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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.
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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, 44% of us 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 in 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 pay has many factors, such as how much coverage you need and the type of policy, or package, you select. Packages can vary, but generally Canadians opt for enough coverage for funeral expenses and to pay any outstanding debt (think: mortgage, credit cards, car loans, etc.), as well as to replace income that would be lost during a 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 life in a way that’s as close as possible to what they are accustomed to. That includes the ability to make mortgage payments, pay household bills and any other debt, and 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. We explain how life insurance works, as well as how to get the best coverage for your loved ones for a price you can afford.
It’s fair to say that 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 you could request 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 you need. This number 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 is $200,000, but many life insurance professionals suggest that this coverage may not be enough. In fact, the rule of thumb is 10 times your annual income. The truly ideal amount is specific to you, your family and your lifestyle. Here’s a simple calculation that can help you come up with your own number.
LIFE INSURANCE POLICY AMOUNT
=
Outstanding debt
+
(Net annual income X number of years you want to provide for family)
+
Mortgage still owing
+
Children’s educations
Or you can use the more detailed chart below. This will help determine and predict the assets (what you own) and liabilities (what you owe) that you will leave to your loved ones. It can help you determine your current financial state, which could also help you create new goals. For more on how much coverage you need and other things to consider when buying life insurance, see this article: How much life insurance do I need?
Assets
Resale value
Useable to pay off debts and obligations
Liabilities
Amount owing
Cash difference
House
+$
No
Mortgage
-$
Vehicle(s)
+$
No
Car loan(s)
-$
Furnishings (saleable value)
+$
No
-$
Bank accounts/savings
+$
Yes
Registered investments (RRSPs, TFSAs)
+$
No
Income taxes if sold (30%-50% on RRSPs or RRIFs)
-$
Non-registered investments (mutual funds, ETFs, stocks, segregated funds, real estate)
+$
Maybe
Income taxes on capital gains or capital losses if worth less at time of death
-$
Lines of credit
-$
Funeral and estate settlement costs
-$
Income taxes
-$
Moving costs if family doesn’t remain in current location
-$
Totals
+$
-$
There are two major types of life insurance in Canada: term and permanent. Term life insurance is purchased over a set period of time—say, 10, 20 or 30 years. It tends to be cheaper than permanent life insurance for most people’s situations. On the other hand, whole life insurance, a very common type of permanent insurance, doesn’t expire. It covers you for your whole life, hence the name. Other types of permanent insurance include universal and term-to-100. The value of universal life insurance is based on the underlying investments in the policy. Meanwhile, term-to-100 provides coverage until you are 100 years old, and it has no cash value.
Term and whole are often compared as the best life insurance options in Canada. You should know there are other differences between these two. 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.
Life insurance rates vary, with monthly premiums ranging from $13 to $100. The reason for such a wide gap? Life insurance policies are created around individuals, and they can be as unique as you would like them to be. In addition to the considerations above, your risk of death, your debt level and what insurance packages can pay for after you die can also affect the cost of coverage.
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. It is also eye-opening how much money you may need to leave your family. Then there are the types of life insurance to consider, as well as your health, lifestyle, age and more.
| $250,000 death benefit | $500,000 death benefit | |
| 10-year term | $16/month on average | $23/month on average |
| 20-year term | $22/month on average | $35/month on average |
| 30-year term | $37/month on average | $67/month on average |
| Whole | $115/month on average | $212/month on average |
Estimates above are based on a 30-year-old female in good health, paying annual premiums.
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 aren’t going to 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 Canada. In addition to having an idea of 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 for an insurance quote. You will also be asked health-related questions, like if you smoke, if you’ve had certain conditions, and what’s your family history of illness.
Depending on whether you go through a broker or an online broker or 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, passport), income (paystub, letter of employment) and address (property tax statement, mortgage bill, lease, 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, and they include 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?”
The quick answer: It depends. There are some rules of thumb, but the amount of life insurance you need depends on many things, like your income, outstanding debt (like your mortgage), your assets (including savings), number of dependents and more. You can use the calculation in our article “How much life insurance do I need?”
You could get life insurance from the place where you bank or where you 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 (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 the aggregator site Ratehub.ca.)
Mortgage insurance is for your mortgage; life insurance is for protecting more. If you’re unable to pay for your mortgage, the lender is protected with mortgage insurance. But that doesn’t help replace missed income or help your loved ones maintain the lifestyle they have with you in their lives. The two types of insurance aren’t interchangeable, and it’s good to know that. 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 how COVID-19 has affected testing, as you’re going through the process. 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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