What is level term life insurance in Canada? Benefits, costs & options

Predictability matters when planning family finances, and that’s exactly what level term life insurance in Canada offers. With fixed premiums and a consistent death benefit, this policy makes budgeting simple while protecting loved ones for 10, 20, or even 30 years. Many families choose coverage durations that last until their children reach adulthood, ensuring financial security until kids become self-sufficient. In Ontario, Canada, many consumers prefer level term insurance for obligations like mortgages or children’s education.

In this guide, we’ll explain how level term coverage works, who it’s best for, and how it compares to other types of term insurance so you can choose the right fit for your goals. Level term life insurance is often more affordable compared to permanent insurance, making it a budget-friendly choice for many Canadians.

What is level-term life insurance?

Level-term life insurance covers a specific period from one to 30 years. It is called a ‘level-term’ because the death benefit and premiums remain fixed, or level, throughout the policy. The insurance company determines the premiums and coverage terms at the outset.

Level-term life insurance predetermines the death benefit at the time of purchase, and it remains constant throughout the policy’s duration. The death benefit from a level term life insurance policy is typically tax-free for beneficiaries. The policy pays the death benefit only if the insured person passes away during the policy’s term.

How does level-term life insurance work?

• Level-term life insurance covers a specified period, typically one to 30 years. Here’s how it works:
• The policyholder selects the desired coverage amount and the term length based on their needs.
• The policyholder pays regular monthly or annual premiums throughout the term. The premium amount is determined based on the policyholder’s age, health, and the desired coverage amount.
• If the insured person passes away during the term, the designated beneficiaries will receive the death benefit. If you die during the term of a term life insurance policy, your beneficiaries will receive a tax-free payment.
• At the end of the term, the level-term life insurance policy typically expires, and the coverage ends. If the policy term ends and the insured person is still alive, they will no longer be covered. However, some policies may offer a return-of-premium option, which refunds the premiums paid if no claims were made during the term.

Most insurance companies set a maximum age for purchasing or renewing level term life insurance, usually between 80 and 90 years old.

Advantages of level-term life insurance

• Fixed premiums: Premium amount is fixed throughout the policy term, allowing policyholders to budget their finances without worrying about premium increases. This predictability helps ensure financial stability for your family.
• Affordable: Level-term life insurance has lower premiums than permanent life insurance policies, making it accessible for individuals seeking cost-effective protection for a specific period. Level term policies are a popular term life insurance plan for those seeking predictable, cost-effective coverage. Term life insurance is typically the least expensive type of life insurance available because it does not have a cash value component.
• Simple structure: The structure of level-term life insurance is straightforward to understand.
• It lasts as long as you need it: While level-term life insurance has a fixed term length, policyholders can typically choose the duration of the policy based on their specific financial needs. Choosing the right term length can help protect your family’s future during their most financially vulnerable years.
• Convertible options: Some level-term life insurance policies allow policyholders to convert their term policy into a permanent life insurance policy without undergoing a medical exam.
• Level term policies are designed to provide financial stability and peace of mind for policyholders and their families.

Drawbacks of level-term life insurance

• Limited coverage period: Level-term life insurance only covers a specific term, typically one to 30 years. Once the term ends, the policy expires. If the policyholder wants to continue coverage, they may have to renew the policy at higher premium rates or explore other options.
• No cash value accumulation: Unlike permanent life insurance policies, level-term life insurance does not build cash value to grow tax-deferred savings that can be accessed during the policyholder’s lifetime.
• Potentially expensive renewal: If the policyholder wants to extend coverage beyond the initial term, they may have the option to renew the policy. However, the renewal premiums are typically based on the policyholder’s age at the time of renewal, and the renewal premiums will likely be significantly higher as the policyholder gets older. Older applicants or those with health issues may have to pay higher premiums when renewing or applying for new coverage.
• Limited customization: Level-term life insurance is generally a straightforward and standardized product. Policyholders may need more flexibility to adjust the coverage amount or modify the policy to suit changing needs. On the other hand, permanent policies offer coverage modification and options to adjust the premium amounts, pay premiums for a limited period, or use the accumulated cash value to pay premiums.
• No living benefits: Level-term life insurance primarily provides a death benefit to beneficiaries upon the insured’s death. It does not typically offer living benefits, such as cash withdrawals or loans against the policy’s cash value, which can be available in specific permanent life insurance policies. In contrast, whole life insurance offers lifelong coverage and a cash value component, but comes with much higher monthly premiums.
• Affordable: Level term life insurance is generally more affordable than permanent life insurance, offering lower monthly premiums for a set period. However, whole life insurance typically has substantially higher monthly premiums due to its permanent coverage and cash value features.

Is a level-term life insurance policy a good fit for me?

Deciding if level-term life insurance is right depends on temporary coverage needs, affordability, preference for simplicity, future coverage considerations, and financial goals. If you have short-term financial responsibilities like a mortgage or young children, many families choose coverage durations that last until their children reach adulthood and become financially independent. If you want affordable coverage and prefer a straightforward policy with fixed premiums and benefits, then level-term insurance may be suitable. If you are younger and progressing towards significant life milestones, consider getting level-term life insurance early for lower premium rates, locking in affordable premiums for the next 10 to 30 years with unchanged rates throughout the policy term unless you decide to cancel and re-apply. However, a permanent policy might be more appropriate if you anticipate long-term coverage needs, want cash value accumulation, or lifelong coverage, while term life insurance plans are ideal for those seeking temporary, cost-effective protection aligned with specific financial goals.

