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Term life insurance

Term life insurance pays a lump sum, generally tax-free, to the people you choose if you pass away during the term you picked, usually 10, 20 or 30 years.

It is the simplest kind of life insurance. You pay premiums, and the cover is there for that period.

How it works

You choose an amount of cover and a length of term. In most cases the premium stays the same for the whole term, so you know what you will pay. Your premium depends on your age, health, whether you smoke, the amount of cover and the length of the term.

If you pass away during the term, the insurer pays the benefit to your beneficiaries. They can use it however they need, such as the mortgage, everyday living costs, childcare or education.

If the term ends and you are still living, the policy generally ends with no payout. Many policies can be renewed, but the premium is recalculated for your older age and usually rises a lot. Many policies also let you convert to permanent cover without a new medical exam, within certain limits and dates. This is worth asking about before you buy.

You choose an amount of cover and a length of term. In most cases the premium stays the same for the whole term, so you know what you will pay. Your premium depends on your age, health, whether you smoke, the amount of cover and the length of the term.

If you pass away during the term, the insurer pays the benefit to your beneficiaries. They can use it however they need, such as the mortgage, everyday living costs, childcare or education.

If the term ends and you are still living, the policy generally ends with no payout. Many policies can be renewed, but the premium is recalculated for your older age and usually rises a lot. Many policies also let you convert to permanent cover without a new medical exam, within certain limits and dates. This is worth asking about before you buy.

For illustration only: a couple with young children and a 20-year mortgage might choose a 20-year term, sized to cover the mortgage and several years of lost income. The cover lines up with the years the family is most exposed financially, and the cost stays manageable.

Keep in mind

• Cover ends when the term does, unless you renew, usually at a higher price.
• The insurer will ask about your health and lifestyle, and may ask for a medical exam or doctor’s records.
• Answer every question fully and accurately. Incorrect answers can affect a claim, especially in the first couple of years.
• Check whether the policy can be converted to permanent cover, and until when.

Common questions

How long should the term be?

A common approach is to match the term to how long people depend on you, for example until the mortgage is paid off or your youngest child finishes school. We can work this out together.

Can I change my policy later?

Many term policies include a conversion option, which lets you switch to permanent insurance without a new medical exam, within a set period. Details vary by insurer, so I will check this with you before you decide.

Do I need a medical exam?

It depends on your age, the amount of cover and the insurer. Some applications need only health questions. Others need a nurse visit, samples or your doctor’s records. I will tell you what to expect.

Is the payout taxable?

In Canada, life insurance death benefits paid to a named beneficiary are generally tax-free. Your situation may differ, so check tax questions with an accountant.

Also see: Critical illness insurance · Whole life insurance · Universal life insurance

This page is general information, not personal advice or an offer of coverage. Costs, eligibility and policy terms vary by insurer and by your health and situation. See my licensing and disclosure page.