Term Life Insurance in Canada : The Ultimate Guide

An Overview Of Term Life Insurance and How It Works

What is term life insurance ?

Term life insurance is one of the most popular forms of life insurance in Canada, making up over 40% of all individual life insurance policies in the country. This temporary and affordable type of life insurance provides financial protection for a set period of time, known as the “term”.

In this comprehensive guide, we will explore everything you need to know about term life insurance from a Canadian perspective. By the end, Canadians will understand if term life insurance aligns with their financial needs and have the knowledge to confidently purchase a tailored policy.

How does Term Life Insurance Works in Canada ?

Term life insurance provides pure death benefit protection. It pays out a lump sum cash payment, called the death benefit, to your designated beneficiaries if you pass away during the term of the policy.

The term length, such as 10, 15, 20, 25 or 30 years, is the period during which your policy is active. Term lengths can also extend to age 65 or age 100 in some cases.

The death benefit amount is the total dollar amount that the policy pays to your beneficiaries upon your death. You choose this amount when purchasing the policy. Some common strategies for determining the right death benefit include:

  • Covering remaining debts like a mortgage
  • Replacing 10x your annual income
  • Covering future expenses for dependents like college tuition
  • Providing funds for final expenses like funeral costs

Monthly or annual premiums remain level for the entire term and are based on personal factors like your age, health, lifestyle, and amount of coverage.

If the insured individual lives beyond the term, the policy simply terminates unless actively renewed. There is no cash value paid.

Term life insurance solely provides life insurance protection. It does not build up cash value or savings like some permanent life insurance policies.

The Canadian Term Life Insurance Landscape

To understand its role and value, let’s look at some key statistics and facts about the Canadian market:

  • There are over 8.1 million individual term life policies in Canada as of 2021 [1].
  • 40% of the total individual life policies in force are term life policies [2].
  • Over $345 billion in new term life coverage was issued in 2022 [3].
  • The #1 term length purchased in Canada is 20 years at 41% of policies, followed by 10 years at 21% [4].
  • The average face value of an individual term life insurance policy is approximately $250,000 [5].
  • Over 75% of individual life insurance policies in Canada are term life policies [6].

Term life insurance dominates the Canadian life insurance landscape due to its affordability, flexibility, and ability to provide temporary financial protection tailored to policyholders’ needs.

When to Consider Term Life Insurance

It is best suited for temporary insurance needs or covering financial obligations with a set endpoint. Below are some of the most common reasons Canadians choose term life insurance:

Mortgage Coverage – A term life policy with a death benefit matching your outstanding mortgage balance ensures your family can pay off the mortgage if you pass away prematurely.

Income Replacement – The death benefit provides income replacement for the years you would have still been earning and supporting your loved ones.

Final Expenses – The lump sum payout can fund end-of-life costs like funeral bills, estate taxes, and debt balances that would otherwise fall on your family.

College Savings – Parents often purchase enough term life insurance to pay for future college tuition costs for children if they were no longer around to fund education.

New Business Coverage – A new business owner may get term life insurance to pay off startup loans and cover income loss until the business is self-sustaining.

Group Life Insurance Gaps – Supplementing employer group life insurance with individual term life insurance to fully protect loved ones.

Essentially, term life policy is ideal anytime you have a temporary need for life insurance. Permanent life insurance that offers lifelong coverage may be preferable for certain long-term financial goals.

Read more : Family life insurance in Canada

Term Lengths: How Long Should Your Policy Last?

One of the first big decisions when purchasing term life insurance is choosing your desired term length. This is the number of years that your policy will be active, and premiums will remain level.

Some of the most common term lengths are:

  • 10-year term
  • 15-year term
  • 20-year term
  • 25-year term
  • 30-year term

Factors that impact the ideal term length include:

Age – Older individuals may want shorter terms of 10-15 years. Maximum terms extend to age 85 or 100, depending on the provider.

Mortgage – Matching the term to your remaining mortgage length ensures it gets paid off.

Children – Covering ages 0-25 for college savings may require an 18 or 25-year term.

Career – Income replacement for retirement may take a term period of 30 years.

Renewal Rates – Longer terms may have better renewal rates later on than multiple shorter terms.

There is no universal rule on the “right” term length. Selecting an appropriate term involves assessing your budget, financial goals, and risk factors. Many financial advisors recommend taking the longest term length you can reasonably afford.

Types of Term Life Insurance Policies

While term life insurance products generally serve the same purpose, there are some variations in policy types and options:

Level Term life insurance

With level-term life insurance, the death benefit amount and premiums remain unchanged for the entire term length. This provides maximum predictability in coverage and costs over the term duration. It is the most common type of term life insurance.

