Term life insurance pays a benefit only if you die within a set period, such as 10 or 20 years. Permanent life insurance covers you for your whole life and usually builds a cash value. Term is generally cheaper to start; permanent costs more but does not expire. The right choice depends on how long your family would need the money.
Key takeaways
- Term covers a fixed period and has no cash value. Permanent covers life and usually builds cash value.
- Term premiums are typically lower at the start. Permanent premiums are higher, but the coverage does not run out.
- Match the policy to the need: a need that ends points to term, a need that never ends points to permanent.
- Many families use a mix of both.
- Never buy on price alone. Ask about renewal, conversion and what happens if you stop paying.
What life insurance does
Life insurance pays money to the people you choose if you die. That money is called the death benefit. The people who receive it are your beneficiaries. You pay a regular amount, called a premium, to keep the policy active.
The idea is simple. If someone depends on your income, or would struggle to pay your debts, the benefit gives them time and breathing room. It can help cover a mortgage, daily living costs, child care, or funeral costs.
Here is a simple picture. Imagine a parent with two young children and a mortgage. If that parent died, the mortgage payment and the grocery bills would not stop. The death benefit gives the surviving partner time to decide what to do next, instead of making big choices under pressure.
In Canada, a death benefit paid to a named beneficiary is generally not taxable income. Rules can have exceptions, so confirm the details with a tax advisor.
How term life insurance works
Term insurance covers you for a set number of years, such as 10 or 20, or until a set age. If you die during that time, your beneficiaries receive the benefit. If you are alive when the term ends, the coverage ends and you do not get your premiums back.
According to the Financial Consumer Agency of Canada, term policies do not include cash value. You cannot borrow against them or receive money if you cancel. Premiums are usually lower at the start but can rise when the policy renews.
When term often fits
- You have a mortgage and want it paid off if you die.
- Your children are young and rely on your income.
- You want a large amount of coverage while your budget is tight.
- You are covering a need with an end date, such as a loan or a business partnership.
Things to ask about term
- Is the premium fixed for the whole term, or does it rise at renewal?
- Can the policy be renewed after the term ends, and at what price?
- Can it be converted to permanent insurance later, and until what age?
How permanent life insurance works
Permanent insurance covers you for life as long as the policy stays in force. It usually builds a cash value, which is a savings-like amount inside the policy. If you cancel, you may be able to get that cash value back, though it is typically less than the premiums you paid. You may also be able to take a policy loan. An unpaid loan can reduce the benefit your beneficiary receives.
There are two common kinds.
Whole life
Whole life usually keeps the premium the same as you age and often includes a guaranteed minimum cash value. It is the more predictable option.
Universal life
Universal life combines coverage with an investment account. The cash value and the death benefit can rise or fall with investment returns. It offers more flexibility, and also more things to monitor.
When permanent often fits
- You want to leave money for final expenses no matter when you die.
- You want to leave an inheritance for someone.
- You have a lifelong dependant, such as a child with a disability.
- You want coverage that cannot expire.
Term and permanent side by side
| Term | Permanent | |
|---|---|---|
| How long it lasts | A set period | Your whole life |
| Cash value | None | Usually builds |
| Starting premium | Typically lower | Typically higher |
| Premium over time | May rise at renewal | Often stays level (whole life) |
| Best for | Needs with an end date | Needs that never end |
What affects the price
Insurers decide each application on its own. Premiums depend mainly on:
- your age when you apply
- your health and medical history
- whether you smoke
- the amount of coverage
- the length of the term, or the type of permanent policy
Buying younger and healthier is generally cheaper. It is worth asking for quotes at more than one coverage amount and more than one term length, so you can see how each choice changes the premium and decide what is worth paying for. No one can promise approval or a specific price before the insurer reviews your application.
How to choose
Start with the need, not the product. Ask four questions.
- Who depends on me? A partner, children, parents or a business partner.
- For how long? Until the mortgage is paid, until the children are independent, or forever.
- How much would they need? Think about debts, daily costs and future goals, then compare it to what you already have through work or savings.
- What can I afford to pay comfortably for years? A policy you can't keep paying does not protect anyone.
Many people start with term because it gives a large amount of coverage at a manageable cost, and add permanent coverage later for lifelong needs. Others buy a mix from the start. Neither approach is wrong.
A worked example may help. Take a couple with a mortgage and two young children. They might choose a term policy that runs until the mortgage is paid and the children are independent, because that is when the need is greatest. Later, if they want to leave something for final expenses, they could add a smaller permanent policy. This is an illustration of how to think about it, not a recommendation for your household.
Reading the policy wording
Two policies with the same amount can behave very differently. Take time with the contract and look at a few things in particular.
- The waiting and contestability rules. Insurers can review a claim more closely in the first years of a policy, so give complete and accurate answers on the application.
- Riders. These are optional add-ons, such as extra cover for a child or a benefit if you become seriously ill. They add cost, so decide whether you really need each one.
- Lapse rules. Ask what happens if you miss a payment, how long the grace period is, and whether the policy can be reinstated.
- Who owns the policy. The owner controls changes, and may be you or someone else. Make sure the ownership matches your plan.
Good brokers explain these points in plain words. If something is unclear, ask for it in writing. It is also wise to reread the policy every few years, because your family, your debts and your income will change, and the coverage should still fit.
Common mistakes
- Buying too little. A small policy can run out quickly when a household loses an income.
- Forgetting the beneficiary. An outdated name can send the money to the wrong person. Review it after a marriage, birth or separation.
- Ignoring conversion rights. If your health changes, the right to convert term to permanent without a new medical review can be valuable.
- Choosing the term by guesswork. Pick a length that matches the need, such as the years left on the mortgage, rather than a round number.
- Keeping the policy a secret. If your family does not know the policy exists or where the paperwork is, a claim can be delayed. Tell your beneficiaries and keep the documents in a safe, known place.
- Not reading the exclusions. Ask what is not covered and what happens if an application contains a mistake.
- Mixing up life insurance and other cover. Life insurance does not replace home or tenant cover. See condo vs tenant vs home insurance in Ontario for that side of your protection.
What to ask your broker
Before you decide, bring these questions to a broker:
- Which type of policy fits the need I described, and why?
- What is the premium today, and could it change?
- Can I renew or convert, and until what age?
- What does the policy not cover?
- What happens to the cash value if I cancel?
- How would the benefit be paid, and to whom?
You can read about our approach on the life insurance page, or talk through your situation with a broker. If you also travel, remember that life cover and medical cover for trips are different things. Our guide to travel medical insurance and OHIP abroad explains the difference.
Before you act
Write down who depends on you, for how long, and for how much. Get quotes for both a term and a permanent option so you can compare. Check the renewal and conversion terms, then choose the policy you can comfortably keep paying.
This article is general information, not financial, tax or legal advice, and rules and products change. Reviewed October 2026.
