Buying term life insurance in Canada involves two decisions: how much, and for how long. People agonise over the first and guess at the second, which is the wrong way round. The amount is largely arithmetic. The term is where the money is actually won or lost.

Start with what ends

Term insurance is the right product when what you are protecting has an end date. So work backwards from that date.

A mortgage

There is a defined remaining amortisation. If twenty-two years are left, a twenty-year policy leaves a two-year gap — at the point when you are oldest and replacement cover is dearest.

Children

Dependency ends at a reasonably predictable point. If the youngest is three, you are insuring roughly twenty years, not ten.

A business loan

Personally guaranteed until it clears. The easiest of all: the term is the loan term.

Match the term to the obligation and the cover ends when the obligation does. That is the entire design of the product.

Why the cheapest quote is often the expensive one

A ten-year policy always quotes lower than a twenty for the same coverage. It looks like the sensible economy, and frequently is not.

Most term policies renew automatically at the end of the term without new medical evidence — which sounds reassuring until you see the premium. Renewal is priced at your age then, and the increase at the ten-year mark is substantial. Renew twice and the total paid over twenty years usually exceeds what a twenty-year policy would have cost from the outset.

The alternative is applying fresh, which means new underwriting with ten more years of medical history behind you. That works well if you are still in good health, and not at all if you are not — and you cannot know in advance which you will be.

Conversion is the feature to insist on

If you take one thing from this article: check the policy is convertible before you sign.

A convertible term policy can be turned into permanent cover without new medical evidence, usually up to a stated age. It typically costs little or nothing extra at the outset, and it cannot be added later.

Its value is entirely about what you do not know yet. Develop a condition during the term and conversion may be the only route to lifelong cover still open to you — precisely the moment you would want it. Buying a convertible policy is buying an option on your own future insurability, and it is the cheapest option you will ever be offered.

More on this on our term insurance page.

How much cover?

The usual starting point is what would still have to be paid if your income stopped:

• The outstanding mortgage
• Other debts — car loans, lines of credit, credit cards
• The cost of raising children to independence, including education
• Enough to keep the household running while the family finds its feet
• Final expenses

Multiples of salary are a rule of thumb rather than an answer. Two families on identical incomes with different mortgages and different childcare arrangements need materially different amounts of cover.

Subtract what already exists — group life through work, existing policies — but be careful with the group figure. It usually ends with the job, which means it is not cover you control.

Lender mortgage insurance is not the same thing

The cover offered when you arrange a mortgage is a different product wearing similar clothes.

• It pays the lender, not your family
• The benefit falls as the mortgage balance falls, while the premium generally does not
• It usually ends if you switch lenders
• It is often underwritten at claim time rather than at application — which is when families discover a problem

A term policy for the same amount pays your family, keeps its face value as the mortgage shrinks, moves with you between lenders, and is underwritten up front so you know where you stand from day one. It is generally both cheaper and better.

What affects the premium

Age is the largest single factor, and it moves in one direction — which is the practical argument against waiting. Beyond that: smoking status, health and family history, the coverage amount, the term length, and occupation or hobbies in some cases.

Smoking status is worth knowing about. Most insurers will reclassify you as a non-smoker after a documented period without tobacco, which can cut a premium substantially. It is not automatic; you have to ask.

Will you need a medical?

Often, though not always. Lower coverage amounts are frequently issued on health questions alone. Where an exam is required it is usually a nurse visiting your home at a time you choose, arranged and paid for by the insurer, taking under an hour.

Answer the questions accurately. A policy issued on incorrect answers can be contested at claim time, which defeats the point of buying it.

When term is the wrong answer

Some obligations never expire — final expenses, a tax liability crystallising on death, a payment owed to a business partner, or simply wanting to leave something behind whenever you die. Term cannot cover those, because it ends and the need does not. That is what whole life and par plans are for, and for more complex arrangements, universal life.

But nobody should buy permanent insurance because a term policy felt like money wasted. It is not wasted. It is what covering a temporary risk costs, and covering a temporary risk cheaply is the whole point.

Frequently asked questions

What happens if I outlive the policy?

Nothing is paid out — which is what makes it affordable. It is the same arrangement as insuring a house that does not burn down.

Can I increase the coverage later?

Usually only by applying for more, with fresh underwriting. Some policies include a guaranteed insurability option allowing increases without a medical at set life events — worth asking about if children are likely.

Can I have more than one term policy?

Yes, and layering is a legitimate strategy: a thirty-year policy for the mortgage and a twenty-year one for child-rearing costs less than one large thirty-year policy covering both.

Is the payout taxed?

A death benefit paid to a named beneficiary in Canada is generally received tax-free. How the policy interacts with an estate or a business is a separate question worth advice.

Can I get cover with a health condition?

Frequently — sometimes at standard rates, sometimes rated, occasionally with an exclusion. Insurers assess the same condition differently, which is the practical argument for going through a broker rather than taking the first answer.

Our term insurance page covers choosing a term, what happens at the end of one, and how conversion works. For an overview of all three kinds of life cover, see life insurance — or call and talk it through with a licensed advisor, which for this product is usually the quickest route to an answer.