It is said that the only certain thing in life is its uncertainty. We always try to do our best, but not always our plans fruit as we expect, so we ought to prepare for the worst too.
If you have dependents, life, family and children, have you thought about what if you meet an untimely demise? What will happen to them? Are they able to pay the rent, mortgage, other debts, education, and daily expenses?
Life insurance is a means to help you and your family’s financial situation in case the worst happens. In this article we dive deep into life insurance in Canada to help you know about it more, and better.
- Life insurance is a good way to make sure your family will be fine financially in case you pass away!
- There are two main types of life insurance in Canada: Term Life, and Permanent Life. The former insures you for a limited time, and the latter insures you until you die, stop paying the premiums, or terminate your contract!
- The younger and healthier you are, the less you have to pay for life insurance.
- Some life insurances have cash value, which can help you financially while you are alive!
- Life insurance contracts are customizable through riders!
Table of Contents
Knowing about Life Insurance in Canada in General
First off, let’s learn about life insurance in Canada in general, and know what it is, and what types it has.
What is life insurance?
Life insurance is a type of insurance that gives your beneficiaries a certain amount of money when you pass away. The amount of money and premiums (fees you pay monthly to the insurance company) varies depending on several factors.
Life Insurance Main Types
In short words there are two main types of life insurance in Canada: Term Life Insurance and Whole Life Insurance. Below you can read more about them:
- Term Life Insurance
Term Life Insurance is a type of insurance with a guaranteed amount of cash if the policy-holder dies within a certain time (the term). If the insured survives the term, no money will be paid. Term Life Insurance in Canada has different types itself:
- Level Term or Level-premium
In this type of Term Life Insurance both the rates and coverage are fixed. Since the premiums won’t increase through years, they cost higher than other premiums at the beginning of the policy.
- Yearly Renewable Term
This type of Term Life Insurance does not have a specified term and rates are increased yearly upon renewal. The appealing part is that no proof for the insurability is needed to renew the policy. Because of this feature, the premium rates are higher than other types usually.
- Decreasing Term
Decreasing Term Policy is a type of Term Life Insurance which is suitable for people in debts, like mortgages. As time passes, the coverage amount decreases, so do the premiums, because the amount of debt will decrease through time.
- Convertible Term Life Insurance
It is a Term Life Insurance policy with a “Conversion Rider” (We have explained what riders are below), which allows the policy-holder to convert their policy to a permanent life insurance without proving insurability. The premium rates after converting are based on your age when you convert your policy.
- Permanent Life Insurance
Permanent Life Insurance is a general term for all the policies that don’t expire. Most policies of this kind have accumulated Cash Value. Because the coverage is guaranteed, the premiums are much costlier than Term Life Insurance.
- Level Term or Level-premium
Term vs Permanent life insurance in Canada
- Whole Life Insurance
Whole Life Insurance, or Traditional Life Insurance is a quite simple policy. You pay your premiums, and when you pass away the coverage money will be paid to your beneficiary. Also the option of Cash Value is available to you. The premium rates are fixed and are not flexible.
- Universal Life Insurance
Universal Life Insurance has the same concept with whole life insurance, but there’s one difference. Universal Life Insurance gives you flexibility to pay your premiums as you wish (within certain limits), and the coverage and cash value is subject to change based on this. The premiums are lower, because the guarantee that exists in whole life insurance does not exist here.
- Variable Universal Life
This type has the same structure as universal life insurance in Canada, with a small yet significant difference: You can choose where to invest your cash value! This difference is a double-edged sword; it heavily depends on where you choose to invest your cash value, just like in the stock market, you can have profits, or in the worst scenarios, lose your cash value!
- Universal Life Insurance
Life insurance in Canada has different types
What are other types of life insurance in Canada?
- Non-Medical Life Insurance
These types of life insurance in Canada are suitable for elderly people, and people with serious health problems. No medical check is needed for them. It is only natural that the premiums are much higher.
