What is term life insurance in Canada?

Term life insurance is a type of life insurance that covers a fixed term. If you die within the specified period set out in your policy—10 years, for example—your beneficiaries will receive a lump-sum, tax-free death benefit. Most policies allow for an automatic renewal (every 10 years in our example) until the insured reaches age 80 or 85. That said, if you die after the policy ends, or you choose to not renew the policy, your beneficiaries won’t receive any payment at all. Your premiums will also stay the same (as long as you make your regular payments on time) throughout the entire term.

This is different from permanent life insurance (such as universal life and whole life insurance), which are policies that last your entire lifetime with no end or renewal date.

How long are the terms?

The length of coverage provided by a term life insurance plan is up to you and your provider. Typical terms can last anywhere between five to 50 years, or even longer.

What’s covered under term life insurance?

Term life insurance addresses the needs and concerns you’d expect from any life insurance plan, this includes:

  • Providing money for lost income to family and survivors 
  • Covering funeral expenses, reducing certain stressors during a time of grief
  • Helping to eliminate outstanding debts and mortgage payments that you may be leaving behind
  • Creating a fund that will pay for future education costs if you have young children

What are some of the benefits and features of term life insurance?

There are a number of advantages to opting for term life insurance. First of all, it’s a good, simple first option for those who are new to life insurance policies, while still offering a layer of financial security.

  • A major appeal to term life insurance is that your beneficiaries will receive a lump-sum, tax-free payment, which makes term insurance a convenient and easy choice.
  • Term policies offer some flexibility on the length of the term—so you can opt for the amount of time that makes the most sense for your needs and where you are in your life at the moment.
  • Premiums and coverage are fixed and always guaranteed for your entire term (as long as you continue to pay your premium), so you’ll never have to worry about your loved ones’ financial situation should the worst-case scenario take place.
  • Term policies are also renewable, so if you’re happy with the coverage and policy you have, or if your health has changed and you're unable to purchase other insurance coverage at a competitive price, you do have the option to keep the coverage as long as you want, until the policy expiry date (usually age 80 or 85). Keep in mind that your premiums will change upon renewing or extending your policy.
  • Most term insurance policies can be converted to permanent coverage up until age 71 without having to provide additional medical information. If your insurance needs or personal/health circumstances change after you have obtained a term policy, you typically will be able to convert it to permanent insurance that will cover you for life.

Who is term life insurance best suited for?

Term life insurance can work for a variety of people in different circumstances.

Term life insurance can be a great first-choice option for young people between the ages of 25 to 45—people who have financial responsibilities and are unsure if they will need, or can afford, permanent life insurance. Ultimately, term life insurance creates the opportunity to lock in coverage at a young age, with the flexibility to choose what to do with it as their needs and situation changes over time.

Pre-retirees, aged 45 to 60, may also want to consider term life insurance. This type of life insurance can be used for replacing short-term financial needs such as paying off debt, replacing your income and covering childcare costs such as funding your child's education. Additionally, this demographic is at the peak of their savings accumulation and earning years, are facing less debt and have more disposable income than ever before. At this point in life, they still have goals and dreams for their own futures but may also be thinking about their own financial legacies and what they want to leave behind when they’re gone, and term life insurance can protect those plans.

Additionally, there’s also something called business-owned term life insurance that is suitable for sole-proprietors or business partners, typically between the ages of 35 and 70, with a new or growing company who want to protect it and/or a key person. If you (or your partner) die within the chosen term, this option can cover debt, expenses, or a partner buyout, helping to keep the business running once you’re gone. Similar to personal term life insurance, the payout is tax free, premiums remain static for the entire chosen period and the policy is both renewable and convertible to permanent insurance.

Are there term life insurance options for couples?

If you are part of a couple looking at buying life insurance together, experts recommend that you first examine what type of coverage (if any) you have from your employer and that you may have already purchased on your own. From there, you have two options:

Single Life term insurance is a classic example of term life insurance. This route gives each person their own policy and coverage amount, while still ensuring their beneficiaries will be taken care of—but opting for your own policies can be more expensive overall. That said, the process to make any change to the policy, or beneficiaries in the aftermath of a breakup or divorce is simpler and more streamlined.

Joint, first-to-die term insurance provides insurance to both partners in a couple under a single policy. The death benefit will be paid upon the first partner’s death, and each half of the couple is guaranteed the same coverage. Usually, a joint policy is more cost effective than two individual plans, but it can’t easily be divided and tends to be less flexible when it comes to changing beneficiaries in the event of a separation. In most scenarios, joint first-to-die insurance also only pays one death benefit. That means once one partner dies, the surviving person will have to purchase a new policy if they want coverage of their own.

How do I determine how much term life insurance coverage I need?

