What term life insurance is

How the product works

You choose an amount and a length. Common lengths in Canada are 10, 20 and 30 years, and some insurers offer terms to a specific age instead. The insurer assesses your application and quotes a premium. That premium stays the same for every year of the term, and so does the coverage amount.

If you die at any point while the policy is in force, the insurer pays the full amount to your beneficiary. It makes no difference whether you die in year one or year nineteen.

At the end of the term, the arrangement you bought runs out. What happens next depends on rights written into the contract, which is the part people tend not to read until it matters.

What the term lengths mean

A “20-year term” means the premium and the coverage are guaranteed for 20 years from the issue date. It does not mean the policy self-destructs at the end of year 20. It means the guaranteed period ends there.

Choosing between 10, 20 and 30 is not really a question about products. It is a question about how long the thing you are insuring against lasts. A 10-year term on a 25-year mortgage leaves fifteen uncovered years. A 30-year term for someone whose youngest child is fifteen is paying for coverage well past the point of need. That decision is worked through in choosing a term length.

The two rights that matter

Almost every term policy sold in Canada includes these. Almost nobody asks about them at the point of sale, and they are the difference between a policy that has options at the end and one that just stops.

Renewability. The contract lets you continue the coverage past the end of the term without answering any medical questions. The insurer must let you carry on. The catch is the price, which resets to your age at that point and typically jumps sharply. What it looks like in practice is in renewing term coverage.

Convertibility. The contract lets you exchange some or all of the coverage for a permanent policy with the same insurer, again without new medical evidence. This right has a deadline, commonly a set age such as 65 or 70, or a set number of years before the term ends. Once it passes it is gone. See converting term to permanent.

Both rights exist for the same reason: your health may change during the term, and without them a term policy would leave you with nothing at the exact moment you had become uninsurable. Before you sign, confirm in writing that both are present and what the conversion deadline is.

Why it costs so little

The honest answer is that most term policies never pay out. A healthy 35-year-old buying a 20-year term is very likely to reach 55, and the insurer knows it. They price for the small proportion who do not.

That is not a criticism of the product. It is what makes it possible to cover a large obligation for a small premium at the age when the obligation is largest and the money is tightest.

Is it worth it if nothing happens

This comes up constantly, usually phrased as paying for twenty years and getting nothing back.

What you bought was the certainty that if the worst had happened, the mortgage would have been cleared and your household would have had time to reorganise. That it did not happen is the good outcome. Nobody asks for a refund on a year of house insurance that ended without a fire.

There is a version of the complaint that has more to it, which is that a term policy leaves you empty-handed at exactly the age when new coverage is expensive. That is a real risk, and the answer to it is the conversion right rather than buying permanent coverage you did not need at 35.

Return of premium

Some insurers offer a version that refunds premiums if you survive the term. It costs substantially more than plain term coverage for the same benefit, and the refund is only paid if you keep the policy the whole way through.

For most people the arithmetic does not favour it once you account for what the extra premium could have done elsewhere. It is not a scam, and it appeals to people who dislike the idea of paying for something that produces nothing. Look closely at what the extra costs before deciding it is worth it.

What to check before you sign

• Is the coverage level for the whole term, or does it reduce?
• Is it renewable, and to what age?
• Is it convertible, and what is the exact deadline?
• What happens to the price at renewal, in the illustration?
• Is the premium guaranteed for the full term, or adjustable?

Any advisor should answer all five without hesitating.