Understanding Term Life Insurance Terms: A Comprehensive Glossary

As you research what’s out there and compare your options, we invite you to refer to this glossary whenever you come across a term that is unfamiliar to you. It will help translate the jargon into everyday language Canadians like you and me can understand.

First things first, what is term life insurance?

In the simplest terms, term life insurance provides coverage for a specified period, or “term length” – most often 10, 20, or 30 years. This type of short-term coverage was designed to provide financial security for dependents if the insured person were to pass away within the term. Term life insurance is often used to cover income loss, a mortgage, or other debt. Term life insurance is typically more affordable than permanent coverage because it doesn’t come with any extra bells and whistles, and it expires once the term is up, although you do have the option to renew before this happens.

For more detailed information on how term life insurance can protect you and your loved ones, give our Guide to Term Life Insurance a read.

Glossary

Accidental Death Benefit

The Accidental Death Benefit is an optional add-on to a life insurance policy. It provides beneficiaries with additional money, ranging anywhere from $10,000 to $500,000, if the insured person were to die by accident.

Additional Optional Benefits

At the time of purchase, an individual can choose to add additional benefits that are optional, sometimes referred to as riders, to their policy. Serenia Life offers four types of optional benefits for Term policies: Total Disability Waiver, Guaranteed Insurability Option, Accidental Death Benefit, and the Child Term Benefit.

Age of Issue

This refers to the age of the person being insured at the time the policy is issued, which significantly influences cost. The younger you are at policy issue, the lower the cost – since cost increases with age.

Beneficiary

The individual(s) or organization(s) designated to receive the Death Benefit (i.e., money) if the insured person passes away during the term. The insured person can name multiple beneficiaries and specify how much each beneficiary should get.

Convertible Term Insurance

Allowing the insured person to convert a term policy to a permanent policy (such as universal life or whole life insurance) without a medical exam. This can be useful if an individual decides that they want lifelong coverage but currently has short-term coverage.

Coverage Amount

The amount of money, also called the Death Benefit, that the policy will pay to beneficiaries if the insured person dies within the term. Factors like income replacement, debt, and family needs help determine a suitable coverage amount.

Death Benefit

The amount of money, or the coverage amount, an insurance company pays to the beneficiaries upon the insured person’s death during the policy term. In Canada, a life insurance payout is generally tax-free for beneficiaries.

Exclusions

Situations or causes of death that are not covered by the policy, such as suicide within the first two years or death resulting from risky activities (if specified). Understanding exclusions can help avoid unexpected surprises for beneficiaries.

Grace Period

The time during which a policy remains active even if a payment is missed. A typical grace period is 30 days, though terms vary by insurer.

Guaranteed Insurability Option (GIO)

The Guaranteed Insurability Option (GIO) is an optional add-on to a life insurance policy. It allows the insured person to purchase additional life insurance in future without undergoing a medical evaluation. Note that the insured person can only purchase additional insurance at designated ages (e.g., beginning at age 25 and ending at 45, with options to buy every few years) or after certain life events (e.g., marriage, new addition, etc.).

Level Term vs. Decreasing Term

Level Term: The amount of money owed to the beneficiary remains the same throughout the policy term.

Decreasing Term: The amount of money owed to the beneficiary decreases over time. This is common with mortgage protection, where the payout decreases as the mortgage balance reduces.

Medical Exam

A health examination, which may include blood and urine tests, a blood pressure reading, and a weight measurement, that is required by most insurers to assess an applicant’s health as part of the application process. Note that not all applicants must undergo a medical exam; this is determined at an earlier stage in the process, and can be requested at random or because further investigation is needed. While some “no medical” policies do not require an exam, these may have higher costs or limited coverage amounts.

Mortgage Life Insurance

Mortgage insurance through lenders is an example of Decreasing Term, where the death benefit decreases as the mortgage balance reduces. An alternative to this is a term life insurance policy, which offers a Level Term, where the death benefit remains the same while the mortgage balance reduces. In this scenario, the full amount would go to a beneficiary if the insured person were to die within the policy’s term length.

Policy Lapse

This refers to the termination of a policy due to non-payment. Some insurers allow reinstatement within two years, requiring payment of missed premiums and possibly a new medical assessment.

Premium

The monthly, quarterly, or annual amount a person pays for their life insurance policy.

Renewable Term Life Insurance

A type of term insurance that allows an insured person to renew the policy without a medical exam at the end of each term. While no medical exam is required, payments increase with each renewal as a person ages.

Riders

Optional add-ons to customize a life insurance policy to an individual’s unique needs. Common riders include Total Disability Waiver (waives payments if you become disabled), Child Term Benefit (covers children under the policy), and Accidental Death Benefit (additional death benefit if the person insured dies by accident).

Term Length

The length of time a life insurance policy provides coverage, commonly offered in increments of 10 (Term 10), 20 (Term 20), or 30 years (Term 30). Shorter terms are often suitable for temporary needs, like covering a mortgage, while longer terms can offer peace of mind for young families.

Term to 100

A policy that provides coverage for a fixed amount up to age 100. Payments remain the same throughout the insured person’s lifetime – until they reach 100 years old, after which coverage continues with no further payments. Despite the name, Term to 100 is actually a form of permanent insurance that offers lifetime protection at a lower cost than whole life insurance.

Total Disability Waiver

The Total Disability Waiver is an optional add-on to a term life insurance policy. It ensures that your coverage remains intact if you become totally disabled for a period of at least 6 months and are unable to earn any income or pay for your policy.

Underwriting

The process of reviewing an applicant’s health status, lifestyle, and other factors to assess the risk of insuring that individual and determine their Premium rate. For example, a smoker in their 60s has a much higher risk of dying than a healthy, non-smoking child. The higher the risk, the higher the cost.

Let us help

We hope this glossary helps you navigate the essential terms related to term life insurance in Canada. By understanding these terms, you’ll be better equipped to choose a policy that meets your family’s needs and provides the security you’re seeking. Ready to take the next step and protect your loved ones? Fill out the form below to book a no-obligation call with one of our licensed advisors.