What is term life insurance?
Term life insurance provides coverage for a defined period of time — the "term." Common terms are 10, 20, or 30 years. If the insured person dies during the term while premiums are paid and the policy is in force, the death benefit is paid to the beneficiaries. If the insured outlives the term, the policy expires with no payout.
Term is often called "pure" insurance because it provides a death benefit only — there is no investment or savings component in standard term policies.
Common term lengths
- 10-year term: Shorter coverage period; may be used for specific shorter-term needs. Renewals at end of term typically at significantly higher rates.
- 20-year term: A common choice for covering the years until children reach independence or a mortgage is substantially paid down.
- 30-year term: Longest common fixed term; premiums are level for the full 30 years. Often applied to longer-duration obligations.
- Annual renewable term (ART): Renews each year, with premiums that typically increase annually. Less common as a primary product today.
Renewability
Most term policies in Canada are renewable — you can continue coverage at the end of the term without proving insurability again. However, renewal premiums are typically much higher than the original premiums, because you're older at renewal. The policy usually specifies the renewal premium schedule.
Convertibility
Many term policies include a conversion privilege — the right to convert all or part of your term policy to a permanent policy within a defined period, without new medical evidence. This is valuable if your health changes and you later want permanent coverage that you might not otherwise qualify for. The conversion privilege is typically available up to a certain age (e.g., age 65) or until a certain point in the policy term.
Premium structure
Term premiums are typically level — the same amount for the entire term. This makes budgeting straightforward. Premiums are determined at issue based on:
- Age at application
- Coverage amount
- Term length
- Health and lifestyle factors (via underwriting)
- Smoking status
- Gender (in provinces where this is permitted as a rating factor)
When term life is commonly considered
Term insurance is often discussed for situations where:
- Coverage is needed for a time-limited period (e.g., while children are dependants, while a mortgage is outstanding)
- Maximum death benefit per premium dollar is the priority
- The need for coverage is expected to decrease over time (as debts pay down and savings accumulate)
- Budget is a primary consideration