wiser choice for the most Canadian families. It'll likely save you money over time and can be tailored to your specific needs.

Next steps: what is term life insurance Canada

  1. Decide how much coverage you need by adding up the expenses you want to cover and subtracting your current assets.
  2. Choose a term length that covers the years you need coverage. 
  3. Use our term life insurance calculator for coverage in Canada to see how much coverage you need.
  4. Shop around and compare policies from insurance providers. Look beyond the price and consider specific policy features.
  5. Apply to the one that fits your needs best. If you're denied, you can try another insurer. 
  6. When you've been approved, read your policy and sign on the dotted line! 

FAQ: Term life insurance in Canada, explained

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. But once those five years are up, or when you reach the end of your term, you'll need to reapply. 

Once you look to renew, be prepared to pay higher premiums because your risk of passing away increases as you get older. 

But many term life insurance providers offer automatic renewals, meaning that when your policy reaches the end of its term, you’re still protected.

FAQ: Term life insurance in Canada, explained

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.

Read more: life insurance for seniors.

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. 

In regards to the coverage amounts out there; it’ll vary depending on the company. But generally, amounts will start at $100,000 and max out at $10 million. 

Do you get your money back at the end of a term life insurance policy?

No, you don’t get any money back at the end of a term life insurance policy in Canada. Term life insurance policies will only pay out a death benefit to your beneficiaries if you pass away during the policy term. 

If you outlive your policy term, the coverage ends, and there is no cash value or payout.

Is term life insurance halal?

Whether term life insurance is halal (permissible in Islam) can be a bit complex. Some people might say it's not, because traditional insurance can involve elements of uncertainty and gambling, which are considered haram (forbidden) in Islam.

But here's the other side of the coin: some view insurance, including term life insurance, as a way of providing mutual support and protection, which aligns with Islamic principles. In this perspective, term life insurance could be seen as halal. So, it really comes down to personal interpretation and belief. If you're unsure, it's a good idea to discuss this with a knowledgeable person in your religious community. They can provide guidance based on your specific situation and beliefs.

Our Sources: 

Canadian Tobacco and Nicotine Survey, 2021. (2022, May 5). StatCan. Retrieved March 7, 2023, from https://www150.statcan.gc.ca/n1/en/daily-quotidien/220505/dq220505c-eng.pdf?st=ZqquHe1_

Giffin, K. (2021, September 1). It All Started with A Motorcycle. Our Journey to Buying Life Insurance | The Blondielocks | Life + Style. The Blondielocks | Life + Style. https://www.theblondielocks.com/it-all-started-with-a-motorcycle-our-journey-to-buying-life-insurance/

Ginter, E., & Simko, V. (2013). Women live longer than men. Bratislavske lekarske listy, 114(2), 45–49. https://doi.org/10.4149/bll_2013_011

Statistics Canada. Table 13-10-0394-01 Leading causes of death, total population, by age group

WinQuote®. (February, 2023). https://www.winquote.net/

Laura McKay

COO & Co-Founder
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