Term Life Insurance

Term life insurance can provide your family with the financial assistance needed in the event that you pass away.

WRITTEN BY
Priya Correia
Updated October 9, 2020

Have you ever thought about what would happen if you passed away when you still have children at home and have a long way to go before your mortgage is paid off? With a life insurance policy in place, you won’t have to worry about how your dependents will be financially taken care of in the event of an untimely passing.

There are variations of a standard life insurance policy, including term life insurance. With this type of policy, you’ll be covered for a certain amount of time, rather than your entire life. This provides you with the flexibility to pay less than what you would normally pay for a permanent life insurance policy and get coverage during the years that you and your family really need it.

Let’s take a closer look at term life insurance to help you determine if this policy is suited for your needs. 

What is Term Life Insurance?

Term life insurance is a type of life insurance policy that covers you only for a specific length of time, such as 5, 10, 20, or 30 years. Term life insurance is more affordable than permanent life insurance because of its finite time period. It is also something that Canadians may consider during the years when they have dependents in the home and there is still a mortgage outstanding

When you buy a term life insurance policy, your premium and coverage will be locked in for the whole term. When the term expires, you can either renew your policy at a higher premium or allow it to expire. You may also be eligible to convert your term policy to whole life insurance if the policy allows for it.

You have the freedom to choose the term length and your coverage amount. If you pass away before the term expires, the death benefit – or chosen coverage amount – will be paid out to your beneficiaries.

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How Does Term Life Insurance Work?

When you purchase a term life insurance policy, you will be provided with a specific amount of money that will be paid out to your beneficiaries when you pass away during the policy’s term. This amount will be specified in your policy and promised by your insurance company, as long as you stay up-to-date with your premiums.  

In the event that you pass on during the policy’s term, your beneficiaries will have to submit a death certificate as proof of your passing, after which they will be paid out the specific death benefit in a lump sum.

If you outlive the term of your policy, it will end, unless you take steps to renew the policy. If you choose the latter, you will likely have to pay higher premiums, as you will be older at this point. 

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Pros and Cons of Term Life Insurance

Pros 

  • Coverage only when you need it. In many cases, it might not make sense to continue paying premiums for coverage that your dependants may no longer need once you’ve paid the mortgage off and everyone has grown up and is now self-sufficient. Instead, with term life insurance, you can choose the term length that you need coverage for and pay for no more than what you require.
  • Affordable. Term life insurance is more affordable than permanent life insurance because of the shorter length of time that you are covered. So, if the cost is a factor, then a term life insurance policy may be the right choice for you.
  • Simplicity. Term life is a simple and straightforward type of policy that’s easy to understand.
  • Cancel whenever you want. You are free to cancel your term life insurance policy before it expires.

Cons 

  • Limited coverage. The whole premise of term life insurance is that it is not permanent, and instead offers coverage only for a limited length of time. It can be tough for Canadians to determine exactly how long they will need coverage, so there may be some risk with this type of policy.
  • Increasing premiums. The premiums for term life insurance increase every year by anywhere from 5% to more than 10%, depending on your age. For instance, increases may be smaller if you are in your early 30s and bigger when you are in your mid-50s. 

Term Life Insurance Providers

Coverage AmountAge RangeProvinces AvailableMedical Exam Needed
PolicyMe$100,000 – $10 million18 – 80Ontario, Manitoba, Alberta, British Columbia, New BrunswickNo
Policy Advisor$25,000 – $5 million18 – 72OntarioNo

Cost of Term Life Insurance

The cost of term life insurance can vary quite a bit from person to person and depends on a number of factors. For illustration purposes, a $250,000 policy can range in cost from anywhere between $15 to $50 in monthly premiums, depending on the policyholder’s age, health, and other factors. 

The following factors play a key role in determining how much your term life insurance policy will cost you:

  • Age
  • Gender
  • Health
  • Family health history
  • Smoking
  • Lifestyle
  • Coverage amount

Older individuals who have a history of health issues or come from a family with health problems may be charged higher premiums. The same goes for those who smoke and participate in dangerous activities. Further, a larger coverage amount will also translate into higher premiums. 

At the end of the day, premium calculations are based on life expectancy. So, if you are young, healthy, don’t smoke, and refrain from dangerous behaviours, your premium amounts should be lower.

FAQs About Term Life Insurance

What term length is best for me?

The length of the term you choose should be based on the following:

  • Your current age
  • Your debts
  • How long it will take to pay off your mortgage
  • The needs of your children
  • Your household income
  • How long you want your spouse/partner covered for if you pass away

Can riders be added to a term life insurance policy?

Yes, but you will want to check with your particular insurance company. 

What types of riders can be added?

Critical illness rider. If you are diagnosed with a critical illness that’s listed under your policy, this rider will pay out a lump sum to help cover lost wages from your inability to return to work.

Disability income rider. This rider will replace a part of your income if you are no longer able to work because of a disability.

Accelerated death benefit rider. If you are diagnosed with a terminal illness, an accelerated death benefit rider will pay out a portion of your death benefit to cover any medical or end-of-life costs. 

Conversion rider. This rider gives you the opportunity to upgrade your policy to a permanent one. 

 What happens when the term expires and I’ve outlived it?

When your term expires, you can either buy another term life insurance policy or see if you can renew your current one. Otherwise, look into whether or not you can buy an annual renewable term life insurance policy if you don’t want to commit to a longer policy. This will allow you to renew year by year.

Of course, you can simply let the policy expire if you no longer need it. 

What if I can’t afford my premiums?

If you don’t pay your premiums, you won’t have any coverage and your policy will be cancelled. To avoid this, call your insurance provider to see if there is anything available that offers lower premiums.

Final Thoughts

Life insurance can provide your family with the financial assistance needed in the event that you pass on while your dependents are still relying on you for your income. But rather than pay for insurance during years that your children may no longer need your financial help, you can choose the most important years to get coverage through a term life insurance plan.