How does life insurance work in Canada?

Did you know that about one-third of Canadians don’t have life insurance? And when it comes to millennials, one in four say they’re unlikely to get any kind of coverage in the near future. As one of the most important types of insurance in Canada, knowing how life insurance works will hopefully help you decide whether it's right for you. By the end of this article, you will have gained a better understanding of what life insurance is, how it works, and the different types of policies available to you.

Why life insurance is important

Let’s start with the basics: Life insurance coverage is a contract between you and an insurance company. You agree to pay premiums, and in return, the insurer promises to pay a lump sum to your beneficiaries (the people you choose) when you pass away.

But life insurance isn’t just about money. It’s about security, love, and looking out for the people who matter most. Think of it as a final gift, like a way to ensure your loved ones can move forward without financial stress.

When the time comes, your policy guarantees a life insurance payout to your family, giving them the freedom to use the money however they need. Whether it’s covering daily expenses, paying off a mortgage, or keeping future plans on track, life insurance provides the stability to keep life moving, even when you’re no longer there.

Factors that affect life insurance premiums

To better explain how insurance companies calculate the cost of life insurance in Canada, we have put together this list of factors:

Factors	How it affects your premiums
Age	Life insurance premiums tend to rise as you get older.
Gender	On average, male policyholders tend to have higher life insurance premiums than female policyholders.
Smoking status	Smokers should expect to pay more for life insurance due to the fact that they may be at an increased risk of death.
Health status	A life insurance company will assess your health status to determine your risk. The healthier you are, the lower your life insurance rates will be.
Family medical history	Similar to the health status factor, an insurance company will also assess your family’s medical history when calculating your risk. If there is a history of hereditary illnesses, your policy rate could be higher.
Your driving record	Your driving record can influence the likelihood of accidents and, thus, your risk of death, which insurers consider when evaluating your application.
Your chosen term length	The longer your policy term, the more your policy will cost.
Your chosen coverage amount	The death benefit amount you select for your policy also dictates your premium. As you might have guessed, a larger life insurance death benefit will lead to a rise in life insurance costs.
The type of life insurance policy you select	Whole life insurance policies are usually more expensive than term life insurance policies. Thus, the type of life insurance policy you select will impact the price.

 

Your insurance premium is the amount you agree to pay in exchange for your coverage. These factors (among others) are what insurance companies look at when determining your life insurance premium. In general, the older you are, the longer your policy lasts, and the higher your payout (or death benefit), the more you can expect to pay for life insurance.

Here's an example of, on average, how much life insurance premiums cost by age and term length for a $100,000 coverage amount:

Age	Average cost for a 10-year term	Average cost for a 20-year term
30	$13 monthly or $148 annually	$15 monthly or $172 annually
40	$16 monthly or $183 annually	$21 monthly or $252 annually
50	$28 monthly or $329 annually	$46 monthly or $544 annually
60	$65 monthly or $771 annually	$124 monthly or $1,480 annually
69	$172 monthly or $2,060 annually	$214 monthly or $2,559 annually

 

Want to learn more about how life insurance works in Canada and what goes into calculating your premium? Get in touch with BrokerLink.

Types of life insurance policies in Canada

There are two main types of life insurance coverage in Canada: term life insurance and permanent life insurance.

Term life insurance

Term life insurance is like a safety net for a set period of time. You choose a coverage term, maybe 5, 10, or 20 years, or until you reach a specific age, like 65. If you pass away while your policy is active, your insurer will pay the death benefit to your beneficiaries. But once the term ends, so does the coverage, meaning there’s no payout if you’re still around when the policy expires. However, you might be able to renew certain term policies.

Permanent life insurance

A permanent life insurance policy stays with you for life unless you decide to cancel it. People often choose it for estate planning, making sure their loved ones receive a lump sum no matter when they pass away. Unlike term insurance, your permanent life insurance premiums usually stay the same, and most permanent policies build cash value over time, giving you an extra financial cushion. There are two subtypes of permanent life insurance:

1. Whole life insurance

Whole life insurance is often seen as the go-to option for permanent coverage. In fact, in 2023, whole life insurance was the top choice for Canadians, making up 68% of new annualized premiums, according to LIMRA.

It builds cash value over time, meaning if you ever cancel, you’ll get some money back. Plus, you can borrow against it or even use it as collateral for a loan. Just keep in mind that if you don’t fully repay what you borrow, it could reduce the payout your loved ones receive.

2. Universal life insurance

Universal life insurance is a mix of coverage and investment. Like whole life, it builds cash value, but it also lets you invest within the policy. If your investments do well, your policy’s value, and potentially your loved ones’ payout, can grow. However, if your investments underperform for too long, your premiums could go up. So, it’s a flexible option, but it does come with some risk.

Life insurance riders

A life insurance rider is like a custom add-on for your policy, helping tailor your coverage to fit your specific needs. Some riders come at no extra cost, while others require an additional payment that gets added to your monthly premium. There are plenty of options to choose from, but some of the most common include:

• Additional term riders
• Critical illness riders
• Guaranteed insurability

What does life insurance cover?