Annually Renewable Term life insurance

Also known as “annual renewable” or “yearly renewable” term life insurance, this type of policy has premiums that increase each year as you age. However, the death benefit remains static. While premiums start very low, the increasing cost each year makes this an expensive longer-term option.

Decreasing Term life insurance

As the name implies, the death benefit amount decreases steadily over the term duration with this type of term life insurance. However, premiums remain static and do not change. This mirrors a mortgage or other debt balance that declines over time.

Return of Premium Term life insurance

This type of term life insurance policy returns or refunds all premiums paid if the insured person outlives the term duration. As you can imagine, this return of premium feature makes the plan more expensive than basic term life insurance. However, it does provide added value if you outlive the term.

Term Life Insurance Riders & Add-Ons

Riders and add-ons allow you to customize the features and benefits of your term life insurance policy:

Waiver of Premium – Premiums are waived if the insured becomes disabled and unable to work. This prevents policies from lapsing due to illness.

Accidental Death Benefit – An additional payout if death is due to a qualifying accident.

Critical Illness – A lump sum payment if diagnosed with a specified critical illness like cancer or stroke.

Guaranteed Insurability – This lets you increase your death benefit without new underwriting at certain life stages.

Child or Spousal Coverage – Add term life coverage for dependents on your own policy.

These optional riders let you tailor coverage for risks and expenses specific to your situation. They do come at an added cost.

How Insurers Determine Term Life Premiums

Companies calculate your monthly or annual premium costs based on a number of personal factors:

Age – Premiums increase as you age given higher mortality risk.

Gender – Statistically, women live longer than men. Gender impacts rates.

Health – Medical history, family history, lifestyle, DUI’s, and existing conditions factor in.

Tobacco Use – Smoking leads to significantly higher premiums.

Hobbies – Hazardous hobbies like scuba diving or aviation may increase costs.

Face Value – The higher the death benefit, the higher the premiums.

Term Length – Longer terms often have better rates than multiple shorter terms.

Occupation – High-risk jobs may result in slightly higher premiums in some cases.

Let’s compare sample term life insurance rates for a 20-year, $500,000 policy:

Age 30Age 40Age 50Age 60
Male: $30/moMale: $45/moMale: $124/moMale: $403/mo
Female: $22/moFemale: $34/moFemale: $83/moFemale: $281/mo

*Quotes based on 20-year term from a major Canadian insurer, approved and in good health

As shown, age, gender, and health have a significant impact on term life insurance premiums in Canada.

Term Life Insurance Costs in Canada

Here are some average term life insurance costs in Canada based on different policy scenarios:

10-Year Term, $250,000 Coverage

Age 25Age 35Age 45Age 55

20-Year Term, $500,000 Coverage

Age 30Age 40Age 50Age 60

30-Year Term, $1 million Coverage

Age 35Age 45Age 55

For the most accurate rates, get quotes from multiple top Canadian life insurance companies. Minor health issues or lifestyle factors can impact costs.

Is Term Life Insurance Worth It?

Term life insurance makes sense for temporary coverage needs where you want pure life insurance protection at the lowest costs possible.

The downside is that term life insurance does expire. If you outlive the term length, your beneficiaries will not receive a payout. This lack of lifelong coverage means term life insurance is not ideal for certain permanent needs like estate planning and retirement income.

However, for the vast majority of Canadians who need affordable life insurance for 20-30 years to cover a mortgage, provide income replacement, and more, term life insurance can be an excellent, worthwhile option. It all depends on aligning coverage with your specific financial goals and risks.

Term Life Insurance and Retirement Planning

Term life insurance can provide valuable financial protection well into your retirement years:

Final Expenses – Avoid burdening loved ones with end-of-life costs by purchasing enough coverage to pay for funeral expenses, outstanding debts, medical bills, etc.

Estate Taxes – Post-retirement wealth can add up through investments, real estate equity, etc. Term life helps cover estate taxes, so heirs receive more.

Peace of Mind – Knowing your loved ones will be financially secure even if the unexpected happens.

Income Replacement – Replace any lost pension or annuity income your spouse would suffer if you were to pass away first.

Some tips for retirees purchasing term life insurance include:

  • Opt for shorter terms of 10 or 15 years. No need for 30 years.
  • Seek policies with a waiver of premium rider to avoid lapse if disabled
  • Consider adding chronic illness riders to cover potential care costs
  • Shop premium rates yearly – age significantly impacts pricing

Maintaining Your Policy as a Retiree

To keep term life insurance coverage as affordable as possible and prevent policies from lapsing later in retirement:

  • Pay premiums on time – set up automatic bank withdrawals
  • Don’t stop payments if budgets get tight – contact your insurer about options first
  • Review beneficiaries and update as needed – keep contact details current
  • Consider adding a trusted secondary contact – helps if health declines
  • Renew or replace policies well before they expire to prevent gaps in coverage
  • Review health and lifestyle factors annually – prevent spikes in costs

Proper maintenance and planning well into retirement are key to ensuring your term life insurance policy continues providing strong financial protection when you need it most.

