4 Advantages of Term Life Insurance in Canada (Pros and Cons 2023)


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Term life insurance is a straightforward, affordable option for Canadians.

It has many advantages, including that it's more affordable than whole life insurance and it's more flexible since you can choose your term length and coverage amount and even renew it or convert it into a permanent policy.

Term life insurance can also be added on top of any existing life insurance coverage, such as through work benefits.

What are the advantages of term life insurance?

Here are the advantages of buying term life insurance:

  • Affordable monthly premiums
  • Rates are usually locked-in for the entire term
  • The death benefit is tax-free in Canada
  • You only pay for it when you actually need it
  • Choose how much coverage you want
  • Choose how long you want to be covered
  • Option to convert to a permanent policy (select policies)
  • Best choice for different situations, from couples to parents to near-retirees
  • Simple to understand the policy. No complicated fine print.

In short, term life insurance is an affordable and practical option for all kinds of Canadian families.

With affordable premiums and flexible plans where you can choose what you want, you’ll know how much you’ll be spending on your policy in the long run.

Let's dive deeper into each benefit so you can see what we mean.

1. Term life insurance is affordable with locked-in rates

Whole life insurance is typically five to 15 times more expensive than a comparable term life insurance policy.

This is because term life insurance only covers you for a pre-determined term, like 10 or 30 years, whereas whole life insurance guarantees a payout.

This may sound like a great deal, but it's actually smarter to buy term, save the difference and invest it in a tax-sheltered account such as a TFSA or RRSP.

Plus, the point of the term life insurance is to give you protection when you actually need it: the years your family will need financial support if you passed away.

Worried that term life insurance is too expensive for you? People tend to overestimate the cost of life insurance, according to research by LIMRA.

In reality, your monthly premiums for term life insurance can cost you less than your cellphone bill.

PolicyMe offers some of the most affordable term life insurance rates in Canada.

2. Tax-free death benefit

The death benefit for term life insurance in Canada is tax-free.

This means your beneficiaries won’t have to worry about paying taxes on the money they receive from the insurance company.

They can immediately use this death benefit to pay for whatever they want, like paying off the mortgage or saving for your child's post-secondary education.

3. Temporary expense

Term life insurance is only a temporary expense, because you choose your policy length.

So if your plan is for 15 years, you know you’ll only have to pay premiums for a maximum of 15 years.

With whole life insurance, you’ll have to pay monthly premiums until you pass away.

This places a greater financial burden on you because you don’t know for how many years you’ll have this monthly expense.

term life insurance advantages - temporary expense graph

4. Flexible term life plan options

Term life insurance offers flexible plan options where you can choose how long you want your policy to last.

If you need a plan for five years, 10, 30 or somewhere in between, there are options for you. 

You can also convert your policy to a permanent life insurance policy if your needs change after getting a term policy.

And you can renew your term plan after it expires if you realize you still need life insurance. Not sure what your life insurance needs are? Try our free life insurance calculator.

5. Suitable for families at different life stages

Term life insurance is suitable for families at different life stages. Whether you’re married or about to start a family or have one already, term life insurance can work for you. 

You can work with insurance providers to get the coverage that makes sense for your family and for however long you need it.

The Financial Services Commission of Ontario suggests that term life insurance is helpful with “temporary needs or expenses that have a foreseeable end,” such as a mortgage or education fees.

So you can get a plan that addresses these kinds of financial responsibilities.

term life insurance advantages - best for families in canada

What are the disadvantages of term life insurance?

Term life insurance also comes with some disadvantages, such as temporary coverage, expensive renewals and age limits on policy applicants.

We believe that term life insurance, in comparison with whole life policies, is the best option for the average Canadian family. But there are certainly exceptions.

Continue reading to learn more about these drawbacks.

1. Coverage is temporary

Term life insurance coverage is temporary.

While is a benefit for most Canadian families, it can also be a disadvantage if your policy expires and you realize you still need life insurance. This is why it’s important to consider your term length carefully before buying a policy.

Make sure your term isn’t too long or too short for your family’s financial needs. For example, think about financial obligations, like your mortgage length, or the amount of time it'll take for your kids to be grown up and leave the nest!

2. Policy renewals can be pricey

Renewing your term life insurance policy can cost more than you think. This is because as you get older, the odds of you developing health issues increases, which causes premiums to increase.

You do have the option of getting quotes from other term life providers instead of renewing your plan but your premiums will still be higher than what you had originally. 

But to avoid renewals and shopping around for a new policy in the future, spend time now figuring out the right policy length for you.

With that said, sometimes the option to renew your policy can be a benefit. If your health situation changes significantly at the end of your policy and you’d like to have a few more years of coverage, premiums for a new policy can be prohibitively expensive.

3. Maximum age for term life insurance

In Canada, the maximum age for most term life insurance policies is coverage up to age 65, according to the Canadian Life and Health Insurance Association.

With PolicyMe, you can get coverage until age 85. For example, at age 65 you can get a 20-year policy or at age 75 you can get a 10-year policy. 

Although these options exist for older people, premiums will be high and will only increase as you age. So, if you think you need life insurance, it’s better to get it sooner than later.

The bottom line: the pros of term outweigh the cons

By considering your current financial situation and predicting your future needs as best as possible, you can reap the many benefits of term life insurance, like affordable premiums and flexible plan options. 

With term life insurance, you and your family will spend less and worry less.

  • Simple: Term life insurance is straightforward and the policies tend be easy to understand, even if you aren't a life insurance advisor!
  • Price: Term life insurance can be 6 to 10 times cheaper than whole life insurance. And PolicyMe has a discount of 10% on their first year when they get couples life insurance.
  • Flexibility: Term life insurance is flexible to your specific family's needs. You choose the term length and coverage amount.

FAQs: Term life insurance pros and cons

What are the benefits of life insurance?

The benefits of life insurance include helping your family feel financially supported. If you were to pass away and your family would feel unstable without your income, then life insurance can help relieve their worries.

With life insurance, when you pass away, your family will receive a death benefit. They can use this money to pay for everyday expenses, funeral costs, mortgage payments, education, and more.

Why should I get term life insurance?

You should get term life insurance because it’s more affordable and more flexible than whole life insurance. These benefits make it a good option for all kinds of families who are in different financial situations.

Can you withdraw from term life insurance?

No, you cannot withdraw cash from a term life insurance plan. If you (the policyholder) pass away while the plan is active, your beneficiaries will receive a death benefit (tax-free lump sum) which they can spend as they want.

But you will not receive any cash benefits from your term policy before that.

Laura McKay

COO & Co-Founder
About the Author

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