Since life insurance benefits are paid out as a lump sum, your beneficiaries have the freedom to use the money however they need, including:

• Funeral and burial expenses
• Paying off outstanding debts, like mortgages, loans, or credit cards
• Covering everyday living expenses, like rent, groceries, and bills
• Replacing lost income
• Funding your children’s education

A life insurance death benefit is paid out to your beneficiaries when you pass away. It gives your loved ones financial flexibility when they need it most.

However, there are some exceptions. For example, coverage might be denied if the cause of death is suicide (within the policy’s exclusion period) or from high-risk activities like skydiving. It’s always a good idea to check the fine print so you know exactly what’s covered.

How to choose the right life insurance policy

According to a 2023 study by LIMRA, 57% of Canadian adults say they have life insurance, up 3% from 2019. However, around 8.4 million adults (roughly 31% of the population) feel they don’t have enough coverage to fully protect their loved ones.

Many financial experts suggest having life insurance coverage equal to 5 to 10 times your annual income. But that’s just a general rule of thumb. Your ideal coverage depends on your unique situation. Your savings, debts, and long-term financial goals all play a role in determining how much life insurance coverage you actually need.

Choosing the right life insurance policy isn’t as simple as checking an answer in the back of a book. It’s a personal decision with many factors to consider. Beyond your family’s current expenses, think about future costs like tuition, funeral arrangements, estate taxes, and any debts you’d want to settle. With so many options and coverage combinations available, it’s important to find a policy that fits your needs while still being affordable.

That’s where an insurance broker like BrokerLink can help. Instead of sifting through endless options on your own, a broker can offer personalized recommendations based on your budget and goals. At BrokerLink, we’ll do the heavy lifting, comparing policies from different providers to find the best coverage for you and your family. Contact BrokerLink today for a free life insurance quote.

How to apply for life insurance in Canada

Applying for life insurance in Canada is easier than you might think. Here’s what to expect:

1. Choose your coverage

First, decide what type of life insurance you need (term or permanent) and how much coverage makes sense for your situation. An insurance broker like BrokerLink can help you compare options and find the right fit.

2. Fill out an application

Once you’ve chosen a policy, you’ll complete an application. This usually includes details about your health, lifestyle, and finances. Be honest, as insurers use this information to assess your risk.

3. Have your medical exam

Many policies require a quick medical exam, which is often free and can be done at home or at a clinic. It typically includes measuring your height, weight, blood pressure, and possibly a blood or urine test. From there, underwriting begins. This is where the insurer reviews your application and medical results to determine your premium.

If you’d rather skip the medical exam, you can choose a no-medical policy. These are faster and easier to get, but they may cost more or offer lower coverage.

4. Wait for approval

Approval times can vary. If you’re in good health, it may take just a few weeks. If the insurer needs more information, it could take longer. Once approved, you’ll receive your policy and make your first payment to activate coverage.

Common myths about life insurance

Whether you’re considering life insurance for the first time or already have a policy, you’ve probably come across some common myths. Let’s clear them up so you can make the best decision to protect the people who matter most.

Myth #1: Life insurance is too expensive

If you’ve been putting off life insurance because you think it’s too expensive, you might be surprised! A lot of people overestimate the cost, but in reality, it’s often more affordable than you’d expect. In Canada, the average life insurance premium is around $34 per month, though your rate will depend on things like your age, gender, health, and the type of policy you choose.

Want to see what life insurance would actually cost for you? Get a free quote from BrokerLink today!

Myth #2: My employer's life insurance policy is enough

Your employer’s life insurance is a great benefit, but it’s usually not enough to fully protect your family. Plus, it typically only lasts as long as you stay with that company. To make sure your loved ones are covered no matter what, consider combining your work policy with a personal one. A life insurance advisor can help you find the right balance so you have the coverage you need for the long haul.

Myth #3: I'm young so I don't need life insurance yet

The best time to buy life insurance is actually when you're young and healthy. Since your premium is based on factors like age, lifestyle, and overall health, it’s probably never going to be cheaper than it is right now.

Even if you don’t have a partner or kids yet, you might still have financial obligations, like student loans, a mortgage, or credit card debt. The last thing you’d want is for your family to be stuck with those bills if something unexpected happens.

Myth #4: You can’t buy life insurance if you have a pre-existing condition

Health issues aren’t always a deal breaker. You might just pay a little more in premiums. While serious illnesses might make it harder to qualify, many well-managed conditions, like diabetes or high cholesterol, won’t stop you from getting coverage.

In fact, if you have minor or no conditions, now is the best time to lock in a policy. If your health changes down the road, it could be much tougher (and more expensive) to get insured.

Contact BrokerLink to learn more about life insurance in Canada

Get in touch with the licensed insurance brokers at BrokerLink to find out more about how life insurance works in Canada. A BrokerLink insurance advisor can give you tips on how to purchase a life insurance policy, who to name as your beneficiary, and which type of policy is right for you. They can also explain what to avoid when buying insurance and give you an example of what an ideal life insurance policy looks like, as there are several things that good life insurance policies must contain.

To get started today, contact BrokerLink. We can be reached by phone, by email, or in person at any one of our locations throughout Canada. No matter how you choose to get in touch, a BrokerLink insurance advisor will be happy to assist you. We also encourage you to take advantage of our free online quote tool that can provide you with a competitive quote in minutes.

Contact us