- Guaranteed Life Insurance
In this type no questions are asked, and no medical tests are needed. It is only natural that this type of insurance has more limited coverage numbers, and the highest rates of premiums.
- Simplified Life Insurance
In this type no medical tests are needed, but you probably will have to fill a questionnaire which causes a denial for your insurability.
- Guaranteed Life Insurance
- Couples Life Insurance (Here)
- Joint Life Insurance
Joint Life Insurance is an option for couples to get life insurance. Also called first-to-die term, this policy pays the coverage when the first of the couple dies. The premium rates are lower than 2 separate life insurance policies, but in case of divorce or separation the couple might face problems.
- Joint Life Insurance
- Children Life Insurance
A policy aimed for children under 18. It can be looked at as an investment for their future too (getting dividends).
- Last Expenses Insurance
In Canada, funeral expenses might be much more than what you think. A number between 5,000 and 15,000 CAD is not extraordinary at all. Last Expenses insurance is a type of permanent life insurance, aimed to cover funeral expenses.
- Critical Illness Insurance
This type of insurance helps you with your finances in case some certain illnesses render you unable to work. You can read more about it in the following of this article.
- Group Life Insurance
Group life insurance is an offer made by a large entity, like an employer, an association, etc. to cover its members with life insurance in Canada. These policies usually come with fairly cheap prices, and also, a limited amount of coverage. It is wise to add more policies for yourself if you are in a large debt, like a mortgage, and not only rely on your group life insurance.
Child Life Insurance for insuring your loved ones too!
Child life insurance is a type of insurance purchased by under 18 children’s parents or legal guardians with two major goals. The first is the coverage you get in case of your child’s death, and the second is to guarantee the child’s insurability.
Most companies have a rider in their child life insurance contracts that lets it turn into a permanent life insurance once the child has turned to an adult. This will help get lower rates and ensure insurability.
What is final expense insurance?
As said before, funeral costs are quite high in Canada. Depending on the method (cremation or burying) it could easily take somewhere between 5,000 CAD to 15,000 CAD.
Final Expense Insurance, funeral insurance, burial insurance, or whatever other names it is called, is basically a form of whole life insurance with a smaller amount of coverage.
Final Expense Insurance premiums, like other forms of life insurance, depend on your age, gender, and health mostly. It could cost as low as 20 dollars per month (non smoker female around 40 years old) to 130 dollars (65 years old male smoker). Keep in mind that if you get life insurance, you can add your final expenses to the coverage so you won’t have to get separate insurance for this matter.
How life insurance will help you!
Who needs life insurance?
You might be asking yourself now, “I’m young, do I need life insurance?”. There is no certain answer to this question.
First of all, no one knows when their days are over, it could happen any moment as far as we are concerned. Life insurance can help your loved ones a lot should the worst come. A tax-free notable sum of money could get them through the hard times easier. Also it can help with:
- Making up for your income, so your family can go on;
- Provide for you dependants and children;
- Covering the funeral costs (In Canada it could easily be somewhere around 10,000 CAD); and
- Paying your debts, and your possible mortgages
What are life insurance options for couples in Canada?
- Joint first-to-die or last-to-die term insurance:
The couple get one insurance policy, which costs less than 2 separate policies. And depending on the type, as the names suggest, if one of them, or both of them, pass away, the money will be paid to the beneficiaries. It can be a good option for couples, but keep in mind, divorce could nullify this policy, so discuss it with your insurer before getting it.
- Single term insurance
The couple gets two separate term life insurances, it will cost more, but in case of separation or divorce the policies still stand.
Getting Deeper into the Life Insurance Matter
So far we have talked about life insurance in Canada generally. Here, we want to get deeper into the matter, and give you more detailed information.
How much coverage is enough?
It depends on many things, the pros say 6 to 10 times of your annual income could be a good number for you. But to break it down for you, there are things you must consider:
- Your marital status:
If you have dependents, wife, common-law partner, or children, they need money to live on with the lifestyle they had in case of your untimely death.
- Do you have children?
If you do, they will need money to grow, and educate. Life insurance could help them financially should the worst come.
