Life insurance is a crucial component of a sound financial plan, yet many Canadians don’t fully understand how it works or why it’s needed. This extensive guide examines everything you need to know about life insurance, from policy types and determining coverage needs to purchasing tips and ongoing management. Read on to gain the in-depth knowledge required to make smart decisions about protecting your loved ones.
What is Life Insurance and How Does It Work?
Life insurance is a legally binding contract between an individual policyholder and an insurance company. In exchange for regular premium payments, the insurer provides a lump-sum payout (the death benefit) to designated beneficiaries if the insured person passes away during the policy term.
There are two primary components that make up a life insurance policy:
The Death Benefit
This lump sum payout goes to named beneficiaries upon the death of the insured. The policyholder selects the death benefit amount based on the financial needs of dependents. Important factors to consider include:
- Income replacement to maintain survivors’ standard of living
- Paying off outstanding debts like mortgages, loans, and credit cards
- Covering future costs like college tuition or retirement funding
- Accounting for any existing insurance from individual policies or employee benefits
Typically, 7-10 times the policyholder’s annual income is a recommended death benefit amount for families with dependents.
Premium Payments
These are the regular payments the policyholder makes to the insurance company to keep the policy active. Premiums are based on the insured’s life expectancy, which considers:
- Age – younger insured individuals have lower premiums
- Gender – women statistically outlive men and get better rates
- Health and medical history – any conditions raise premiums
- Lifestyle factors like smoking, drinking, or risky hobbies
- Occupational hazards that increase risk potential
As long as the policyholder keeps paying the premiums, the insurance company must pay out the death benefit when the insured dies. This provides critical financial security for loved ones after the loss of the insured.
Types of Life Insurance Policies in Canada
There are two major categories of life insurance—term and permanent. Each has unique features designed to suit differing needs and budgets.
Term Life Insurance
With term life insurance, coverage is provided for a set period of time, such as 10, 20, or 30 years. The death benefit amount remains level for the entire policy term and does not accumulate any cash value.
The three main types of term life insurance policies in Canada are:
Level Term life insurance
-
Death benefit stays the same for the entire term length
-
Premiums also remain fixed over the term
- The most predictable option for budgeting
Decreasing Term life insurance
-
Also known as mortgage life insurance
-
Death benefit amount decreases incrementally over the term
-
Often used to cover a declining mortgage balance
- Premiums remain level even as coverage decreases
Renewable Term
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Initial term length is usually one year
-
Policy can be renewed annually without new underwriting
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Premiums increase each year as the insured ages
- Low initial cost but builds over time
The major advantage of term life insurance is lower cost premiums, at least initially. However, coverage expires at the end of the term unless converted to permanent insurance. It does not offer any cash value accumulation.
Permanent Life Insurance
Permanent life insurance is designed to provide lifelong coverage as long as premiums continue to be paid. It also builds up cash value that can be borrowed against or withdrawn by the policyholder under certain conditions.
The four main types of permanent life insurance policies sold in Canada include:
Whole Life Insurance
- Provides lifelong protection as long as premiums are paid
- The most traditional form of permanent life insurance
- Premiums remain fixed over life of the policy
- Policy accumulates cash value over time that earns interest
Universal Life Insurance (UL)
- Provides permanent coverage for life
- Allows flexible premium payments – can be increased or decreased
- Cash value earns interest at a variable rate
- Can adjust death benefit amount if needed
Indexed Universal Life Insurance (IUL)
- Type of UL that earns interest based on stock index performance
- Offers some upside potential without downside market risk
- Adds an extra level of interest earnings
Variable Life Insurance (VL)
- Permanent coverage for life with flexible premiums
- Cash value invested in available separate accounts
- Policyholder selects investment funds from options
- Returns tied to performance of investments
The main advantage of permanent insurance is lifetime coverage security. The main downside is higher premium costs compared to term insurance. Cash value accumulation can also be useful later in life.
Permanent vs Term Life Insurance
| Term Life Insurance | Permanent Life Insurance | |
|---|---|---|
| Duration | Expires after term length | Lifelong as long as premiums are paid |
| Premiums | Lower | Higher |
| Cash value | None | Accumulates over time |
| Flexibility | Usually cannot adjust | Can change coverage amounts |
We explain the key differences between permanent and term life insurance so you can decide the right policy type for your needs and budget.
Term life is cheaper initially but expires after the term length. Permanent policies cost more but provide lifelong coverage. Choose wisely based on your situation.
