Term insurance

Term life insurance offers coverage over a fixed period, which means that you’ll only be covered for a predetermined period.

Term life insurance offers coverage over a fixed period, which means that you’ll only be covered for a predetermined period. For example, if you buy 20-year (T20) term insurance, the insurance will only cover you for 20 years. At the end of those 20 years, your contract will terminate and so will your life insurance coverage.

Although you can buy term life insurance for various periods (e.g., 10, 20 or 30 years), these contracts are usually renewable. Therefore, when your 10-year contract ends, you’ll be able to purchase new T10 coverage. Generally, you won’t need to prove that you’re still in good health to renew the contract.

However, the price will increase with age. When you renew a term life insurance contract, it will cost you more than for the previous period. However, if you purchase a new insurance contract with medical evidence, the cost will normally be lower than on a non-evidence basis.

Term life insurance in the first years of the contract costs far less than whole life insurance. However, if the insured lives a long life, the insurance cost increases significantly. 

In general, if death occurs while the policy is in force, term life insurance can be used to help the deceased’s loved ones maintain their lifestyle and provide them with the necessary funds to pay:

  • Funeral expenses.
  • Taxes. On death, most of a deceased's assets are considered to be sold. Therefore, tax may be payable. (The amount of life insurance paid out by the insurer is always tax free.)
  • The insured’s debts: credit cards, mortgage, personal loans, etc.;
  • New expenses following death. For example, if a spouse took care of the children while the other spouse worked, childcare services might have to be arranged.
Insight

Cheaper in the first years, but without savings component

One of the reasons term insurance costs less is that you’re only covered for a fixed number of years. However, the risk of dying young is much lower than of dying at an older age. 

Another reason is that there’s no “savings” component with this type of coverage. You only pay for the cost of the insurance.

End of the insight

These are just examples. The insured might have enough money for his or her burial or other expenses. If so, the life insurance wouldn’t be needed to cover these costs. Take, for example, amounts in an RRSP that would be taxable on death. The beneficiary could simply use these funds to pay the taxes owing.

Term-100 life insurance

Some insurers offer 100-year term insurance. This type of insurance generally covers you for your entire life, even if you live beyond 100.

Some insurers will stop charging you premiumsAn insurance premium, or premium, is an amount that a person or company must pay on a regular basis to keep their insurance in effect. For example, if Mary has to pay $200 per year to keep her life insurance in effect, then the premium is $200.
The insurance premium should not be confused with the face amount, or insured amount, which is the amount that the insurance company has to pay out. In the same example, if Mary has life insurance that pays $100,000 to Peter upon her death, then the face amount is $100,000.  when you reach 100.

However, term life insurance does not provide a cash surrender value as is the case with whole life insurance. See the following section for information on the cash surrender value.