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What is life insurance? Do you need it and, if so, what kind? How much will it cost? Find out with our guide to the best life insurance in Canada.
Photo by Ketut Subiyanto from Pexels
Wondering how to get the best life insurance in Canada for you and your family? You’re not alone. The pandemic has shown Canadians that we are not invincible. In fact, a 2021 survey found 44% of us bought or now plan to buy life insurance because of the effects of COVID-19. But not everyone is confident in understanding what life insurance is, the cost and other details. That’s why we’re breaking it all down here.
This guide will show you:
You likely know the gist of life insurance. In Canada, it is a contract between you and an insurance provider that you make monthly or annual payments (better known within the industry as “premiums”); in return, under specific conditions—namely, death—your family or other people you name will be paid an agreed-upon amount.
The amount you will pay is based on many factors, such as how much coverage you need and the type of policy, or package, you select. Packages do vary, but generally Canadians opt for enough to cover funeral expenses and any outstanding debt (think: mortgage, credit cards, car loans, etc.), as well as to replace lost income during the grieving period (if surviving loved ones miss work) and beyond (the absence of your paycheques to provide for the family members left behind). Insurance money can also be used to pay for future expenses, like your children’s post-secondary education, or to make charitable donations.
To be clear: Life insurance isn’t for you—it’s for your dependents. It is intended to help the people you leave behind continue to live the life they are accustomed to. That includes the ability to pay mortgage payments, household bills, education costs, any other debt, and to cover future expenses.
The life insurance industry offers Canadians the ability to customize their policies, so that payments and coverage fit your budget and your financial priorities for the future.
Learn more about how life insurance works, as well as how to get the best coverage for your loved ones for a price you can afford.
Not everyone needs life insurance: No dependents, no debt, no problem. But before you write off the idea that you need it, ask yourself these questions:
If you get the sense from your answers that your loved ones would benefit from a life insurance policy payout if anything were to happen to you, then it’s worth requesting a quote.
We outline the different scenarios of when you should get life insurance—and when you shouldn’t—in another article: Do I really need life insurance?
To get the best life insurance for your situation, start by deciding how much coverage you need. This amount determines not only how comfortable your family will be after you pass away, but how much you will pay for your coverage, too.
The average Canadian life insurance policy typically pays out $200,000, but many life insurance professionals suggest this may not be enough to cover your needs. In fact, the rule of thumb is that individuals should have coverage for about 10 times their annual income. The ideal amount is specific to you, your family and your lifestyle.
Here’s a simple calculation that can help you ballpark how much insurance you may need. It is based on the DIME method, which stands for debt, income, mortgage and education expenses.
LIFE INSURANCE POLICY AMOUNT
=
Outstanding debt
+
(Net annual income X number of years you want to provide for family)
+
Mortgage still owing
+
Children’s education costs
A more detailed accounting of your assets (what you own) and liabilities (what you owe) can help you determine your current financial state and what you will be leaving behind to your dependents. Calculating the balance between your assets and liabilities can help you figure out whether you need life insurance, and how much coverage you need.
In your list of assets, consider including (if applicable):
In your list of liabilities, consider including (if applicable):
For more on how much coverage you need and other things to consider when buying life insurance, see this article: How much life insurance do I need?
There are two major categories of life insurance in Canada: term and permanent. Within these categories, there are many different types of insurance policies:
This table details the major differences between insurance policies, based on information from the Canadian Life and Health Insurance Association (CLHIA) .
| Term | Term 100 | Whole | Universal | |
|---|---|---|---|---|
| Type of coverage | Term | Permanent | Permanent | Permanent |
| Coverage period | Based on the length of the contract (e.g. 1, 5, 10 or 20 years) | For life (no premiums paid once you turn 100) | For life (as long a premiums are paid) | For life (as long as premiums are paid) |
| Premiums | Fixed for the duration of the term; typically increases when renewed (as you get older) | Usually fixed until the age of 100, at which point you no longer have to pay premiums | Usually fixed | Amount can change over time, within certain limits |
| Death benefit | Guaranteed and remains level | Guaranteed and remains level | Guaranteed and remains level | Can change based on performance of the policy’s cash value fund |
| Cash value | Usually none | Usually none | Guaranteed in the contract and usually grows over time | Can change according to the premiums paid and the performance of investments in the cash value fund |
There are many other differences between these policies . For example, with whole, you can pay off your premiums early and still be covered. With term insurance, once you stop paying, the insurance coverage is done. Plus, you may be able to cash out a whole life policy, but that is not an option with term.
Read more about which life insurance option is best for you.
Life insurance rates vary significantly, with average monthly premiums starting from as little as $15 to well over $100 per month. The reason for such a wide gap? Life insurance policies are created around individuals, and they can be as specific as you would like them to be.