How much does level-term life insurance cost?

The cost of level-term life insurance can vary depending on the insured person’s age, health, coverage amount, policy term, and the insurance provider. Each insurance company offers different term life insurance products, with varying rates, features, and maximum coverage ages. The insurance company determines the policy premiums and coverage options, so it’s important to compare offerings when choosing a policy.

Average rates for a 25-year-old female for a 10-year term policy

Average rates for a 35-year-old female for a 10-year term policy

Average rates for a 45-year-old female for a 10-year term policy

Average rates for a 55-year-old female for a 10-year term policy

Level term life insurance is often considered affordable compared to permanent insurance, as term life insurance products generally have much lower monthly premiums. This makes them a cost-effective choice for those seeking coverage for a specific period.

Customize your level-term life insurance policy

Customizing ensures you have the appropriate protection and features that align with your financial goals. Adding riders can enhance your level-term policy to provide additional benefits, flexibility, and peace of mind. Some policyholders also choose to hold multiple policies to tailor their coverage to different financial responsibilities.

• Accelerated Death Benefit rider: This rider offers a portion of the death benefit to cover medical expenses or other financial needs if you are diagnosed with a terminal illness.
• Waiver of Premium rider: In the event of disability preventing you from working, this rider waives your premium payments while maintaining your coverage. It ensures your policy stays active even if you experience a loss of income due to disability.
• Critical Illness rider: If you are diagnosed with a covered critical illness, such as cancer, heart attack, stroke, or kidney failure, this rider provides a lump-sum payment. The funds can address medical costs, treatment expenses, or other financial obligations during recovery.
• Child term rider: This rider covers your children under your policy. In the unfortunate event of a child’s death, the rider pays a benefit amount to help with funeral expenses or other related costs. The death benefit from a level term policy can also help beneficiaries cover funeral costs and other final expenses.

What happens when level-term life insurance ends?

If you outlive the term, the level-term life insurance policy expires, and the coverage ends. The policy’s term determines when coverage expires, so planning ahead is important to avoid gaps in protection. This means that the death benefit is no longer available, and you will not receive any payout upon your death. At the end of the term in a level-term life insurance policy, there are three options: Most term life insurance policies expire without paying a death benefit, which lowers the insurer’s overall risk.

• Allow your policy to expire: Opting to forgo life insurance is only advisable if you have the financial means to cover any potential expenses and have no dependents or outstanding financial obligations. Without coverage, your family may struggle to replace lost income or cover essential expenses.
• Renew your policy: Depending on your policy’s terms, options may be available to renew your level-term policy. Renewal typically involves extending the coverage for an additional term, but the premiums may increase based on your age at renewal. Renewing coverage can help ensure your family continues to have financial stability in the event of your death.
• Convert your policy: Conversion allows you to convert your level-term policy into a permanent life insurance policy without additional underwriting. This provides permanent coverage for the rest of your life. However, the premium rates for the converted policy may be higher.

Is level-term better than decreasing-term life insurance?

The choice between a level-term and a decreasing-term depends on your needs. Level-term insurance offers a fixed death benefit amount and premiums throughout the policy term. Decreasing-term insurance provides a death benefit amount that decreases during the policy term. Decreasing term policies are often used for mortgage protection, as the death benefit declines in line with the outstanding mortgage balance. However, as premiums remain the same, you may end up paying more in total premiums over time.

Since the death benefit in decreasing-term insurance reduces over time, a decreasing term policy is structured so that the payout decreases according to a set schedule, making it suitable for debts that diminish over time. It may not provide sufficient funds for expenses such as income replacement or child education beyond the specific purpose it was intended to cover (such as a mortgage).

What is the difference between level premium and level benefit?

‘Level premium’ and ‘level benefit’ refer to two different characteristics of a life insurance policy. ‘Level premium’ implies that a life insurance policy has a level premium, meaning the premium amount remains constant throughout the term. Regardless of the policy’s duration, the premium payments remain unchanged. The death benefit, however, may or may not be level.

‘Level benefit’ in a life insurance policy means that the death benefit stays the same throughout the policy’s term. If the insured person passes away during this time, the beneficiaries will receive a fixed payout. 

Can you renew level-term life insurance without a medical exam?

Renewing a level-term life insurance policy without a medical exam depends on the specific insurance provider and policy terms. Some companies may offer renewal options without requiring a new medical exam, while others may have different requirements.

Consult with your insurance advisor or provider to understand the renewal options that are available to you. They can provide you with specific information regarding the renewal process, required documentation, and potential changes to premium rates or coverage.

Level term life insurance Canada – Conclusion

Level term life insurance gives you consistent protection and simple budgeting while your financial responsibilities are highest. Level term life insurance helps ensure financial stability for your family’s future by providing predictable premiums and reliable coverage. It’s an excellent fit for Canadians with mortgages, dependents, or other time-bound obligations. Term life insurance offers substantial coverage at a low cost, making it attractive for families with financial obligations.

To compare coverage amounts and rates, get a personalized life insurance quote with Oneday. Term life insurance plans are an important part of financial planning for Canadians seeking predictable, cost-effective protection. Plans are for eligible applicants and subject to underwriting and provincial regulation.

Frequently asked questions about level term insurance

Sources:

FCAC, “Optional mortgage insurance products”