- You (and your dependants) annual income:
It shows the lifestyle you and your dependents are used to. So to go on they need a replacement for their finances.
- Your settlement status; do you own a house or are you renting one?
Owning a home might mean you have to pay a mortgage. In case you pass away, the amount of your insurance coverage must cover for your mortgage.
Renting a house has its costs too, which your insurance coverage must cover.
- You (Or your family’s) savings:
The amount of money you have in any form of saving, investment account, retirement savings, etc. should be considered too. If you have enough savings you might not even need life insurance!
- Your existing life insurance coverage:
If you already have life insurance, you might have to deduct the amount from what you are going to need.
- Your (or your family’s) debts:
For clearing the debts, money is needed (obviously). Life insurance could help your survivors deal better with the hurdle.
- You (or your family’s) monthly expenses:
Bills, phone, internet, groceries, transportation, vacations, children’s education, etc. All your other expenses should be considered too
- How much of your income is needed for your family to go on, and for how long?
Depending on your partner’s income, and circumstances of your life, you need to estimate how much of your income is needed for them to go on. Also you must estimate for how long they need that money, before they can live on their own financially.
- Funeral expenses:
This might not seem important at the first look, but a funeral in Canada could easily cost you between 5,000 to 10,000 CAD. In those distressful times, financial problems could add to your survivors burdens.
To get a rough idea of how much coverage you need, add up your debts (debts, mortgage, etc.) and deduct your savings, and your family’s future earnings from it.
For example, if:
- You are 30,
- Your mortgage balance is 300,000 CAD,
- Your annual yearly earning is 70,000 CAD, so is your partner’s,
- Your family still needs 60% percent of your income to go on, for 5 years,
- You have 25,000 CAD in savings,
- Your funeral will cost 10,000 CAD,
- And your total monthly expenses is 4000 CAD;
In this case a rough estimate shows that 300,000 + (5×0.6×70,000) + 10,000 = 520,000 CAD is the amount your family needs. Your savings cover 25,000 CAD. So considering the inflation rates, an amount close to 500,000 CAD could be a good number of insurance coverage for you.
How premiums are calculated?
Before contacting a broker or an insurer, you need to know what factors build up the premium numbers you must pay. It might be different for each insurer, but the whole idea is the same: the more likely someone is to die, the higher the numbers they should pay are. Here we will tell you about the factors that are usually considered when getting your premium:
The older you are, the more you must pay for your premiums. The reason is that the older one gets, the risk of death gets higher. So getting Life insurance while still young seems like a good idea!
Women have a longer life expectancy, so the premiums are lower for them.
- Height and Weight:
Your height and weight are indicators of your health, the healthier you are, you are less likely to pay higher premiums.
- Health Reports:
It is quite self explanatory, people with health problems are considered riskier by the insurers, so they have to pay more.
- Smoking and Tobacco Use:
Use of tobacco products and smoking cigarettes could even double your premiums!
- Driving history:
If your record is clear of car crashes, you are considered a safe driver, so you have to pay less for your premiums.
If your hobbies are dangerous, like climbing, skiing, etc. you will have to pay higher premiums.
- Lifestyle and Occupation:
Consuming alcohol, participating in dangerous events, having high risk jobs (like fire fighters), etc. all make you pay more for your premiums.
Apart from the mentioned factors, there are other ones that are related to your policy:
- Term Length:
Longer terms mean being protected for longer, so you should pay more for your premiums.
- Coverage Amount:
Higher coverage, higher premiums!
- Type of Insurance:
We talked about types of insurance earlier in this article, so you should know how they affect your premiums!
Life insurance rate factors
Are insurance life premiums fixed? Or do they change through time?
This depends on your policy. If your policy is level-premium insurance, the premiums will be fixed and won’t increase through time, though they will be more expensive in the beginning, it will be more cost friendly as time passes.
You need to know about Exclusion too!