What Happens When Your Term Life Policy Ends?

As you approach the end of your term life insurance policy duration, you have a few options:

Renew Your Existing Policy – You can opt to renew your term life insurance policy for another term length (5, 10, 15 years etc.). The premiums will be higher since you are now older. If health declined, they may be significantly higher.

Purchase a New Term Policy – An alternative is to shop for a brand new term life policy from any provider. You’ll go through full underwriting and receive new premium quotes tailored to your age and health. Lock in new level rates.

Convert to Permanent Life Insurance – Many term life policies allow you to convert to a permanent life insurance policy, like whole life or universal life before your term expires. This prevents having to get re-approved and keeps rates lower. However, permanent insurance is more costly.

Carefully project your life insurance needs, compare quotes, and assess options before making a decision as your policy reaches expiration.

Converting Term Life to Permanent Coverage

Evaluating Your Needs at Renewal Time :

Carefully evaluate your situation when your term policy nears expiration:

  • Assess if you still need life insurance given dependents, debts
  • Review potential new health issues that may impact qualify for competitive renewal rates or a new policy
  • Compare your renewal offer to quotes on new term coverage
  • Consider if permanent insurance now aligns better with retirement income needs

Work with an advisor to ensure you make the optimal choice for your situation when renewal approaches. Don’t just renew an unneeded policy or overpay to keep coverage.

Converting Term Life To Permanent Life:

If you have a convertible term life insurance policy, you can elect to switch to permanent insurance, like whole life or universal life, without undergoing new underwriting. This option for “converting” your policy provides advantages:

Lock In – Converting while young and healthy locks in permanent coverage you may not qualify for later at higher rates.

Avoid Exams – Bypassing new underwriting and medical exams saves time and hassle.

Lower Premiums – Keeping your original policy rates results in lower premiums than applying new ones.

Cash Value – Permanent life insurance builds up cash value you can borrow against later.

Downsides are permanent insurance costs more over the long run. A 30-year term policy may cost $30/month but $100/month after converting to whole life at age 60. Still, conversion allows you to maintain coverage.

The Pros and Cons of Term Life Insurance


  • Lower Costs: Term life premiums in Canada average $13-$30/month for $250k-$500k coverage for young, healthy adults. Cheapest form of life insurance.
  • Customizable Terms: Popular terms in Canada are 10, 15, 20, 25 and 30 years, so you can match coverage needs.
  • Level Rates: Premiums won’t increase due to age or health changes during your locked-in term period.
  • Easy to Understand: Term life provides straightforward temporary protection, unlike complex permanent products.


  • Temporary Coverage: Term life insurance does expire if you outlive the term length. Not ideal for lifetime protection needs.
  • No Cash Value: Term life insurance does not build up cash reserves you can borrow against like some permanent policies.
  • Renewal Rates: Premiums often jump significantly at renewal as you age and face re-evaluation. A healthy 30-year old may pay $30/month but that may triple at age 60.
  • Policy Lapse: If you stop paying renewals, your coverage ceases completely. The policy has no cash payout.

Getting the Best Term Life Rates After Age 60

Age significantly impacts premiums, especially after 60. To help minimize rate increases:

  • Maintain a healthy lifestyle with frequent medical checkups
  • Limit or abstain from tobacco, a major risk factor
  • Shop rates annually – some insurers offer better senior pricing
  • Consider shorter 10-15 year terms to keep costs down
  • Look for policies with guaranteed life insurance renewal options

A healthy 60-year old female nonsmoker may pay $140/month for $500k of coverage for a 10-year term in Canada, over double what a 50-year old pays.

Tax Implications of Term Life Insurance

A common question is whether term life insurance premiums are tax deductible in Canada. Unfortunately, the answer is generally no.

The tax treatment is as follows:

Premiums – Term life insurance premiums are typically not tax deductible for individual policyholders. Certain exceptions apply if using policy for business collateral.

Death Benefits – The death benefit payout is not considered taxable income or subject to taxation. Beneficiaries receive proceeds tax-free.

Cash Value Growth – Not applicable to term life insurance, which does not build cash value.

Consult a tax professional for guidance on any personal situations where term life insurance premiums may qualify for tax deductions or credits.

Is Term Life Insurance the Right Choice?

Term life insurance is the best option for many Canadians needing affordable pure life insurance protection. While not a fit for permanent lifetime coverage needs, it aligns well with most temporary situations.

