Choosing the ideal term length for your life insurance policy is essential for Canadians looking to protect their families. The term is the number of years the policy will provide coverage, so you want to select one that fully meets your needs. This in-depth guide will walk you through the key factors to consider when determining the right term length for your unique situation.
How Long is Term Life Insurance?
Term life insurance provides financial protection for your loved ones for a specific set period of time rather than covering you for your entire lifetime as permanent life insurance does. Understanding term lengths is crucial in choosing the right life insurance policy for your needs.
Typical Term Life Insurance Lengths
Term life insurance policies are usually available in the following increments:
- 10 years term life insurance
- 15 years
- 20 years
- 25 years
- 30 years
Of those, 10, 20, and 30-year terms are the most common lengths that life insurance companies offer.
However, some insurers offer shorter 5-year or longer terms spanning 35-40 years in certain situations. For young and healthy applicants, terms over 40 years may also be available with select insurers.
Premiums are lower for shorter terms since the insurance company’s risk decreases as the coverage period shortens.
Key Factors That Determine Your Term Life Insurance Length
Choosing the optimal term life insurance length comes down to thoroughly understanding your financial obligations and how long you’ll require coverage. Here are the most important factors to take into account:
Consider Your Debts and Financial Obligations
Make a list of your current debts and financial obligations, including:
- Mortgage—The average mortgage length in Canada is 22 years. Consider how many years remain until it’s paid off.
- Student loans—The average student graduates in Canada with $28,000 in loans, which take 11 years to repay. If applicable, factor this into your term length.
- Personal loans or lines of credit – Calculate the remaining years until balances are repaid.
- Business loans – Business loans can span 2-30 years. Account for years left.
- Car loans – Typical car loans are repaid over 3-7 years.
You want to choose a term length that will cover the duration of your debts, especially larger ones like a mortgage. For instance, if you have 20 years remaining on your home loan, a 20 or 25-year term would be sensible.
Age of Dependents Requiring Your Income
Depending on your income, consider the ages of your children or other dependents and estimate how many years they will need financial support.
The average age at which children become financially independent in Canada is 25, according to Statistics Canada. But this can vary based on your specific situation.
For very young kids, a 25—or 30-year term will provide coverage through their school years plus college. If you have teenagers, a 20-year term may be sufficient. Think about ages and whether you intend to pay for any post-secondary education.
Time Until Retirement
When do you plan to retire and stop relying on employment income? Even if retirement is years away, you want your term length to cover the remainder of your working life.
The current average retirement age in Canada is 64. For instance, someone in their early 40s who plans to retire at 65 would likely benefit from a 20 to 25-year term. A 30-year term would provide income protection until retirement age for Canadians in their 30s.
Comparing Term Life Insurance Length Options for Canadians
Here’s an overview of the most common term life insurance lengths and who they may be suitable for:
Short Term Length Options
Here are the shortest-term life insurance lengths:
1-Year Term Life Insurance
Best for:
- Quick coverage needs like a new job without benefits
- Bridging a gap in employment
- Life event requiring temporary coverage
Pros
- Most affordable premiums
- Short commitment
Cons
- Must reapply and renew yearly
- Premiums often increase at renewal
5-Year Term Life Insurance
Best for:
- Finalizing large purchases like a home or car
- New parents needing temporary additional coverage
- Nearing the end of financial obligations
Pros
- Low cost
- Can re-assess needs after 5 years
Cons
- Less flexible than 1-year option
- Still a relatively short coverage duration
Medium-Term Length Options
Here are the most common medium-length terms:
10-Year Term Life Insurance
Best Suited For:
- Older adults in their late 50s and 60s nearing retirement
- Those in the final years of financial obligations as debts become paid off
Pros of 10-Year Term:
- Most affordable premiums of any term length
- Guaranteed level rates for the entire 10 years
Cons of 10-Year Term:
- Provides the shortest coverage period
- Older applicants may not qualify to renew
15-Year Term Life Insurance
