A Guide to Term Life Insurance in Canada
In this guide, you will learn more about term life insurance, how it can protect you and your family, and the advantages of working with a Serenia Life advisor to personalize your policy.
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What is term life insurance?
Term life insurance is a type of life insurance that provides coverage for a fixed period â usually 10, 20, or 30 years â and pays a tax-free death benefit if the insured person dies during that time.
How term life insurance works
Term life insurance provides income replacement and protects your dependents for set periods of your life, such as when you buy a home, start a family, or enter your highest-earning years. You decide how long you want your coverage to last and how much money you want to leave your beneficiariesâŻ(i.e., the persons you choose to receive your life insurance payment in the event of your death).
When term life insurance makes sense
Term life insurance makes sense when you have temporary financial responsibilities that would be difficult for your loved ones to cover if you passed away. The nature of this type of short-term protection makes it a convenient way to match your temporary needs to your coverage at any life stage. It makes the most sense to have ample coverage when your income is at its peak or when you have high household debt, like a mortgage.
In Canada, term life insurance is typically a good choice if you:
- Have a mortgage or other large debts
- Have young children or dependents
- Want to replace your income during your working years
- Need affordable coverage for a specific period of time
- Are in good health and want to lock in low-cost coverage
If you need to increase, decrease, or make a change to your policy, you can typically convert to another kind of coverage, like whole life insurance.
What makes the most sense is having the right coverage at the right time for all the right reasons.
Important features of term life insurance policies
When you shop for term life insurance, ask about your options when it comes to renewing your policy or converting to another kind of coverage. Itâs important because once an underwriter (i.e., the party responsible for approving your application) approves you for coverage, you canât be denied the right to renew your policy or convert to another form of life insurance.
What are the different types of term life insurance available in Canada?
Term life insurance, which is widely available through many providers in Canada, can be personalized to align with all kinds of financial goals, and the cost can be adjusted to fit your familyâs budget. The first decision to make is how long youâll need coverage for.
Most term life insurance policies in Canada are available in 10-year, 20-year, or 30-year terms, allowing people to match their coverage with financial responsibilities such as a mortgage, raising children, or making an income.
Hereâs a quick way to decide which one might be right for you.
Term 10
A 10-year term life insuranceâŻpolicy is a good option when you have debts that will take 10 years or less to pay off, such as a car or student loan. Itâs also a guaranteed way to cover short-term income needs in the event of your death. After 10 years, you have the option of re-evaluating your needs and either renewing the same coverage, or adding more.
Term 20
A 20-year term life insuranceâŻpolicy may be right for you if you have less than 20 years remaining on your mortgage, or if you wish to leave enough money to cover your childrenâs education or help with your loved onesâ retirement plans. You also have the flexibility to extend coverage to a longer term if needed.
Term 30
A 30-year term life insuranceâŻpolicy could be ideal if you bought a home with a mortgage amortization of more than 25 years. Itâs a great alternative to traditional mortgage insurance because you own the policy and can name your loved ones as beneficiaries. Not to mention, term 30 life insurance can act as income replacement during your working years, with the flexibility to convert to permanent life insuranceâŻâ life insurance that never expires unless you fail to make payments or decide to cancel it.
To learn more about why term life insurance is preferable to mortgage insurance, visit this article: Mortgage Life Insurance vs. Term Life Insurance.
Renewable and convertible term options
Many Canadian insurers offer policy features that make it easy to renew your policy before it expires in case you want to extend your coverage for another term. And once youâve been approved for life insurance, converting to another type of coverage, like whole life insurance, is much easier*.
Thatâs right, term life insurance policies in Canada typically include built-in flexibility through renewable and convertible features. For example:
- Renewable term life insurance allows you to extend your coverage at the end of your term without undergoing a new medical exam. The cost will increase based on your age at renewal.
- Convertible term life insurance allows you to switch your term policy to permanent life insurance (such as whole life insurance) without additional health questions or medical underwriting.