Exclusions, in general, describe circumstances that your insurer will not pay you upon happening. For example in auto insurance, driving under the influence of alcohol or drugs is considered an exclusion by almost all of auto insurers, and you will not be paid if you have an accident while intoxicated.
Talking about life insurance, there are some exclusions that most of insurers have in common:
- Committing suicide: Most life insurance policies state that commiting suicide in the first 2 years of the policy results in nullification of the policy, or in easier words, no money will be paid.
- Taking part in dangerous activities, like skydiving.
- Being hurt, or dying, during a criminal activity
- Dying in war zones
It is really important to discuss exclusions with your agent or insurer before signing the contract. Don’t be shy! Ask whatever questions you have!
Differences between visitors, newcomers, permanent residents, and citizens when getting life insurance
You can apply for life insurance depending on your visitation, residency, and citizenship status. Non-residents of Canada must have work or student permits in order to apply for life insurance. Temporary visitors to Canada can apply for travel insurance, but may not be eligible for life insurance. Source
The main difference between life insurance for permanent residents and non-permanent residents is that permanent residents can qualify for higher amounts of insurance coverage.
What is an insurance broker? Is it different from an insurance company?
An insurance broker is a person or a company that deals with the insurance company on behalf of you, and gives you advice about your insurance purchase. Some brokers get commissions from the insurance companies, so their advice might be biased.
What are dividends?
Some types of life insurance, or to be more accurate permanent life insurance, have the cash value option. A dividend is a part of your accumulated cash value returned to you monthly.
Rules differences in different provinces
Life insurers are regulated by the federal and provincial governments in Canada. Most of the Canadian insurers are placed in Ontario and Manitoba, so there is not much of a difference in the regulations. Although the premiums might be different based on province.
Life insurance rates in Canada
Let’s follow our prior example, in that case your rates will be a number between 50 to 60 CAD monthly, in case you smoke. If you don’t, your premium will drop to 30 to 40 CAD.
To get a better understanding of how your age can affect it, if you get that insurance when you are 25, it will be between 30 to 40 CAD, and if you get it when you are 40, it will be around 35 to 55 CAD (For non smokers), and if you are over 60, it can cost you hundreds of dollars monthly.
If you want more coverage, for example 650,000 CAD, it will be between 40 and 50 CAD monthly.
The following table shows the premium costs for a non-smoker male with 500,000 CAD coverage for a 10 years term.
Life Insurance Helps When You’re Alive Too!
Many people think of life insurance as a means to assure their loved one’s financial safety in case of their untimely demise. But here, we will explain how it can help you while you are alive!
It’s never too soon nor too late to get life insurance!
Critical Illness Insurance
It’s a good thing that you have not heard about Critical Illness Insurance, and we hope you never need it in your life. Imagine someone has a heart attack, a stroke, or gets cancer. Their health insurance, even if it is a good one, might not cover the vast expenses they need to recover from their medical conditions. This is where critical illness insurance could help them.
Critical life insurance helps with additional funds to cover the expenses of medical emergencies, like heart attacks, strokes, cancer, etc. These policies usually come at relatively lower costs, but they cover certain kinds of illnesses.
How does Critical Illness Insurance work?
This type of insurance covers for your medical expenses and helps you with your life costs.
To get a better understanding, let’s review an example together. John is 45 and his monthly expense is 5,000 CAD. John has a stroke which makes him bedridden for a year before he can start working again. His medical bill is 35,000 CAD. So he needs 95,000 CAD (35,000 for his medical bill and 60,000 for his expenses for a year). Critical Illness Insurance covers this amount for him.
Critical illness insurance providers have coverages between 25,000 CAD to 1 million CAD usually.
Does life insurance cover for medical expenses too? If yes to what extent?
There are riders that could help you pay your expenses for long-term illness. Like Critical Illness Insurance that we talked about above. You should discuss it with your insurance company or broker, and see what options they offer.
What happens if I cancel my life insurance?
It depends on your policy, if you have a surrender cash value, you will be paid that amount. If not, your policy will be terminated.
Cash Value and its benefits!
