What does term length mean in life insurance?
In life insurance, the term length refers to the amount of time for which you have insurance coverage—often between 10 and 30 years.
Unlike other types of life insurance, term life insurance covers you for a set period, usually the years when your income and financial responsibilities are highest. If you pass away during this time, your beneficiaries will receive a lump-sum, 100% tax-free payout to cover any expenses or financial responsibilities. Your policy and coverage end at the end of your term.
For example, if you buy a $200,000 20-year term life insurance policy at the age of 30, your coverage will end when you’re 50 years old. If you pass away before the age of 50 for any reason, your beneficiaries will receive a $200,000 payment. But if you pass away after the age of 50, once your coverage has expired, your beneficiaries will not be eligible for a payout.
You’ll find that term life insurance is a popular choice for Canadians, because the set term typically makes the rates more affordable. And because everyone has unique life insurance needs, term life insurance gives you the flexibility to choose the term length that makes the most sense for you.
Common term life insurance length options
Let’s look at some common term lengths and consider when short-term versus long-term life insurance policies might be more suitable.
Short-term coverage: 10 years
Short-term life insurance coverage often refers to policies within the range of 10-15 years. These policies are a great option for those who may need affordable coverage in the more immediate term to cover gaps in coverage, shorter-term debts, or loss of income.
For example, a couple approaching retirement might choose a 10-year term life insurance policy. This would cover any potential loss of income for their spouse or loved ones if one of them were to pass away during their remaining income-earning years.
Medium-term coverage: 15 to 20 years
Medium-term life insurance coverage is a good choice for Canadians who expect to have decreasing financial responsibilities in the coming years, but still need substantial coverage now. It’s a great way to balance affordable rates with adequate protection.
For example, a 15-year term life insurance policy could be ideal for someone with 15 years left on their mortgage. This ensures the home could be paid off if they were to pass away during that period.
Long-term coverage: 20 to 30 years
Long-term insurance coverage typically refers to policies that extend beyond 20 years. These are popular for younger Canadians, or those who expect to have increasing or long-term financial responsibilities.
For example, new parents may choose a longer term length so they have coverage until all their children are financially independent. New homeowners may purchase 25-year term life insurance or 30-year term life insurance to line up with their mortgage amortization period.
How to choose the right term length for your needs
To determine how long your term life insurance should be, consider your specific financial situation and stage of life. The good news is that term life insurance offers a ton of flexibility, so you can choose the term length that best covers your needs without overspending.
When deciding on the right term length for you, here are some things to consider:
- How long do you expect to have financial dependents, such as children or aging parents?
- How many years do you have on mortgage or debt repayments?
- How many income-earning years do you have left?
- What kind of lifestyle do you anticipate in retirement?
Factors that influence term life insurance costs
The cost of term life insurance largely comes down to risk: specifically, the likelihood of your passing during the policy term. While none of us want to need our life insurance, and insurance companies genuinely hope policies never need to be claimed, the pricing is based on the level of risk that’s being covered. So while term life insurance is typically affordable, a higher personal risk profile will lead to higher premiums.
Some key factors that influence term life insurance rates and premiums can include:
- Term length: The longer the length of your policy, the higher the rates, because the risk of passing away is higher over a longer period.
- Coverage amount: The more coverage you want, the higher your rates will be to offset that increase in coverage.
- Age: Since health-related issues generally increase with age, rates are usually more affordable when you're younger.
- Health and lifestyle: High-risk jobs and lifestyle habits, such as smoking, can increase your premiums.
- Insurance provider: Every insurance provider has different rates and different risk calculations, so you’ll find quotes can vary between different companies.
When to reassess or adjust your term life insurance
Term life insurance isn’t, and shouldn’t be, a set-it-and-forget-it kind of policy. You should review it regularly, ideally at least once a year, to make sure the term length and coverage amounts still meet the evolving needs of your life. For example, a significant increase in annual income might prompt you to consider getting more coverage.
Another good time to reassess or make adjustments is when you go through a major life event. If you’re welcoming a new child in the family, for example, you might want to increase your term length to make sure they’re covered if anything were to happen to you.
On the other hand, if your situation changes, you may want to consider decreasing your policy coverage.
FAQs: Determining Term Length For Life Insurance
Once your lifeinsurance term ends, so does your coverage. This means if you pass away after the end of your term, your beneficiaries do not receive a payout or death benefit. At this point, you can decide to renew your policy, purchase a new policy, or choose to go without coverage.
Some life insuranceproviders, like Blue Cross Life, offer automatic renewal when your policy ends.This way, you never have to worry about going without coverage. Note thatrenewal rates tend to be higher than the premiums of your initial policy.
Typically, your financial needs are the main factor in choosing a term length. But age can also influence which term lengths are available to you.
Many life insurance providers have an upper limit on the ages they’ll cover. It’s common to see coverage availability end at 85 years old. For example, if the shortest term length available is 10 years, you can only purchase a new policy until the age of 75. Or if you’re 65, you’ll only be able to purchase a policy for up to a 20-year term.
Generally, the premium or rate you’re quoted when you first purchase your term life policy will remain the same until the end of your term. This predictability is one reason why term life insurance is such a great way to provide stable, affordable financial security for your loved ones.
The main exception is if you provide inaccurate information during your application. Misrepresenting your age, health situation, or smoking status could lead to your policy being voided, or a claim being denied. Conversely, if you quit smoking or significantly improve your health after getting coverage, you may be able to apply for lower rates through a policy reassessment.
Because premiums stay the same throughout your term, it’s usually recommended to purchase enough coverage as soon as it makes sense for you. Life insurance rates tend to go up as you age, so purchasing a policy when you’re younger can lock in those affordable rates for as long as possible.
Keep in mind that if your policy has automatic renewals, the rates will likely change once your initial term ends. So while renewals can help prevent gaps in your coverage, it’s still important to purchase enough life insurance from the start.
Yes! You can and should make adjustments to your term life insurance if your needs change. Over time, you may find yourself with financial responsibilities that benefit from more coverage or a longer term. On the other hand, you might have changes that mean you can reduce your coverage and term length to save on premiums.
Fortunately, you don’t have to guess what the future holds when buying term life insurance. Most life insurance providers have processes in place to make adjustments to your policies. For example, Blue Cross Life makes it easy to convert your policy into a longer-term policy within the first five years. You can also purchase additional coverage in the future as needed.
That said, term life insurance rates tend to rise as you age. So, while you don’t want to be over-insured, factoring in future life changes early on can help you secure coverage at the best rates. Remember, every provider has different requirements for changing your coverage, so make sure you take the time to understand the specific terms of your policy when buying term life insurance.
No, there is no cash value with a term life policy. Once your term ends, your coverage also ends, and there is no payout or refund of premiums paid. Policies that do build cash value—like whole life or universal life—are generally more expensive. That’s because they’re designed not just to provide insurance, but also to build savings or support long-term financial planning goals.
Term life insurance is similar to car or home insurance. It provides financial protection for your family and loved ones if you pass away during your specified term. You wouldn’t receive a refund on your car or home insurance if you never make a claim, and term life insurance is the same.