These features can be valuable if your health changes or if your long-term financial needs evolve. Itâs important to note, however, that no matter the insurer, certain terms will apply.
*Be sure to speak with a knowledgeable advisor to make sure you understand any limitations before purchasing your coverage.
Term life for mortgage protection
The outstanding balance on your mortgage is likely one of the biggest expenses your loved ones may have to cover if you die before itâs paid off. By choosing life insurance instead of mortgage insurance, youâre giving them much more flexibility to handle the mortgage payments as they see fit. For example, they could:
- Pay off the entire outstanding balance and still have money left over for savings and investments.
- Take some time to pay off the outstanding balance by refinancing the mortgage to lower the monthly payments.
- Pay off a portion of the mortgage balance and purchase a paid-up permanent life insurance policy as part of a new family life insurance plan.
Choosing life insurance over mortgage insurance makes these options possible and puts your loved ones in charge of how the money is used.
How term policies might differ based on someoneâs age and life situation
| Life stage | How they chose life insurance |
|---|---|
| Sam is on his final approach to retirement | Sam and his partner are on track to retire well in 10 years. Their individual savings and defined-contribution pension plans should cover most of their income needs. They both chose 10-year term life insurance policies to fill the income gap created in the event of one partnerâs death. This way, the assets in their retirement plan can stay invested and increase for another 10 years before their planned retirement date. |
| The Carters are at the mid-point in their careers and starting a family | The Carters plan to work for about two more decades, so in the event of either oneâs death, theyâd need replacement income. They also have mortgages on both their home and the family cottage. They each chose a 20-year term life insurance policy because they expect to be debt-free in 20 years, but right now, they need coverage that would make it possible to maintain their familyâs lifestyle without having to sell a property or downsize. |
| Sarah is young, at the beginning of her career, and recently married. | Sarah expects to work for at least 30 years, so she has a lot of earning potential between now and retirement. She chose a 30-year term life insurance policy as an income replacement strategy. It helps that Sarah is young because coverage is generally much cheaper when you buy it early and have had no major medical diagnoses. |
Matching the length of a term life insurance policy to the time you need income protection is just one consideration. Learn more about how this affordable and flexible approach can work for you and your family in our article: What is Term Insurance and How Does It Work?
Term life versus permanent life insurance
How renewals work
After 10, 20 or 30 years, you may want to renew your term life insurance policy for a host of reasons:
- You still have a large amount of debt
- Youâve decided to postpone retirement and keep earning an income
- Your family has grown, and you have new responsibilities
Whatever your reason, the fact that you were previously approved for coverage means you can renew it without a medical exam. Whatâs not guaranteed is the cost. Because you are older and you represent a higher risk to the insurance company, your payments will go up.
How conversions work
Converting from a term life insurance policy to a permanent life policy, such as Serenia Lifeâs whole life insurance, is relatively easy. Most people who make the switch have experienced a change in their financial circumstances and want to reset their financial plan to catch up. For example:
- Your income has increased, and the higher cost of permanent coverage is now affordable
- Your net worth exceeds your expectations and youâre focusing on tax-effective ways to transfer your wealth to your children or grandchildren
- You have the means to prepay the lionâs share of the total cost up front to lock in coverage for life
If youâre under 65, a high-quality policy from a dependable insurance provider should give you as much freedom as you need to convert a policy thatâs a better fit with your goals. But remember, when you convert a policy, your new premium is based on your age at the time of conversion, but your health is not reassessed.
How much does term life insurance cost in Canada?
Term life insurance is popular because itâs not as expensive as permanent life insurance. It costs less because many people outlive their policies and never collect the payout â which is not a bad thing if youâre aiming to live a good, long life. Outliving the need for term life insurance coverage often means that youâve reached a stage in life when your savings may be able to provide all the income you need and you can stop paying for insurance.
Annual vs monthly payments
Some term life insurance providers offer modest discounts when the policy is paid in full at the beginning of the year. The difference in price reflects the lower administrative cost of processing one payment versus 12. Most providers will offer you a choice.
