Your Guide to Term Life Insurance in Canada
What is term life insurance?
Term life insurance offers coverage for a specific term, usually between 10 and 30 years. A term life insurance policy has a clear expiry date, after which no payout is made.
The best term life insurance in Canada comes from PolicyMe, if you’re looking for affordability, reliability, and ease.
When a term policy ends, you can choose to renew it, purchase a brand new policy, let the policy lapse, or potentially convert to a permanent life insurance policy.
Is it for me? Term coverage is the best choice for most Canadians who need life insurance, as it’s both affordable and more adaptable to changes in your life and financial circumstances.
“Term life insurance is a simple and affordable way to protect your family’s financial future. The key is finding a policy that balances affordability with the right coverage amount.” — Christelle Arouko, Licensed Insurance Advisor
How long does term life insurance last?
Term life insurance lasts for a set period, usually between 5 and 40 years. 20 years is the most common term in Canada since it aligns with most families’ peak earning years.
During the term of your policy, you’ll pay regular premiums to keep your coverage active. In exchange, your policy guarantees that your loved ones will receive a lump-sum payout if you pass away during the term period.
What is a term life insurance premium?
A term life insurance premium is the amount you pay (usually every month but sometimes annually) to keep your coverage active.
How are they set? Premiums are based on your risk factors at the time you purchase the policy. Your premiums will be lower if you buy when you’re younger and healthier.
Does the amount change? Term coverage premiums stay the same, or “level,” for the entire length of the term. If you renew or buy a new policy at the end of your previous policy, premiums will rise sharply to reflect your new risk profile.
Types of term life insurance
“Term life insurance” is an umbrella term that holds multiple types of coverage. Each one works slightly differently.
- Direct term life insurance: Direct term life insurance is a type of insurance coverage, also referred to as a “direct-to-consumer” policy. This means it is purchased without a broker or agent.
- Term to 100 (T100) life insurance: T100 life insurance is a permanent policy that guarantees coverage until age 100 with fixed premiums. It's a viable choice for covering end-of-life expenses or maximizing your estate. It's usually the cheapest form of permanent insurance because there is no cash value.
- Convertible term life insurance: You can switch to a permanent policy before a specified deadline, and typically no later than age 65 or 70. Convertibility keeps the previous health rating, so there's no medical exam—but it will be significantly more expensive than a term policy.
- Extended term life insurance: Extended term life insurance is a policy feature rather than its own type of policy. It gives you the option to extend your policy—but it isn’t always included, so read your paperwork before signing.
- Yearly renewable term life insurance (YRT): Yearly renewable term life insurance covers you for one year, after which it is renewed. It's ideal for short-term coverage and offers the flexibility to renew without a medical exam. Premiums can look deceptively affordable at first but since the policy renews every year, you'll pay more as time goes on.
- Decreasing term life insurance: Decreasing term life insurance is a type of policy in which the death benefit gradually decreases over the policy's term, though the premiums remain constant. You can use this policy to cover a specific debt or obligation that decreases as time passes.
- Group term life insurance: Group term life insurance is offered by employers. The cost is shared between the employer/group and the individual members. As a general rule of thumb, the coverage cap will total 1-2x your annual salary. If you leave your job, you’ll lose your coverage.
“Most people only need term life insurance, not permanent coverage. It’s cost-effective and provides essential financial protection during key earning years.” — Christelle Arouko, Licensed Insurance Advisor
Learn more: Types of life insurance, explained
Is term life insurance worth it?
For the average Canadian family, a term life insurance plan is almost always a good idea. It provides affordable, customizable coverage to secure your loved ones’ financial futures in the event of your death.
Term life insurance is:
- Affordable: Since term coverage is for a set period of time, these policies typically have much lower premiums than whole life insurance policies.
- Flexible: You can choose the coverage amount and term length that fits your needs—and once your term ends, you can choose to renew, buy a new policy, or end your coverage altogether depending on your needs.
