What is Term Life Insurance?

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If you’ve recently bought a home, had a baby, or started caring for an aging parent, you might be wondering if it’s time to buy life insurance. Or, for that matter, what is term life insurance coverage?

Life insurance is designed to protect your family if you die and your income disappears. Obviously, you don’t want them to struggle financially if the unthinkable were to happen which is why life insurance is the perfect solution.

There’s just one problem, you’re likely paying more bills than you ever have in your life at this time, so the thought of adding yet another monthly expense to your budget can give you a serious headache.

Well, the good news is that there’s a type of coverage that gives your family the financial protection they need without breaking the bank: term life insurance.

In this article, I’m going explain what term life insurance is, who should buy it, how much it costs, and how to get coverage.

What is term life insurance?

So, what is term life insurance? A term life insurance policy protects your family financially for a set period of time. 10, 20, and 30 years are the most common term lengths. You select the amount you want to be covered for and the number of years you want it to last for when you buy the policy.

If you die while your policy is active, your beneficiary will get a tax-free death benefit that’s equal to your policy coverage amount. So if your coverage amount is $500,000 and you die while holding your policy, your beneficiary will get a tax-free lump sum payment of $500,000. If you die after your policy expires, your insurer won’t pay anything which is why you want to make sure you have the right coverage.

Once you buy a term insurance, your premiums payments and coverage amount will be locked in for your entire policy term. This means that even if you develop a serious health condition or become an avid scuba diver during your policy term, you won’t have to pay more in premiums.

What’s the difference between term and whole life insurance?

You now know what term life insurance is, but what about whole life insurance? Whole life insurance is a type of permanent life insurance. This means that the permanent policy lasts for the rest of your life. And your insurer will have to cough up money to pay your death benefit when you die (no matter when this ends up happening).

Whole life insurance may seem tempting because it protects your family for the rest of your life and includes a cash value. But because your insurer will definitely have to pay your death benefit at some point, whole life insurance policies tend to be much more expensive than term life insurance policies. If you don’t actually need coverage for the rest of your life, which many people don’t, you’ll spend years padding your insurer’s pockets for no reason.

Instead of getting a permanent life policy, most people go with term life insurance and invest the difference. Here’s a detailed breakdown of the two.

Term life insurance vs universal life 

Universal life insurance is another type of permanent life insurance policy. Similar to whole life insurance, you can borrow against the cash value of your policy. The biggest difference is that universal life insurance policies are more flexible when it comes to premiums and death benefits.

When you compare term life insurance with universal life insurance, they’re basically two different products. Term life insurance covers you for a specific period of time, whereas universal life policies are a permanent insurance policy. Your life insurance rates will most likely be more with universal life, as opposed to term life.

What happens when term life insurance expires?

We mentioned that term life insurance lasts for the length of time you select when you buy your policy. So at some point, it’ll expire like the milk sitting in your fridge (just not that quickly). But what exactly happens when you policy term ends?

When your term life insurance policy is close to expiry, you’ll have two options: you can let it expire or you can renew it. You might let your policy expire if you don’t need coverage anymore or if it makes more sense to continue getting coverage by applying for a new policy altogether. In comparison, you might decide to renew your policy if your family still needs financial protection and sticking with the same policy seems like the best bet.

Keep in mind that if you renew your policy, you’ll probably end up paying a higher rate for it. After all, when you renew your policy, you’ll be older than you were when you first bought it. Because being older makes you riskier to insure, your insurance company will compensate for this higher risk by charging you more for coverage. Unfortunately, there’s no senior’s discount on life insurance!

Who should get term life insurance?

Term life insurance might be right for you if you need coverage for a certain number of years only, such as when you have financially dependent kids or a mortgage. Because you get to choose your policy term when you buy term life insurance, you can pay for coverage only during the years when your family would be in a bind if you died.

With term life insurance, there’s only a chance that you’ll die while holding your policy and your insurer will have to pay up. As a result, term life insurance is appealing to people who are looking for “cheap” coverage.

