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:

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What is life insurance? How does it work?

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, to pay any outstanding debt (think: mortgage, credit cards, car loans, etc.), as well as to supplement any income that would be lost during a grieving period (should their surviving loved ones miss work) and beyond (the absence of your paycheques to provide for the family members left behind). It 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 to they are accustomed to as possible. That includes the ability to make mortgage payments, as well as pay household bills and any other debt. That also includes future debt, too, like your children’s education.

The life insurance industry is formed around offering 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.

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Do you need life insurance?

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 don’t need it, ask your self these questions:

  1. Are you in a committed relationship?
  2. Do you have dependents? This could be a partner, children or even parents.
  3. Do you have a mortgage? How many years are left on the mortgage?
  4. Do you have any student loans that are still outstanding?
  5. Do you have any outstanding debts that could fall upon family to pay for after you’re gone?
  6. Do you want to leave money to charity?
  7. Do you want the ability to cash out a life insurance policy to make a big purchase in the future?
  8. Are RESPs large enough to fund your kids’ education?
  9. Would your family be OK without your income?
  10. How much money do you have saved?

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. Of course, shop around and compare quotes, but know that if you complete too many questionnaires for quotes, it could raise a red flag and increase your premiums or even get you denied coverage. (It is like how applying for too many credit cards can affect your credit score.)

We outline the different scenarios of when you should get life insurance, and when you shouldn’t, in a separate article—Do I really need life insurance?

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How much life insurance do you need?

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, but how much you will pay for it, 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 for you is specific to you, and your family and lifestyle. Here is a simple calculation that can help you come up with your own number.

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 your 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 +$ -$

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What are the different types of life insurance? Which one is the best?

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 covers until you are 100 years old and 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.

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How much does life insurance cost in Canada?

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 above, what insurance packages can pay for after you pass, your debt and your risk of death affect the cost, too.

Before you get a quote online or connect with a broker, it is a good idea to have a sense of your liabilities and assets, which indicates what you are leaving 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, as well as your health, lifestyle and age and more to consider.

$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?

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Life insurance extras: Some other things to consider

While it may sound like an upsell, there is value in customizing your life insurance policy with “extras” that work for you.

If you are 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. That’s when ensuring your policy, whether you pay for it or your company does, also includes short-term and/or long-term disability insurance. If you didn’t ask about it about when signing your employment contract, it’s not too late to ask the HR department. Critical illness is another type of coverage to consider, which offers you a single payment if you are diagnosed with a condition or disease such as cancer, multiple sclerosis or paralysis.

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Buy the best life insurance: how Canadians can prepare

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. This will have you better prepared to answer the questions for a quote. You will also be asked health-related questions, like if you smoke, if you’ve had certain conditions and your family history.

Depending on whether you go through a broker, online broker or directly through an insurance provider, you will be given a range of quotes to choose from. (This is how a broker has 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 license, social insurance number, birth certificate, passport), income (paystub, letter of employment), 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 a digital and paper copy of your policy to keep for reference.

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More questions about life insurance, answered

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