- Simple: Term policies are easy to understand—if you die during the term, your beneficiaries receive the tax-free death benefit to use as they see fit.
If you have people who rely on you financially, term life insurance is a worthy investment. And if you’re denied coverage due to medical issues, you may have the option to apply for no-medical life insurance.
On the other hand, if you don’t have any financial obligations or dependents, you may not need much (or any) life insurance.
"If you are out of school, don't have any dependents, mortgage, student debt, or even a car, you probably don't need term life insurance right now." – Javade Williams, Licensed Life Insurance Advisor
How term life insurance works
Term life insurance offers financial protection for your loved ones in the event that you die while the policy is in effect.
If you pass away while your policy is active, your loved ones will receive a lump sum, tax-free death benefit that can help cover living expenses, debt repayment, final expenses, etc.
If you outlive your policy (i.e., it expires and you’re still alive) and do not renew it, your beneficiaries will not receive any payout when you pass away.
When purchasing a term life insurance policy, you must make two decisions: term length and coverage amount. These are two of the key factors (though not the only ones) that will impact the cost of your term life insurance premium. We’ll discuss these factors in more detail below.
Many life insurance companies require you to complete a medical questionnaire or exam as part of underwriting before your coverage can begin — but once you lock in your premium, it stays consistent for the duration of your term. That said, your premiums increase upon renewal for these life insurance products.
Learn more: How term life insurance works
Permanent vs. term life insurance
Whether you should get permanent life insurance instead of term will depend on your financial circumstances.
Permanent life insurance (like whole life or universal 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 permanent life insurance policies are expensive and it’s easy to end up over-insured.
Term life insurance coverage is generally a wiser choice for most Canadian families. It’s far more affordable and can be tailored to your unique financial situation. Once your financial obligations end (your kids move out, your house is paid off, etc.), you can choose to let your coverage lapse or shop around for a policy that meets your new needs.
Pros and cons of term life insurance
While we think that term policies are best suited for most people, it’s important to weigh the benefits and drawbacks before purchasing a policy.
Pros:
Cons:
What is the purpose of term life insurance?
The purpose of term life insurance is to provide income replacement for your dependents if you should pass away unexpectedly while they’re still relying on your income.
Term insurance is built to expire after a set period that fits your family’s needs, whether it’s 10 years or 30 years or somewhere in between.
This type of coverage is intentionally designed to last as long as your financial obligations and then stop. In other words, your family enjoys coverage during their most vulnerable years. Then, the coverage and your premiums cease once they don’t need the safety net that life insurance provides.
Do you need term life insurance?
Term life insurance is worth it if you have temporary financial obligations and your loved ones rely on you. Here are some situations where term coverage makes sense:
The nice thing about term life insurance is that once you no longer have these types of financial obligations, you can reduce or end your coverage. If you’re retired or don’t have a mortgage or dependents, you may not need a term policy—or any life insurance, for that matter.
According to a 2024 report from the Canadian Life and Health Insurance Association (CLHIA), the average age of a life insurance policyholder in Canada is 41, with average coverage of $483,000 per household.
How much does term life insurance cost in Canada?
The cost of term life insurance depends on factors like your age, sex, health, and whether you smoke. Generally speaking, term policies are the most affordable options.
Below are sample rates for a non-smoker seeking $500,000 in coverage with a 20-year term policy:
How are term life insurance premiums calculated?
In Canada, term life insurance rates are calculated based on coverage amount, policy length and personal risk factors for the insured person.
“Your term life insurance rate will be based on two main categories: your personal factors (age, gender, smoking status) and the policy (coverage amount, term length) you choose.” —Erik Heidebrecht, Licensed Life Insurance Advisor
1. Coverage amount
The coverage amount is the sum your loved ones get (the “death benefit”) if you pass during the policy term. A $1 million policy means that if something happens to you, they get a tax-free payment of $1 million.
The more coverage you buy, the more your beneficiaries get if you pass away during your term. On the flip side, the higher the coverage amount, the higher your premiums will be.