The amount of coverage you may need should be determined on a case-by-case basis—there is no one-size-fits-all solution. When evaluating your needs prior to purchasing coverage, you should consider your family (how much money do you need to raise children?), your income (how much would you need to cover the unexpected loss of a steady paycheque?) and your debts (how much do you owe, and how will it be paid if you die?). Then you must decide what purpose your term life insurance will serve, and what you can afford: Do you want just enough to pay for funeral expenses? Enough to pay for your mortgage? Or do you want your policy to cover all that, and potentially more?

To help you make a decision, Edward Jones has an easy-to-use Life Insurance Calculator that can help you in your decision-making process. Find out more by using our life insurance calculator.

Is term life insurance better than permanent life insurance?

Whether term insurance or permanent insurance is better for you is dependent on the intended purpose of the insurance, and the amount of time the insurance coverage is required for. Both term and permanent life insurance have their share of pros and cons, and speaking to an Edward Jones advisor can help you figure out which policy is best suited for you.

Check out the below chart to compare both types.

 

Term Life Insurance versus Permanent Life Insurance
Term Life InsurancePermanent Life Insurance

Length of coverage

Five to 50 years, or more; or up until you turn a certain age, as long as you pay your premiumsFrom the moment you purchase a policy until your death, as long as you pay your premiums

Cost

Generally, less expensive than permanent life insurance; premium rates are fixed for the duration of your term but will increase if you decided to renewGenerally, more expensive than term life insurance; premium rates are fixed as long as you continue to pay them

Is it convertible?

Yes, you can convert a term policy into permanent life insurance up to a certain age (typically 75)No, a permanent policy cannot easily be converted into term life insurance

What’s covered?

Funeral expenses, protecting family assets and investments, paying for future education costs, loss of income, etc.Funeral expenses, protecting family assets and investments, paying for future education costs, loss of income and estate planning

Cash value?

NoYes

Can you withdraw money from your policy?

NoYes

What do you do when a term life insurance policy comes up for renewal or expires?

If your term life insurance expires, you no longer receive its benefits. Usually, there are a few options when your policy is nearing the end of its term. To maintain it, you can renew your coverage - in fact, most plans will renew automatically for you, so you don’t have to worry about a lapse in coverage. If you want your coverage to continue but find that term plans are no longer suitable to your needs and lifestyle, you can convert your policy into permanent life insurance, which will never expire and stay with you for the rest of your life. Alternatively, you can work with your Edward Jones advisor to determine if it makes sense to purchase a completely new policy, be it term or permanent.

Is a 10-year term life insurance policy worth it?

The duration of your term policy is up to you and is best determined by looking at your entire financial picture and your long-term goals. Typically, a 10-year term is ideal for short-term financial goals and responsibilities. A term of this duration can assist with paying off debts, like a student loan, paying off the balance of a mortgage, and providing for the day-to-day financial needs of your surviving family members.

Can you increase your term life insurance policy?

You can always apply for additional insurance coverage as needed, by providing your health and medical information to the insurance company. Some policies have guaranteed insurability riders which can be purchased and guarantee the insured the ability to buy pre-determined amounts of additional life insurance in the future without having to provide any health/medical information to the insurance company.

Can you withdraw money from a term life insurance policy in Canada?

Term life insurance policies don’t include cash value, nor does money accrue in them. You also can’t borrow against them. If this is something that is important to you, or that you’d be potentially interested in, you should consider a permanent life insurance plan instead.

Can you cancel a term life insurance policy?

Yes, you can cancel a term life insurance policy at any time

What does term length for life insurance mean?

The term length is the initial period of time (for example 10 or 20 years) your premiums will remain level for unless you decide to make changes to your policy. Term lengths can often range anywhere between five to 50 years.

Can you renew a term life insurance policy?

Yes, term life insurance policies can be renewed before they expire up to a certain age. (Typically, term policies cannot be renewed after you turn 85.) Generally, your premiums will increase upon renewal.

Does term life insurance cover accidental death?

Yes, term life insurance will cover unexpected and/or accidental deaths. Typically, the only exceptions to an insurance benefit being paid out are if the insured person dies by suicide within the first two years of coverage, and if you misrepresented any information on your application.

Does term life insurance provide an income if I become disabled?

No, term life insurance doesn’t provide any disability income, but optional riders are available which would waive the term insurance premiums during a qualified disability. Disability insurance, or income replacement insurance, is an entirely separate area of coverage.

Who is eligible for term life insurance in Canada?

In order to apply for term life insurance in Canada, you generally have to be over 18 years old, as well as be a Canadian citizen, permanent resident or landed immigrant who has lived here for more than one year. Some providers may also have a maximum age eligibility depending on the length of the term.

Have more questions about term life insurance or any other type of life insurance? Contact your local Edward Jones financial advisor to discuss your needs and help you choose the right insurance for you.

Important information:

Insurance and annuities are offered by Edward Jones Insurance Agency (except in Québec). In Québec, insurance and annuities are offered by Edward Jones Insurance Agency (Québec) Inc.