Comparing Life Insurance Plans From Top Providers In Canada
|
Plan
|
Company
|
Type
|
Death Benefit
|
Terms Available
|
Cash Value?
|
Unique Features
|
|---|---|---|---|---|---|---|
|
Term 10
|
Manulife
|
Term
|
$100K – $1M
|
10 years
|
No
|
Convertible to age 65
|
|
Term 20
|
Sun Life
|
Term
|
$100K – $10M
|
20 years
|
No
|
Renewable annually to age 75
|
|
Flex Term
|
ivari
|
Term
|
$25K – $10M
|
10-30 years
|
No
|
Can change term length
|
|
Whole Life Advantage
|
Canada Life
|
Whole Life
|
$25K – $10M
|
Lifetime
|
Yes
|
Pays dividends
|
|
UL Guarantee
|
RBC
|
Universal Life
|
$100K – $10M
|
Lifetime
|
Yes
|
Level premiums lifelong
|
|
Indexed UL
|
BMO
|
Indexed Universal Life
|
$100K – $10M
|
Lifetime
|
Yes
|
Interest tied to indexes
|
|
Variable Estate Life
|
Manulife
|
Variable Life
|
$100K – $10M
|
Lifetime
|
Yes
|
Wide investment options
|
|
Final Expense Direct
|
Foresters
|
Final Expense
|
$2K – $35K
|
Lifetime
|
No
|
Simplified issue
|
|
Mortgage Protection
|
ivari
|
Mortgage
|
$10K – $1M
|
10-30 years
|
No
|
Declining payout
|
This table allows you to compare features, costs, flexibility and other aspects of the top life insurance plans available from leading insurance companies in Canada. Use it to evaluate different policies.
Read more: Compare life insurance companies in Canada
Average Cost of Life Insurance in Canada
Life insurance premium costs in Canada can vary greatly depending on the type of policy and personal factors of the insured. Some average monthly premium estimates:
- $7.76 – For a $100,000 level term policy for a 30-year-old non-smoking male
- $15.50 – For a $250,000 whole life policy for a 40-year-old female
- $112.00 – For a $1,000,000 universal life policy for a 50-year-old couple
Rates from over 13 top insurance providers in Canada indicate that, on average, a 20-year $100,000 level term policy for a 30-year-old non-smoker would cost approximately $30-40 per month. Permanent policies average around $60-90 per month for similar coverage.
However, many factors impact premiums:
Personal Factors Affecting Premiums
- Age – cost rises as age increases
- Gender – women pay less than men
- Health – poor health leads to higher premiums
- Lifestyle – risky jobs or habits raise costs
- Smoking – smokers pay significantly more
Policy Factors Affecting Premiums
- Type – permanent insurance costs more
- Term length – longer terms have a lower annual cost
- Coverage amount – higher death benefits mean larger premiums
- Riders – additional features like critical illness benefit adds costs
Always compare quotes from at least 3-5 top providers. Prices for similar coverage can vary drastically between insurers.
How Much Life Insurance Do You Need?
Determining adequate life insurance coverage means factoring in your unique financial situation and future needs. Important considerations include:
Income Replacement
If dependents rely on your income, calculate how much they would need annually to maintain their current lifestyle if you passed away prematurely.
Debt Payoff
Total any debts that would still need to be repaid even after your death, including mortgages, loans, credit cards, lines of credit, etc.
Future Major Expenses
Estimate large future costs like college tuition for kids or retirement funding for a surviving spouse.
Existing Insurance
Take into account any life insurance you may already have through work benefits or individually owned policies.
Final Expenses
Funeral and burial costs can be significant. Factor in at least $15,000-20,000 for final expenses.
Estate Taxes
Wealthy individuals may need substantially more coverage to pay expected estate taxes after death.
As a general guideline, the following are recommended life insurance amounts based on your financial situation:
- Single with no dependents – $50,000 to $200,000
- Married with no children – 5 to 10 times annual income
- Families with young children – 10 to 15 times annual income
- Nearing retirement – 5 to 7 times annual income
Reputable online calculators can provide a more precise estimate of ideal coverage for your unique circumstances. For most families, a minimum of 7-10 times your gross annual income is advisable.
Determine Coverage Needs
Figuring out how much life insurance you need can be confusing. We break it down into a simple step-by-step process:
- Calculate income to be replaced for dependents
- Estimate debts that need to be repaid (mortgage, loans, etc)
- Factor in large future expenses (college tuition)
- Account for existing insurance from work or personal policies
Use our [life insurance calculator] to determine the right amount of coverage specific to your unique financial situation. Don’t overpay for more than you need.