2. Policy length
Policy length refers to the number of years your policy will cover you. Term life insurance options typically range from a 10-year term to a 30-year term.
If your coverage extends into your later years, you’ll typically pay more for your monthly premium. This is because you're more likely to pass between the ages of 30 and 50 than between 20 and 30. In fact, a Statistics Canada study found that your chances of dying increase by 30 percent once you reach the 40-to-75 age range.
Learn more: Term insurance lengths you do (and don’t) need
3. Personal factors
Personal characteristics help determine your insurance risk level—the factors that could increase your likelihood of passing away while your policy is active. Here are the key factors that may impact your life insurance rate:
- Age: The older you are, the higher your insurance premiums tend to be, since there’s a higher risk of death during the policy term.
- Sex: 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 away, you'll pay more for coverage. This could include diabetes, cancer, a heart condition, or a family history of illness.
- Hobbies: If you engage in risky hobbies, like skydiving or SCUBA diving, you may pay higher life insurance premiums.
- Smoking status: Getting life insurance as a smoker means paying much higher premiums. To be considered a non-smoker, you must not have smoked in the past year.
How much term life insurance coverage do you need?
The right amount of coverage (and the length of your term) will vary based on your individual financial situation, but get enough to replace your income and secure your family’s financial future.
To determine what’s best for you, consider your financial obligations and their timelines. This includes things like:
- Mortgage repayment
- Childcare costs
- Daily life expenses
- Children’s education expenses
- Consumer debt repayment
It’s important to think about the long term when calculating the amount of coverage you need.
Income and daily life: If you pass away unexpectedly at age 50, that’s 15 years for your family to survive without your annual salary. Say your wage is $70,000 now. That means your policy should cover 15 years x $70,000 (plus 2% inflation). That’s $1,071,000 to help cover childcare, mortgage payments, and daily expenses.
Future costs: Your children might incur educational expenses ranging from $1,000 for skilled trades programs to $10,000 per year for undergraduate programs. Your policy should cover this amount. If you have two children who both choose to attend university, that might be $80,000 in tuition fees alone.
Debt repayment: While personal debts are often erased if you pass away, joint debts fall on the surviving party. What if your family is relying on an asset that was in your name? If you and your partner have credit card debt or a car loan, your policy should cover it. The average Canadian owes about $4,000 on their credit card, and the average car loan balance is about $25,000.
Funeral expenses: The cost of a cremation ranges from $2,500 to $6,000, with burials costing up to $25,000. Obituaries, ceremonies, permits, and memorial markers cost even more.
What term length should I pick?
A 20-year term is the most common policy length in Canada, but you should choose a policy between 5 and 40 years that aligns with the length of your financial obligations.
What happens after my term life policy expires?
When your term life insurance policy expires, you can renew the policy or re-apply for coverage. Keep in mind that term life insurance is designed to provide coverage for a specific period, so your insurance needs may have changed once the policy ends.
Here are the potential options:
- Renew your policy: You may have the option to renew your term life insurance policy for another term, but remember that your premiums will likely increase as you get older.
- Convert to a permanent policy: Some term life insurance policies can convert to a permanent policy, which can offer lifelong coverage and a savings component.
- Buy a new policy: If your life circumstances have changed, it may be worth shopping around for a new policy that better suits your current needs and budget.
Forgo additional coverage: If you no longer have financial obligations or dependents, you may no longer need life insurance coverage.
FAQ: Term life insurance in Canada, explained
The prices listed in this article have researched and fact-checked with both internal and external sources. Prices are based on publicly available rates.
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_
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/
Bonnie Stinson is an insurance writer and researcher in Toronto with a decade of experience producing helpful, accurate content for Canadians. They have published resources for some of Canada's most innovative and consumer-trusted companies in the health, legal, and fintech sectors.
Bonnie Stinson is an insurance writer and researcher in Toronto with a decade of experience producing helpful, accurate content for Canadians. They have published resources for some of Canada's most innovative and consumer-trusted companies in the health, legal, and fintech sectors.