Best Suited For:
- Parents with high school-aged children
- Individuals with a mortgage they expect to pay off in 15 years
- Business owners taking out short-term loans
Pros of 15-Year Term:
- Lower premiums than 20+ year policy options
- Covers kids through the completion of high school
Cons of 15-Year Term:
- Less flexibility than shorter terms of 10 years or less
- Still a somewhat limited coverage duration
20-Year Term Life Insurance
Best Suited For:
- Young families with new mortgages
- Parents of babies, toddlers or young elementary school kids
- Sole income earners supporting dependents
Pros of 20-Year Term:
- The most popular term length purchased in Canada
- Covers children into early adulthood
- Locks in affordable premiums for 20 whole years
Cons of 20-Year Term:
- More expensive than shorter 10 or 15-year terms
- Difficult to adjust coverage amount down the road
Long-Term Life Insurance Options
Here are the most extended available term life insurance lengths:
25-Year Term Life Insurance
Best Suited For:
- Parents with children of varying ages
- Individuals with longer 25-year mortgages
- Business owners with long-term debt
Pros of 25-Year Term:
- Allows time for children to become fully independent
- Locks in rates for an extended 25-year period
Cons of 25-Year Term:
- More expensive than shorter 10, 15 or 20-year terms
- Less flexible than terms of 20 years or less
30-Year Term Life Insurance
Best Suited For:
- New homeowners with a standard 30-year mortgage
- Parents of newborns, babies or toddlers
- High-income earners with multiple dependents
Pros of 30-Year Term:
- Matches the entire length of a typical 30-year mortgage
- Locks in very low premiums for life risks while young and healthy
Cons of 30-Year Term:
- The most expensive term-length option
- Long commitment to the same coverage amount
40-Year+ Term Life Insurance
Best Suited For:
- Young and healthy applicants who qualify
- Parents wanting max coverage for kids’ entire dependency
- Individuals with very long-term debts
Pros
- Locks in rock-bottom rates for many years
- Covers several life stages
Cons
- Much more expensive than shorter terms
- Inflexible if obligations end sooner
Carefully weighing the pros and cons of each term length will help you choose the right policy duration for your needs.
How to Determine the Ideal Term Life Insurance Length for Your Needs
Choosing the right term length comes down to three primary factors:
Calculate the Remaining Mortgage Length
If your mortgage will take 15 more years to pay off, a 15 or 20-year policy makes sense. For a new 30-year mortgage, match it with a 30-year term. This ensures your family can pay off the remainder if you pass away.
Estimate Years Until Children Are Independent
Carefully consider your children’s ages and account for other plans, like contributing to college savings. A 30-year term can sufficiently cover young kids through their college years, but 20-25 years may work if kids are already teenagers.
Determine Years Until Retirement
Figure out your planned retirement age and select a term length that will provide coverage for the remainder of your earning years if something happens. Someone in their 30s may need a 30-year term to last until retirement at 65. If you’re in your late 40s, a 20-year term may be enough to cover you professionally.
How Term Length Impacts Your Life Insurance Costs
Longer-term life insurance policies have higher premiums because the insurer is more likely to eventually have to pay out the death benefit.
To illustrate the significant premium differences based on term length, take a look at the rates for a 40-year-old male non-smoker purchasing $500,000 of coverage:
Policy Length | Monthly Premium |
5-Year Term | $28.80 |
10-Year Term | $34.20 |
15-Year Term | $46.80 |
20-Year Term | $51.30 |
25-Year Term | $72.90 |
30-Year Term | $100.35 |
35-Year Term | $124.20 |
40-Year Term | $166.95 |
As you can see, the monthly cost doubles from a 10-year to a 20-year term and nearly triples when going from a 20-year to a 30-year policy. This is a significant difference that adds up over the years.
That’s why it’s important to balance your budget and how long you actually need coverage when choosing a term length. There’s no sense in overpaying for a 30-year policy if a 20-year term meets your obligations.
While longer terms have higher upfront costs, they lock in lower premiums for life. Rates rise each year as you age, saving money long-term compared to purchasing multiple shorter terms.
Impact of Age on Available Term Life Insurance Length
Your current age plays a role in qualifying for term life insurance policy lengths:
- Older adults in their 60s may only get approved for terms under 15-20 years.
- Middle-aged adults in their 40s and 50s typically get terms up to 25-30 years.
