Life Insurance in Canada

Most of us have two absolute truths: we have people we love, and we don’t know what life holds for us.

This has never been clearer after spending the last two years amid a global pandemic.

One of the best ways to protect our loved ones is by getting a life insurance policy. 

In short, life insurance is a contract between a person and an insurance provider where the company agrees to pay out a financial benefit to a selected beneficiary after the death of the insured person.

What is Life Insurance and How Does it Work

Life insurance is the ultimate rainy-day fund.

It’s the umbrella that protects your loved ones from the lashing storm of sudden death or shelters them after passing from a severe illness.

These policies are an integral part of your financial plan and provide security if something happens to you.

According to the Canadian Life and Health Insurance Association (CLHIA), over 80 percent of individuals will buy a life insurance policy through an agent or broker.

Each insurance provider will have a process for assessing how much you will pay in premiums, but many involve taking a detailed medical history and a physical. 

Once you and your insurer have reached an agreement, you likely begin paying into your plan at regular intervals, and the company provides a death benefit if you pass away while the policy is in effect.

Do I Need Life Insurance?

The best way to determine if you need this kind of insurance is to do a “life-needs” analysis. 

  • How much debt do you have versus assets and incomes? Maybe you have student loans, mortgage debt, or a personal line of credit – all these are essential considerations. 
  • Who am I protecting with this policy? You might have a partner, children, or other close ones who depend on you financially, and a plan can contribute to their well-being.
  • Is there someone dependent on you who will require life-long assistance? If you provide care for a loved one who will need support, a life insurance policy may be right for you. 
  • Do you want to ensure that your children’s education is paid for in the event of your passing? Even if you have RESPs or another kind of education-savings plan, a policy can provide some cushioning in the event of early death. 
  • Will my partner need financial assistance with paying for retirement? If this is the case, you may want to consider buying more coverage to augment your partner’s savings. 

Factors Affecting the Cost of Life Insurance

Insurance companies love data.

To determine risk, they compile, analyze, and calculate numbers on people’s age, gender, medical history, lifestyle habits, and coverage requested.

For example, if you’re a mid-50s smoker with a history of heart disease, your premiums may look different than someone in their late twenties with no family background of significant health problems.

While it’s true you will pay less in premiums when you are younger – and presumably healthier – there are other considerations.

Circumstances change as you go through life, and you may need a shorter policy term or less coverage because children grow older and you have less debt.

The takeaway is that life insurance is for everyone.

Even if you decide to buy a policy later in life, there is an affordable policy out there that will protect those you love in the event of your death.

Do your research, and you’ll find the right life insurance for you. 

Types of Life Insurance

If you’re in the market for life insurance, there is no shortage of policy options for you to explore.

Here are five different kinds of insurance you may want to consider. 

1. Term Life Insurance

Term life insurance is a popular option for many due to its affordability.

As the name implies, you buy coverage for a set period – usually 10 years, 20 years or 30 years – and pay premiums during that time.

If you die while your policy is active, the money is given to your chosen beneficiary.

This kind of life insurance is an excellent choice for time-limited debts like a mortgage or auto loan.

Most insurers offer options for renewing a term life policy, but the cost may increase due to age, health, and life circumstances.

If you don’t like the quote you get from your original provider, you can shop around for a better rate. 

2. Permanent Life Insurance

Permanent life insurance provides coverage to you throughout your life.

As long as your policy is still active, your beneficiaries will receive a cash amount upon your death.

What sets this type of insurance apart from others is that it builds up a cash value over time. 

Your insurer may return part of your premiums if you cancel your insurance early – minus the portion covering policy expenses.

You might be able to borrow against the policy’s current worth if you are securing a loan. 

3. Whole Life Insurance

Whole life insurance is a kind of permanent life insurance.

The benefit of this kind of insurance pays out a fixed benefit at the time of death while the cash value typically grows at an assured rate of return.

Several of these policies may pay dividends that can reduce premiums or contribute to the financial value of the policy. 

While the invested income remains in the account, the earnings remain tax-free.

If you choose to withdraw money from the whole life policy, you can do so without paying taxes as long as the amount is less than the policy’s value, minus costs. 

There are some drawbacks to buying whole life insurance; these plans are pricier and less flexible than other kinds.

With this policy, the cash value accrues slowly because only a tiny portion of the premium is paid into it.  

4. Universal Life Insurance

Universal life also falls under the permanent life insurance category.

This is a hybrid product with an insurance plan and an investment account.

Your insurer will invest the cash value portion, and if the market performs well, this will increase its worth.

But policyholders may not see gains they hoped for if there is poor performance. 

Also referred to as adjustable life insurance, universal is generally more flexible and less expensive than its whole life counterpart.

Often, you can pay money on top of your premium to increase the cash value or adjust the death benefit without giving up your plan.

You may also choose what kind of investments the provider buys for your policy. 

5. No Medical Life Insurance

If you have an underlying medical condition, you might have a challenging time finding an inexpensive life insurance policy.

This kind of insurance is exactly the product you need if you’d like to avoid health questions, medical examinations, or awkward questions.

Approvals are usually much quicker than conventional policies, and death benefits can range from $25,000 to $50,000.

If you are over 50 years old and reasonably healthy, this might be a more affordable choice than other life insurance options. 

No-medical does have its downsides, it tends to be more expensive, and the policy pay-outs are much lower than comparable products.

Some insurers build in a waiting period into their policies – this means you may need to pay on the plan for 24 months before a death benefit is given. 

In other words, your beneficiaries may not collect a death benefit if you die before the two-year deferment period ends.

However, the company will refund the premiums you paid into the policy. 

Did You Know?

Prominent insurance market provider Lloyd’s of London started as a small coffee shop in 1688. Popular with ship captains, ship owners, and merchants, it became the place to be for anyone wanting the latest marine news.

Couple reviewing life insurance policy with advisor

Frequently Asked Questions

  • How long do you pay life insurance?
Lindsey Boycott

Lindsey specializes in writing about personal finance and business trends. She has a B.A. in psychology and is currently working towards completing her Canadian Securities Course.

When she’s not exploring the relationship between mind and money, Lindsey likes to play vintage video games, read all books, and go skiing.