Even if you know that whole life insurance is the right choice for you, getting term life insurance now might be a good temporary solution. Most term life policies can be converted to a whole life policy down the road. So you can always start with term life insurance now and convert it to whole life insurance when your wallet isn’t still bleeding from the down payment you just put on a home.

What coverage amount and policy term should you choose?

The coverage amount and policy length that’s right for your particular family depends on your needs and financial obligations. In general, most people buy a policy that covers the expenses they’d pay to support their family until their mortgage is paid off and their kids are out of the home. For example, my wife and I got $500,00 in coverage with a term of 20 years.

However, if you have a child with special needs or want to help support an aging parent with long-term care, you might need a policy with a higher payout and longer term length

How much does term life insurance cost?

The amount you can expect to pay for term life insurance depends on a few key factors. These factors determine how much your insurer would have to pay if you died or how likely it actually is that you would die while holding your policy. In other words, they tell your insurer how risky you are to them and how likely it is that they’d have to pay up on your policy.

These are the key factors that determine how much your monthly premiums would cost:

  • Coverage amount: The more you want to be covered for, the higher your premiums will be.
  • Policy length: The longer you want coverage for, the higher your premiums will be.
  • Age: You’ll pay higher premiums if you apply for a policy when you’re older vs. younger.
  • Gender: If you’re a male, you’ll likely die earlier compared to a female. As a result, males will pay higher premium payments.
  • Health: You’ll pay higher premiums if you have a health condition that raises your risk of dying early.
  • Smoking status: Smokers pay higher premiums than non-smokers do.

For example, if you’re a healthy non-smoker, a $250,000 20-year policy might cost you $24.77/month if you’re 35 years old when you buy the policy. However, the same policy might cost you $55.20/month if you’re 45 years old when you buy it. That’s more than double the price!

What’s the best life insurance company?

It’s not fair to say that one life insurance company is better than the other as there are many insurers in Canada that offer excellent term life insurance policies. That said, there are a few things you should focus on when you’re considering a term life insurance policy from a specific company.

Financial health

You want to know that if you die at any point during your policy, your insurer will still be around to pay your death benefit. Fortunately, in Canada, the insurance industry is tightly regulated. As a result, most insurance companies are very stable financially, so you don’t need to worry too much about choosing an insurer that’s secretly about to go under.


Submitting a paper life insurance application can increase your application’s processing time by a mind-boggling 6–8 weeks. That’s why choosing an insurer that accepts e-applications may be a good idea


It’s natural to think that if one insurer offers a lower rate for a policy than everyone else, they must have something sketchy going on. The reality is that a lower price usually just means that the company is pricing the policy more competitively to win you over as a customer. There’s nothing wrong with going with an insurance provider with the lowest rates.

In case you want to learn more about the top Canadian life insurance companies, PolicyMe has reviews so you can get more information.

How to buy term life insurance?

If you’re already stretched thin these days, you might worry that buying life insurance will be a complicated process that you don’t have time for. But in reality, getting coverage is usually easier than you think.

Here’s how the process works:

  1. You get quotes for a policy from an insurer or independent broker
  2. You choose a quote and fill out an application
  3. Your insurer collects information about your health and lifestyle (medical exams may be required)
  4. You get approved for the policy

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About Barry Choi

Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. You can find him on Twitter:@barrychoi


  1. t rex game on July 23, 2020 at 5:26 AM

    I bought 2 life insurance packages to protect my family. I think every family needs at least 1 insurance plan

  2. AC on July 24, 2020 at 4:53 AM

    My parents have whole life insurance and it also doubles as an investment for some reason, because they get dividend cheques. I think they should cancel it because I am financially independent, but my mom said “but I’ve been contributing to it for so long!” If they’ve been paying into it for 20+ years, are they better off just continuing with it?

    • Barry.Choi on July 24, 2020 at 5:51 AM


      It really depends on the age of your parents and what they’re paying.

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