On the other hand, all permanent life insurance policies, which includes the whole life coverage offered by Serenia Life Financial, will pay a death benefit when you die â even if you live well into your 100s. The choice is up to you.
Learn how to find the best term life insurance in Canada in these articles: How to Find the Best Term Life Insurance in Canada, or How Much is Term Life Insurance in Ontario?
What affects the cost of term life insurance?
The cost of term life insurance in Canada is primarily determined by factors such as age, health, smoking status, coverage amount, and the length of the policy term. Hereâs why each one matters in determining your cost of coverage.
Pros and cons of term life insurance
Every financial decision you make with the intention of protecting yourself and your family is a trade-off. Term life insurance is just one part of a family financial plan and it should be employed with full knowledge of the pros and cons listed below.
Pros
Affordable
Term life insurance is generally the most affordable type of life insurance because it offers coverage for a limited period.
Customizable
Term life insurance policies can be customized to suit your needs, whether youâre looking to replace income, cover a short-term debt, or pay off a long-term mortgage.
Simple
Compared to more robust solutions like permanent life insurance, term life insurance offers benefits for a fixed period. Simple as it is, you should still research your options and understand how your policy works.
Cons
No opportunity for growth
Term life insurance policies do not offerâŻdividends2, nor do they have aâŻcash value1, which means you would not be able to access your funds in the event of a costly life event, like a wedding or an emergency.
No lifelong coverage
Once the policy term ends, you need to renew or purchase a new policy if you still require coverage. This can be more expensive if you have a new health condition â not to mention prices go up with your age. (Learn why life insurance is more affordable when you are young and healthy.)
Example costs of term policies purchased at age 30
| Female NON-SMOKER | Female SMOKER | |
|---|---|---|
| Coverage Amount | $250,000 | $250,000 |
| Monthly Payment - Term 10 | $10.58 | $17.78 |
| Monthly Payment - Term 20 | $13.73 | $27.23 |
Example costs of term policies purchased at age 40
| Female NON-SMOKER | Female SMOKER | |
|---|---|---|
| Coverage Amount | $250,000 | $250,000 |
| Monthly Payment - Term 10 | $13.73 | $32.18 |
| Monthly Payment - Term 20 | $20.25 | $55.58 |
How to decide if a term life insurance policy is right for you
Some online tools and calculators will help you estimate your needs, but keep in mind that life insurance can be personalized in a lot of ways. Constructing a policy on your own is fine, but it costs nothing to work with an experienced Serenia Life advisor who can offer guidance and help you get the best value.
8 steps to determining your term life insurance needs
- Assess your financial situation
How much term life insurance you need and what you can afford to pay should be considered within the context of a larger, more holistic financial plan. If youâre not sure where to begin, a Serenia Life advisor can help you get started. - Calculate your coverage needs
Your financial situation often dictates why you need term life insurance and what role it will play in your plan to protect yourself, your family, and your wealth. - Understand the term length options
Once you know the amount of coverage you need, you can decide how long you want to keep it in place. The most common terms are 10, 20, and 30-years, but there are shorter and longer terms available as well. - Consider your age and health
Buying term life insurance when you are young and relatively healthy is typically the best way to enjoy less expensive payments and lock in your right to renew coverage throughout your life. The longer you delay the decision to purchase a policy, the greater the risk that you will have to pay a higher monthly cost, or be denied coverage altogether. - Evaluate your budget
Serenia Life advisors know that having term life insurance coverage is not your only financial priority. Financial planning is a juggling act that can be tough to master on your own, so donât hesitate to get qualified, objective guidance when you need it. - Compare life insurance providers
There are lots of insurance providers out there. But theyâre not all alike. If you were to die and your family had to make a life insurance claim, youâd want to know that their call was answered by people with experience and compassion. Not to mention, youâd also want to know that your insurance provider had a reputation for paying their claims in a timely manner. A little homework now could make a big difference when it matters most. - Seek professional advice
Insurance brokers and advisors know how to pair your needs with the right combination of term life insurance policy features. They can also help you identify insurance providers who are aligned with your values and provide support to your family now â and after youâre gone. - Review and update regularly
Over the term of your life insurance coverage, a lot can happen. You might start making more money, get married, have kids, buy a cottage, or start a business. Choosing a term life insurance policy that comes with built-in flexibility is something youâll appreciate when the time comes to increase coverage or add the Child Term Benefit riderâŻ(i.e., coverage that gets added on to an insurance policy to provide additional payouts under specific circumstances)âŻif you decide to grow your family.