There are life insurance policies, called cash-value life insurance policies, that provide a death benefit and cash-value accumulation while the policyholder is alive.
Cash value could be used in three ways:
- To pay your premiums later in life
- A benefit passed onto the heirs (Cash-value accumulation won’t be given to the beneficiaries)
- A tax-free investment
Term life insurance doesn’t have the cash value option.
Keep in mind that if you pass away, your cash value benefit wont be added to the death benefit. So use it while you are still alive!
Say you have a whole life policy, and after years of paying premiums and your debts, you are debt-free. No more mortgage or other debts you need to worry about. At this point there are two things you can do:
- Cancel your policy and take cash surrender value
- Take policy loans, which are smaller amounts of money you can get as a loan against the accumulated money
Remember that if you miss paying back the loans you have taken, it will affect your death benefit and in some cases it might even completely cancel it, or worse, leave your family in debt!
What is the cash surrender value?
Cash Surrender Value is the amount of money that your insurer will pay you in case you cancel your policy, if it is eligible for cash value option (term life policies are not).
Policy loans, and its risks!
Policy loans are smaller amounts of money you can get as a loan against the accumulated money (cash value). To sum it up, the best part is having quick access to cash, so in the time of need you can be sure you have a certain amount of guaranteed cash.
- The money you take as policy loan is not taxed as income
- You have relatively quick access to cash
- You don’t have to pay back the loans
- Death benefit will be decreased if you get too much loans and don’t repay it
- You have to pay back the loans with interest
- If you fail to pay back the loans taxes will apply to the money (And it could be a hefty amount of taxes!)
- If you are looking for an investment, maybe life insurance is not your best option, you can invest your money in other places with better results. But if you are looking for life insurance, these loans and cash value could be thought of as a bonus
Practical Aspects of Life Insurance
The following information could help you most after you decide to get life insurance.
Riders help you customize your policy!
There are additional benefits you can add to your policy which are called riders. Riders let you customize your policy.
When you buy a rider you pay extra premiums, but their price is relatively low, and if you choose the right riders for you it can help you a lot in future. Discuss it with your insurer to make sure you choose the best riders.
How to reduce the cost of life insurance?
This is a question that everyone might ask. Reducing the cost of life insurance could be done through different means. Here we talk about some of them.
- Shop Around!
Check as many quotes as you can to find the best ones for you. Your needs might differ from other people, so try to find the ones suitable for you. Also compare premiums from different companies, you might find slight differences!
- Improve your health!
First step, quit smoking. This can dramatically lower the price of your premiums. Remember that most insurers consider 1 year of not smoking as a non smoker, and even smoking 1 cigarette in a month could make you fall into the smoker group. Losing weight, being in shape, quitting consuming alcohol, etc. all could help you with lower life insurance premiums, for insurers consider your risk of death lower.
- Find out if you have employee benefits!
Ask around where you work, you might have an employee benefit, which means you have life insurance coverage through where you work. Just remember if you stop working there, this benefit will stop too.
- Select the right amount of coverage!
Calculate how much insurance you need, and select a policy with the right amount of coverage for you. Consider how much money your family needs after you, and for how long, consider your mortgage and other debts, and then select the best policy and coverage.
- Pay your premiums annually!
It might not be easy for everyone to pay annually, but if you can manage to do it, you will pay less than paying monthly.
- Buy your insurance online!
There are major insurance companies in Canada (Like Canada Life, Manulife, etc.) and some smaller institutes that work with the major companies. These smaller insurance institutes usually work on a commission. See the point? If you buy online directly from the major companies you don’t have to pay for the commissions!
- Try to get a bundle!
This works best with home and auto insurance, but you can get discounts if you apply for different insurances through one company. So it’s worth it to consider other insurance types of the same company.
How to Reduce Cost of Life Insurance!
Who will get the insurance money when the insurance owner dies?
The short answer is the insured’s “beneficiary”. Upon signing the contract the insured determines the beneficiaries. It can be a person, persons, a charity institution, or their estate.