Before you get a quote online or connect with a broker , it’s a good idea to have a sense of your liabilities and assets, which indicates what you’ll leave behind for your family. You should also consider what type of life insurance you need, as well as your health, lifestyle and age. These variables can help you estimate whether you will fall on the high or low end of the cost spectrum.
To give you an idea, the table below shows the average life insurance costs for a 30-year-old woman in good health, paying annual premiums.
| Premiums ($250,000 in coverage) | Premiums ($500,000 in coverage) | |
|---|---|---|
|
Term life
(10-year term) |
$16/month | $23/month |
|
Term life
(20-year term) |
$22/month | $35/month |
|
Term life
(30-year term) |
$37/month | $67/month |
| Whole life | $115/month | $212/month |
For a more in-depth look at the factors that will affect how much you will pay for life insurance, check out: How much does life insurance cost in Canada?
While it may sound like an upsell, there is value in customizing your life insurance policy with “extras” that work for you.
If you’re looking for a family plan , it is important to know this type of policy is actually a basic form of insurance with modifications and riders (amendments), such as a child rider . Since it is composed of different insurance products already, you may as well get it exactly as you need it.
Maybe you are self-employed, or maybe your group benefits from your employer won’t cut it. Whether you pay for your policy or your company does, ensure that it includes short-term and/or long-term disability insurance . If you didn’t ask about it when signing your employment contract, it’s not too late to ask the HR department. Critical illness is another type of coverage to consider. It offers you a single payment if you are diagnosed with a condition or disease such as cancer, multiple sclerosis or paralysis.
You’ll need to prepare a few things before you buy life insurance. In addition to knowing what kind of policy you would like to buy (term or permanent) and whether you need any additional coverage or riders (children, disability and/or critical illness), think about how much you can reasonably spend on premiums each month or each year. And you should also have a good sense of how much money you need to leave to your family, loved ones or even a charity that’s important to you. You’ll be better prepared to answer the questions when asking for an insurance quote. You will also be asked health-related questions, like whether you smoke, have certain health conditions and history of illness in your family.
Depending on whether you go through an insurance broker or an online broker, or even directly through an insurance provider, you will be given a range of quotes to choose from. ( This is how brokers have access to different policies and providers and how they get paid .)
And once you are ready to apply, you will need proof of the following:
Identity: driver’s licence, social insurance number, birth certificate and/or passport
Income: paystub and/or letter of employment
Address: property tax statement, mortgage bill, lease and/or letter from your landlord).
You will also need to set up automatic payment of your premiums. You will be given a life insurance policy and illustration, which outlines your agreement, as well as projections for the value of the policy. You can request to have both digital and paper copies of your policy to keep for reference.
You set your loved ones (or even a charity ) up as beneficiaries to make lives easier, so it makes sense to want to know if the money they will receive from your policy will be a hassle tax-wise. The good news is that most of the money received from a life insurance policy is not taxable. But you may be hanging off that word “some.” There are fees that accrue tax that will come out of the money left for them, including probate fees, estate planning fees and more. To read the full list and learn how to make receiving life insurance payouts more efficient for your beneficiaries, read the article: “Is life insurance taxable in Canada?”
While it’s common to think the timing is more about getting life insurance before your health starts to fade, the real sign that you may need life insurance is whom you’re leaving behind. It is true that health can play a part in how much your premiums will cost (higher risk generally means higher premiums), but deciding to get life insurance is about leaving money for your loved ones. Do you have dependents whose lifestyles would change should something happen to you? If yes, then the time to get coverage is now. Read: “ Do I really need life insurance? ”
You could get life insurance from where you bank or got your mortgage, but it’s worth shopping around for the best rates. Shopping online for the best life insurance companies allows you to compare products and rates. Take it a step further with an “aggregator” site, which pulls rates from various providers just like a broker would. It can be very easy and straightforward, depending on the website. (Note: MoneySense.ca is owned by Ratehub Inc., which also owns Ratehub.ca .)
Mortgage life insurance ensures that you and your dependents are able to pay off your mortgage when you die; it is considered a kind of life insurance, with the lender receiving the policy’s proceeds to cover your mortgage when you die. It isn’t the same as mortgage loan insurance (also called mortgage default insurance), which protects your lender in case you aren’t able to make your mortgage payments. Read: “Life insurance vs. mortgage insurance: Let’s break it down” .
It’s up to you! No-medical life insurance is available in Canada. But it is worth knowing that these types of policies can cost more than ones that require a medical. But that said, it’s worth asking about. You may find out that the medical exam isn’t as rigorous as you might expect. For more reading, check out this article: “How does age affect life insurance rates?” And to help yourself determine the questions you should ask when looking for life insurance, take this life insurance pop quiz .
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I have existing life insurance with a payout at the end. I would like to get an independent evaluation of the policy and am not sure how. Does anyone have suggestions? Thanks, James