Read More : Life insurance for family
Comparing Major Life Insurance Products Available in Canada
| Product | Description | Duration | Premium Flexibility | Cash Value | Appropriate For |
|---|---|---|---|---|---|
| Term Life | Provides protection for a set period of time. Policy expires after term length. | 10, 20, 30 years | None, premiums locked in | None | Temporary coverage needs, budget conscious |
| Whole Life | Lifelong permanent protection. Premiums remain fixed over life of policy. | Lifelong | None, premiums fixed | Yes, grows over time | Permanent protection, leveraging cash value |
| Universal Life | Permanent protection with flexible premium payments. | Lifelong | Flexible, can adjust | Yes, earns interest | Permanent protection with premium flexibility |
| Variable Life | Permanent protection with premium flexibility. Cash value invests in accounts. | Lifelong | Flexible, can adjust | Yes, investment performance | Permanent protection with investment upside |
| Guaranteed Life | Simplified issue permanent coverage with no medical exam. Lower benefit amounts. | Lifelong | None, premiums fixed | None | For those unable to get other coverage |
| Final Expense | Small permanent policies to cover burial costs. No medical questions. | Lifelong | None, premiums fixed | None | Seniors needing coverage for final costs |
| Mortgage Life | Declining term insurance to pay off mortgage. | Aligns with mortgage term | None, premiums fixed | None | Married couples buying a home |
| Group Life | Employer-provided coverage. Simplified underwriting. | Varies | None, set by employer | None | Affordable standardized coverage from job |
Compare Life Insurance Quotes from Leading Insurers
Quickly compare personalized quotes from the best life insurance companies to find the lowest rates. Just answer a few questions to see customized premium estimates side-by-side.
Read More : Comparision Life Insurance
Comparing life insurance quotes from top providers is the fastest way to find affordable coverage.
Reviews of the Best Rated Life Insurance Companies in Canada
Not all life insurers are the same. We conduct extensive reviews on the top rated life insurance companies in Canada based on:
- Financial strength
- Customer satisfaction
- Variety of policies offered
- Claims processing speed
- Overall value
See how the top insurers compare in our reviews.
Choose a top rated life insurance company you can trust.
Tips for Finding the Cheapest Life Insurance Rates
Follow our experts’ advice to save the most on your life insurance policy:
- Lock in rates when young and healthy
- Compare quotes frequently to find deals
- Opt for longer policy terms
- Maintain healthy habits to qualify for discounts
- Bundle policies with your existing provider
Being a savvy shopper is key to getting the cheapest rates.
Is Life Insurance Taxable in Canada?
A common question surrounding life insurance regards taxes. The good news is the proceeds from a life insurance policy paid to named beneficiaries are generally not taxed as income in Canada.
However, any gains accrued within permanent cash value accounts during the insured’s life are taxed as interest income each year. For investment-oriented universal and variable life policies, capital gains treatment applies to growth.
If a policy is transferred to someone other than the insured’s personal heirs before death, the fair market value of the policy may be subject to capital gains taxes.
For large estates, proceeds may still trigger overall estate taxes owed by the deceased’s heirs. But the death benefit itself remains income tax-free at the federal level for Canadian beneficiaries.
Who Needs Life Insurance?
Life insurance is suitable for individuals whose death would create financial hardship for survivors. Common scenarios include:
Parents with Dependent Children
Proceeds enable covering household expenses, daily needs, and future costs like college until kids mature.
Parents of Special Needs Dependents
Benefits can fund a special needs trust to provide lifelong care.
Senior Caregivers
Payouts reimburse children who sacrificed income for elderly caregiving.
Stay-at-Home Parents
Benefits replace valuable domestic services like childcare and housekeeping.
Young Families Buying a Home
Proceeds pay off the mortgage to avoid foreclosure.
Spouses Relying on Dual Incomes
Allows surviving spouse to maintain a lifestyle without dual earnings.
Business Partners
Cover loss of partner’s contribution and buy-out obligations.
Wealthy Households Facing Estate Taxes
Proceeds help cover hefty estate tax bills, preserving assets for heirs.
Any Family with Debt Obligations
Settles outstanding debts without burdening loved ones.