Have in mind that if you leave your estate as your beneficiary, your insurance money could become a subject of taxes.
Estate Settlements and life insurance coverage
Your estate is what you own, and what you owe. After someone dies their estate must be settled, it means someone must take the responsibility to pay the taxes, debts, etc., and transfer the remaining estate to the correct people or institutes.
If your beneficiary is your estate, taxes will apply to it most likely.
How much time the beneficiaries have to make a claim after the insured passes away?
Generally there’s no time limit for making a claim, you could do it any time after the insured dies. But in some life insurance policies it is explicitly stated that there is a time limit to make a claim, so it is wise to do it as soon as possible.
What happens if I miss paying my premiums?
This is a really important subject which you must discuss with your insurer. Some insurers turn a blind eye if you miss paying a premium for the first time, and pay it within 30 days (it is called grace period). But missing the premiums could result in cancelling your policy, or reduction in the coverage. So, it is important to discuss it with your insurance agent before getting your policy.
What happens if my life insurance company goes bankrupt?
This question can be asked not only about life insurance companies, but all types of insurance companies in Canada.
Good news is you shouldn’t worry about your insurer going bankrupt. Assuris is an organisation that protects Canadian insurance holders in the rare case their company goes bankrupt. You can think of it as an insurance for the insurance companies!
Can I sell my life insurance to a third party?
There are several reasons making one want to sell their life insurance policy. The life insurance that seemed necessary at one point of life might lose its relevance through years. Children can go independent, debts and mortgages can be paid, and one might want to spend their remainder of life a happier wealthier life! And also, uncalled financial needs might take over someone’s life.
Selling life insurance policy, or Life Settlement can be a good way for getting a notable amount of cash, but there are things one must consider before deciding to do so.
The process itself might look easy, you find someone interested in buying, or you contact people who specialise in this matter, fill the forms and take legal steps, and it’s done! But you should be aware, this might temper with your taxes, especially if you are a senior. Discuss it carefully with your broker before you decide to sell your life insurance policy.
If you are wondering about the price, there are no set rules for it, but generally it must be higher than your cash surrender value, and lower than your coverage (obviously!).
Keep in mind some provinces in Canada don’t let you sell your life insurance policy, as of now (July 2023), New Brunswick, Nova Scotia, Quebec, and Saskatchewan.
How long does it take to get the life insurance payout?
Within 60 days from the time your claim is made, usually is the time that life insurers pay the coverage money. Usually it happens faster than 60 days though.
Questions to ask your broker while getting life insurance!
- How much coverage do I need?
- Do I really need life insurance?
- Is there a waiting period for life insurance? How long?
- What are my annual or monthly premiums? Are they different?
- Is a physical examination needed?
- What happens if I miss a payment?
- What happens if I move outside Canada or to another province? Will my insurance be still in effect?
- Does my policy have a surrender cash value?
- How long has this company been in business? Is it well-known?
- Can I change the amount of my coverage after my policy is in effect?
- What are the exclusions?
- Are my premiums fixed? Or are they subject to change in future?
- What happens if you sell your company?
Best Life insurance companies in Canada!
In this part we take a look at the best well-known life insurance companies (and brokers) in Canada. We tell you about the best ones in each category so it can help you decide better.
At first let’s take a look at largest companies, with the most premium money taken from the insured people:
- Canada Life
- Sun Life Financial
- Industrial Alliance
To give you a better insight, we give you the best ones in each category too:
- Easiest online insurance shopping: Emma, PolicyMe
- Best in person insurance shopping: Sun Life
- Best options for investing: Empire Life
- Best priced policies: Wawanesa
- Most flexible policies: Industrial Alliance
There are other things you might want to ask, but most of the questions are answered in our article! But if there are questions yet unanswered, just ask us. We’d be glad to help!
Last words on Life insurance in Canada
Here we finish our comprehensive guide about life insurance in Canada, its types, and other factors you need to know about. We hope that it has been helpful.
We would be glad to answer your questions in comments section. Get in touch with us!