- Younger applicants in excellent health can often qualify for any term lengths up to 40 years.
The average age of life insurance purchasers in Canada is 35, according to LIMRA. Buying coverage earlier when you’re young and healthy allows you to lock in the lowest rates possible with a longer term.
Tips for Choosing the Right Term Life Insurance Length
- Consult with a financial advisor or insurance agent to evaluate needs.
- Get quotes for multiple terms to compare costs.
- If uncertain between term lengths, start locking in rates longer.
- We can adjust the coverage amount later if life circumstances change.
Aim to cover obligations throughout their entire lifespan. Reducing coverage’s easier than increasing it down the road if needed.
Key Benefits of Choosing a Longer Term Life Insurance Length
Here are three significant advantages of longer-term life insurance policies:
Lock In Lower Premiums While You’re Young
Premium costs are based on your age when the policy starts. Longer terms let you lock in affordable rates now before prices rise as you age year after year.
Prepare for Unexpected Expenses Down the Road
Life brings unexpected events and expenses. Over 20-30 years, you may have additional children, housing needs, cars, or medical costs. A longer-term means you’ll be covered.
Ability to Adjust Coverage Amount Later On
Many insurance companies let you reduce your coverage amount during the term if your needs decrease. This flexibility is a key benefit if you lock in a longer length.
When Does a Shorter Term Life Insurance Policy Make Sense?
Here are some situations where a shorter term length may suit your needs just fine:
Approaching Retirement Age
If you’re in your early 60s and plan to retire within 5-10 years, a shorter 10 or 15-year term will sufficiently cover your remaining time earning an income.
Older Children Becoming Independent
If your kids are older teens and you anticipate not financially supporting them much longer, a 10 or 15-year term could align well with that timeline.
Debts Close to Being Fully Repaid
If you plan to pay off debts aggressively, such as loans, in the coming years, aligning your term length with your debt payoff schedule makes sense.
Conclusion
Choosing the optimal term life insurance policy length requires carefully reflecting on your financial obligations, dependents requiring support, and retirement timeline. This will determine how many years of coverage you need.
Aim to cover the entire lifespan of debts; the year’s loved ones will depend on you financially. Lock in low rates now by getting quotes for terms of different lengths. Then, select the duration that best fits your budget while providing sufficient coverage.
FAQs Related To Which Term Life Insurance Length Is Right?
How do I choose the right term length for life insurance?
The main factors are your financial obligations, ages of dependents, and planned retirement date. Choose a term to cover debts, support dependents, and replace income until retirement.
What are the most common term life insurance lengths?
The most common term lengths are 10, 15, 20, 25 and 30 years. Some insurers also offer 5-year terms or longer terms up to 40 years.
Where can I get term life insurance quotes for different lengths?
Speak with an insurance agent or use an online quote tool to easily compare quotes across various term lengths from top insurance providers.
Why do longer term life insurance policies cost more?
Longer terms mean the insurer is more likely to eventually have to pay out on the policy, so premiums are higher to account for that added risk.
When should I consider a shorter term life insurance policy?
If you're close to retiring, have older dependents, or your debts are nearly paid off, a shorter 10 or 15-year term may suit your temporary needs.
Do I have to renew my term life insurance policy when it expires?
No, you can let the policy lapse after the term. But you'll need to reapply if you want coverage again, and rates will be much higher as you age.
Can I adjust my term life insurance policy after purchasing?
Many insurers allow you to lower the death benefit amount during a term, but it’s very difficult to increase coverage after purchase.
Is a longer term life insurance policy better?
Longer terms lock in lower premiums for life when you're young and healthy. But only get a duration to match your financial needs.
How are life insurance rates impacted by term length?
Longer terms mean higher premiums, as the insurer takes on increased risk. A 30-year term costs more than a 20-year policy.
What age can no longer qualify for a 30-year term life policy?
Most insurers will not sell a 30-year term to applicants over 60 or 65 years old, as the policy would extend beyond normal life expectancy.
Article Sources:
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- How Long Should Term Life Insurance Last? A Comprehensive Guide (2024) – https://marketwatch.com/
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