If this is the first time that you’re purchasing term life insurance, this article may be helpful: How to buy term life insurance for the first time. You can also visit our life insurance calculator to estimate your needs.
What are the common mistakes to avoid when purchasing term life insurance?
A good advisorâs job is to make sure you make zero mistakes when you buy term life insurance. When you sit down with a licensed expert to discuss your needs, you can avoid these common missteps.
Buying too little
Itâs common to underestimate how much money your loved ones will need to carry on without your income. Find tips on determining how much you really need.
Not checking conversion options
Itâs safe to say that, as our lives change, our life insurance needs will change too. Itâs always a good idea to reach out to your advisor after a major life change or milestone to see if itâs time to convert to a different type of coverage, or if they recommend doing so down the road.
Waiting too long to buy
Thereâs never a bad time to purchase income protection but the sooner you start, the better â because the price goes up with every birthday and so do your chances of a health event or diagnosis.
Relying solely on employer insurance
Relying entirely on employer group benefits is like rolling the dice on whether or not you will stay employed at the same place until you retire. Ask an advisor about the benefits of owning your insurance plan in your name.
Is term life insurance worth it?
On one hand, you get affordable financial protection on an as-needed basis, with the ability to renew coverage if you want to. On the other hand, term life insurance policies have no value when they expire, so it becomes important to renew or convert to a permanent policy when your term is up.
But hereâs the thing: If you have family members that depend on your income, or if youâve got many years left on your mortgage, the experts would all agree that the peace of mind is worth the expense.
The good news is, you donât have to answer this question on your own. An advisor can help you determine if term life insurance is worth the cost within the context of all the other moving parts of your financial plan. It comes down to understanding your goals and priorities and then exploring insurance options and comparing providers.
Learn more about buying term life insurance for the first time.
Why should you choose Serenia Life for term life insurance?
As a member-based organization whose roots go back nearly 100 years, we encourage kindness by sharing our profits through community outreach, fundraising, and unique member benefits that help Canadians support their family, their community, and the causes they care about. The more we grow, the more we can give.
We provide members with access to a growing collection of member benefits that make a positive impact on their lives and the lives of others.
Benefits, such as:
- $2,500 post-secondary scholarships
- Up to $600 towards fundraising events, and up to $400 towards volunteering in Canada
- Financial support when you draft or update a will through a lawyer
- And much more!
View a full list of our member benefits.
Let us help
Life insurance is an important part of a financial plan that can protect your entire family and provide opportunities to create lifetime wealth. To get the best long-term value for your money, talk to an advisor about all the ways you can incorporate insurance planning into the things you already do to care for your loved ones.
Disclaimers
1Dividends are not guaranteed and are paid based on the overall experience of Serenia Life Financial, considering all risk factors. Dividends may be subject to taxation. Dividends will vary based on the actual investment returns in the participating account as well as mortality, expenses, taxes, lapses, withdrawals, and other experience of the participating block of policies. These factors have the potential to increase the value of your policy above the guaranteed amount, depending on the dividend option selected.
2Cash values are accessible via a withdrawal, policy loan or surrender. These may be subject to taxation and a tax slip may be issued. Accessing the cash value of the policy will reduce the available cash surrender value and death benefit.
3Illustration only, as of January 2024. Based on life insurance rates for female age 30 and 40, smoker and non-smoker for term 10 and term 20 life insurance for $250,000 in coverage. All numbers in CDN $.