Before purchasing a policy, reflect on these key questions:

  • Do you need lifelong coverage or just temporary coverage?
  • How long will your financial obligations last?
  • How much coverage do your dependents need?
  • What is your budget for life insurance premiums?
  • How will your needs change over the next 15-30 years?

Getting clear on your personal situation, financial obligations, and coverage timeframe will determine whether term, permanent, or a blended policy makes the most sense.

Takeaways on Canadian Term Life Insurance

  • Term life insurance provides temporary and affordable pure protection.
  • It covers obligations like mortgages, income replacement, and final expenses.
  • Term lengths often align with major debts like a 15 or 30-year mortgage.
  • Adding riders can customize coverage for risks like critical illness.
  • Premiums are based on age, health, gender, and other risk factors.
  • Renewing, replacing, or converting the policy are options when the term expires.
  • While not permanent, term life insurance is a key coverage option for most Canadians.

With the right policy and term length tailored to your needs, term life insurance can provide tremendous financial peace of mind.

Next Steps: Shop Term Life Insurance Quotes

Are you ready to explore term life insurance quotes? Get matched with a top Canadian life insurance provider that can provide customizable term coverage for your needs and budget. Compare quotes now and take the first step to protecting your family’s financial future.

FAQs On Term Life Insurance In Canada

  1. How long does a term life insurance policy last?

A term life insurance policy lasts for a set period of time, typically ranging from 10 to 30 years. The policyholder selects the term length when purchasing the coverage.

  1. Where can I buy term life insurance in Canada?

Term life insurance can be purchased from most major insurance companies in Canada as well as through independent brokers and online insurance marketplaces. Get quotes from multiple providers to find the best rates.

  1. Why is term insurance cheaper than whole life insurance?

Term life insurance is cheaper than whole life because it offers pure protection for a set period of time. Whole life builds up cash value and offers lifetime protection, making it more expensive.

  1. When should I renew my term life insurance policy?

You should begin evaluating renewal options 6-12 months before your term life insurance is set to expire. This gives you time to review new quotes and ensure there is no gap in coverage.

  1. Do term life insurance rates increase every year?

Rates remain level during the term period, but will likely increase at renewal as you age and are re-evaluated. Some policies offer rate locks that keep rates the same at renewal.

  1. Is a medical exam required for term life insurance?

A medical exam is often required to assess your insurability and health. However, some policies are now available without an exam, particularly for younger applicants.

  1. Can I convert my term policy to permanent insurance?

Many term life policies allow you to convert to a permanent life insurance policy within a specified period, such as 5-10 years into the term. This prevents having to re-qualify medically later on.

  1. Is term life insurance taxable?

No, term life insurance death benefit payouts to beneficiaries are generally not considered taxable income or subject to taxation in Canada. The premiums are also typically not tax deductible.

  1. What happens if I stop paying my term life premiums?

If you stop paying premiums, the policy will lapse and provide no coverage. The policy has no cash value, so nothing will be paid out if you stop paying premiums.

  1. Can I renew my term policy after age 75?

Most term policies cannot be renewed after age 75-80 and have set expiration ages. Look for guaranteed renewability or convertibility options if you need coverage past typical renewal ages.

Article Sources

[1] Number of individual term life policies in Canada: 8.1 million policies
Source: 2021 CLHIA Annual State of the Industry Report, page 17 (https://www.clhia.ca/web/CLHIA_LP4W_LND_Webstation.nsf/page/2A77321EF2A6EF77852588260062B73E)

[2] Percentage of individual policies that are term life: 40%
Source: PolicyMe Term Life Insurance Statistics (https://www.policyme.com/life-insurance/term-life-insurance/statistics/)

[3] New term life insurance coverage issued in 2022: Over $345 billion
Source: 2022 CLHIA News Release on 2022 Sales Figures (https://www.clhia.ca/web/clhia_lp4w_lnd_webstation.nsf/page/1B64A24751C6C6BC852587B3006E6390)

[4] Most common term length: 20 years at 41%
Source: 2021 LIMRA Canada Individual Life Insurance Sales Report (https://www.limra.com/en/newsroom/news-releases/2022/limra-reports-canadian-individual-life-insurance-sales-up-4-percent-in-2021/)

[5] Average individual term policy face value: Approximately $250,000
Source: 2020 LSM Insurance Term Life Data Report (https://www.lsm.ca/clients-get-record-high-life-insurance-protection-from-lsm/)

[6] Percentage of policies that are term life: Over 75%
Source: CLHIA 2022 Consumer Information Guide (https://www.clhia.ca/web/CLHIA_LP4W_LND_Webstation.nsf/page/DAB17BBC22A3DFA6852587B300553E0D)

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