Comparing life insurance costs and recommendations by province and major city in Canada
| Location | Average Monthly Cost* | Recommended Insurers | Tips to Save |
|---|---|---|---|
| British Columbia | $230 | Pacific Blue Cross, ivari | Lock in rates early |
| Vancouver | $240 | Canada Life, Manulife | Bundle with existing policies |
| Alberta | $220 | Sunlife, Manulife | Maintain healthy lifestyle |
| Calgary | $230 | SSQ, Manulife | Choose longer term length |
| Saskatchewan | $210 | SaskLife, Wawanesa | Bundle home/auto insurance |
| Regina | $220 | Industrial Alliance, Sunlife | Use online quotes to compare |
| Manitoba | $200 | Great West Life, Wawanesa | Enroll in wellness programs |
| Winnipeg | $210 | London Life, Blue Cross | Opt for automatic payments |
| Ontario | $240 | Manulife, RBC, Sunlife | Compare quotes every renewal |
| Toronto | $250 | Canada Life, Foresters | Use independent broker |
| Quebec | $240 | SSQ, Desjardins | Buy when young and healthy |
| Montreal | $250 | ivari, L’union Life | Maintain healthy lifestyle |
| New Brunswick | $230 | Assomption Life, Foresters | Enroll in employer benefits |
| Nova Scotia | $240 | Blue Cross, Manulife | Bundle policies for discounts |
| Halifax | $250 | Canada Life, Sunlife | Lock in rates for 20+ years |
*Based on $1,000,000 20-year term policy for 30-year old non-smoking male
With the increased policy amount, average monthly costs are higher in each province and city. The recommended insurers and tips to save remain applicable. Use this table to estimate costs and find savings on a $1 million life insurance policy.
How do I compare life insurance quotes?
Use an online quoting tool to easily compare rates from multiple top providers side-by-side. This allows you to see the best deals.
What life insurance company is rated the best?
Ratings vary, but some top rated insurers according to financial strength and customer satisfaction include Sun Life, Manulife, and RBC Life.
What's the cheapest life insurance I can get?
Term life insurance offers the most affordable premiums, especially renewable term policies with short 1-2 year lengths.
How can I find the lowest life insurance rates?
Getting quotes frequently, locking in rates when young, comparing many providers, and using a broker are the best ways to find the lowest rates.
Where can I find life insurance rate comparisons?
Our website offers an online quoting tool to easily compare personalized rates from leading life insurance companies.
What are tips for saving money on life insurance?
Tips include bundling policies, maintaining good health, comparing quotes often, choosing longer terms, and enrolling in discounts.
How are life insurance companies rated?
Major rating agencies like A.M. Best rate insurers on financial strength. Additional factors include customer satisfaction, pricing, and claims handling.
What life insurance company has the best reviews?
According to customer reviews, top rated life insurers include Sun Life, ivari, Manulife, and RBC Life for service quality.
Should I choose permanent or term life insurance?
Term life offers affordable temporary coverage while permanent policies provide lifetime protection at higher costs. Choose based on your budget and needs.
Where can I read reviews of life insurance companies?
Our website provides extensive company reviews based on ratings, policyholder feedback, coverage, pricing, and more to compare insurers.
Latest news from life insurance
FAQs Life Insurance
How do I compare life insurance quotes?
Use an online quoting tool to easily compare rates from multiple top providers side-by-side. This allows you to see the best deals.
What life insurance company is rated the best?
Ratings vary, but some top rated insurers according to financial strength and customer satisfaction include Sun Life, Manulife, and RBC Life.
What's the cheapest life insurance I can get?
Term life insurance offers the most affordable premiums, especially renewable term policies with short 1-2 year lengths.
How can I find the lowest life insurance rates?
Getting quotes frequently, locking in rates when young, comparing many providers, and using a broker are the best ways to find the lowest rates.
Where can I find life insurance rate comparisons?
Our website offers an online quoting tool to easily compare personalized rates from leading life insurance companies.
What are tips for saving money on life insurance?
Tips include bundling policies, maintaining good health, comparing quotes often, choosing longer terms, and enrolling in discounts.
How are life insurance companies rated?
Major rating agencies like A.M. Best rate insurers on financial strength. Additional factors include customer satisfaction, pricing, and claims handling.
What life insurance company has the best reviews?
According to customer reviews, top rated life insurers include Sun Life, ivari, Manulife, and RBC Life for service quality.
Should I choose permanent or term life insurance?
Term life offers affordable temporary coverage while permanent policies provide lifetime protection at higher costs. Choose based on your budget and needs.
Where can I read reviews of life insurance companies?
Our website provides extensive company reviews based on ratings, policyholder feedback, coverage, pricing, and more to compare insurers.
