How To Choose Life Insurance in Canada - The Complete Guide

Written By
Julija A.
July 10,2023

Life insurance is a form of insurance policy that offers financial protection for individuals and families, representing an agreement between a policyholder and an insurance provider. Typically, you pay a monthly or annual premium in exchange for cover, and the insurance pays out a certain amount of money to named individuals in the case of your death. 

Is it a good idea to take out a life insurance policy? In Canada, statistics show that 52% of people don’t have an individual term life insurance policy, even though the number of searches had increased by almost 50% during the pandemic years. 

Life insurance offers peace of mind, and it can provide a nest egg to cover outstanding debts and bills, funeral expenses, lost income, raising children, education, and household costs. As such, having some form of life insurance in place is almost always a good thing.

If you want to learn more about life insurance policies in Canada, read on, as this article will provide plenty of information you’ll find useful.

How Does Life Insurance Work?

If you don’t already have personal life insurance, or you’re in the process of researching various policies, you may be wondering how life insurance works. 

In most cases, when you take out a life insurance policy in Canada, you will pay a monthly or annual fee to your insurance provider. The amount you pay will depend on the type of policy, who the policy covers, and how much your life insurance plan is worth. Typically, the higher the value, the higher the premium. 

If you keep up to date with your life insurance payments, the agreed-upon sum of money will be paid to your beneficiaries. Most people choose family members, their partner, or their children. If the policyholder passes away, the insurance company will issue the payout. The money can be used to cover debts or funeral costs or to help with bringing up children, paying for college, or keeping up with mortgage payments. 

Life insurance plans in Canada all have specific terms and conditions, so it’s important to always review those carefully before deciding on which plan to go with.

Types of Life Insurance in Canada

One of the most important things to consider when choosing a life insurance policy is the type of insurance policy. There are two main types of life insurance in Canada: term life insurance and permanent life insurance. 

Term Life Insurance

Term insurance is a type of life insurance policy that covers a specific term, such as 10, 20, or 40 years. When you take out a term life insurance policy, you agree to pay a monthly or annual fee in exchange for cover for the agreed term. If you pass away during the term, your insurance provider will release the payment to your named beneficiaries. Otherwise, you will receive a payout from your insurance company at the end of the term. 

As the end of your agreed term approaches, you may also receive a life insurance renewal offer from your current provider, at which point you can choose to accept the renewal quote or explore other offers. 

Permanent Life Insurance

Unlike term insurance, permanent life insurance covers your whole life, and one of the most popular types of permanent insurance is whole-life insurance. If you choose to take out whole-life insurance in Canada, you will pay a premium in exchange for a policy that will not expire during your lifetime. 

Whole-life insurance policies work differently from term life insurance policies. When you pay your premium, one part of the premium covers your life insurance and the other part adds cash value. With this type of life insurance product, you can access the cash value, borrow against this component of your life insurance plan, or cash in your life insurance policy. 

It is important to understand that the cash value in your whole-life insurance plan is not intended for your beneficiaries. It is money that can be accessed during your lifetime. The money you put toward your life insurance payout will be sent to your beneficiaries if you pass away. 

Other types of permanent life insurance you might come across include Term 100 life insurance, which covers you up to the age of 100, and universal life insurance, which offers an investment opportunity as part of your premium earns interest and is usually not taxable. 

That said, not every type of permanent life insurance plan is the same. Universal life insurance is more flexible than whole-life insurance, as you can adjust your premiums and the value of the death benefit. Unlike whole-life insurance, the rates are linked to investment options that you choose, which means that your cash value and returns can fluctuate. 

How Much Does Life Insurance Cost in Canada?

Life insurance costs in Canada vary according to several factors. These include:

  • The type of policy
  • The term
  • The provider
  • The level of cover
  • The age of the policyholder
  • Individual policyholder risks

When researching policies, it’s always beneficial to check the current life insurance rates in Canada and compare offers from different providers. You can filter results and ask for personalized quotes based on your requirements. When you contact a life insurance policy provider, you may be asked several questions about your age, your health status, family and medical history, and the level of cover you want to buy. This will allow insurers to give you an accurate estimate.

The cost of life insurance in Canada ranges from around $15 per month to over $100 per month. Typically, premiums will be higher in the following circumstances:

  • The individual is aged 40 or above
  • Higher risk of death due to health problems
  • High death benefits
  • High-value cover
  • Whole-life and long-term policies
  • Extras and add-ons
  • Lifestyle and occupation
  • Smoker status

Who Needs Life Insurance?

Life insurance for Canadians is recommended if you:

  1. Are in a long-term, committed relationship
  2. Have children
  3. Have other dependents such as a partner or immediate family
  4. Have a mortgage
  5. Have outstanding or unpaid debts
  6. Want to leave money to people or other beneficiaries
  7. Want to earn interest or cash out a life insurance policy

If any of the above applies to you, it’s wise to think about taking out a life insurance policy.

What Are the Advantages of Life Insurance?

Life insurance can be highly beneficial for the policyholder and their beneficiaries. As a policyholder, you can have peace of mind knowing that your dependents will be protected if something happens to you and there are also opportunities to earn money if you choose to buy a permanent life insurance plan. 

As mentioned before, life insurance benefits for beneficiaries include access to a major payout in the case that the policyholder passes away. This can greatly help alleviate financial stress and pressure, cover living costs, pay for a funeral, and provide for the future. 

How To Find the Right Life Insurance Policy in Canada

If you’re looking into life insurance plans in Canada, here are some tips to help you choose a life insurance policy:

Research Life Insurance Types

There are several types of life insurance to choose from, including term and permanent policies. Research various types of products, make sure you understand how the policies work, and consider which one suits your needs best. 

Figure Out How Much Insurance You Need

The average life insurance policy in Canada is worth $200,000, but this figure might not be suitable for everyone. Experts usually recommend a cover that represents 10 times your annual income, but it’s ultimately up to you to decide what the best choice is based on your needs and your budget. If you can’t afford to pay a huge premium every month, any level of life insurance cover is better than nothing. Get the most comprehensive policy you can afford. 

Seek Advice if You Have Questions

Life insurance is quite complex, so if you have questions or queries about life insurance, you don’t understand the difference between various types of policies, or you need advice about things such as a taxable gain on a life insurance policy in Canada, it is best to speak to insurance agents and independent advisors. 

Set a Budget

The cost of life insurance in Canada varies greatly depending on the type of policy, the value of the death benefit, and whether you wish to add any extras. Determine your monthly or annual budget, and this will allow you to filter results and narrow down your options. 

Outline Your Objectives and Needs

Everyone’s situation is different, and so everyone’s requirements will be different. Think about what you need from your life insurance cover in terms of the type of policy, the term length, the overall value, and any additional options, such as critical illness or coverage for children. 

Compare Policies From Reputable Providers

Competition is fierce among insurance providers. Before you apply for a policy, take some time to compare plans and providers. You can use online comparison sites and apps or contact individual companies to get quotes. If you’re looking for the best term insurance in Canada, it's the value that you should look for, not just the lowest price. It’s often worth paying more for a higher level of cover and extra features. 

Read the Terms and Conditions

Once you have a shortlist of policies that suit you, check the terms and conditions of each one before you submit your application and make your choice.

In Conclusion

All in all, life insurance has many benefits, and having a life insurance policy in place is almost always a good idea. As we’ve explained in this article, there are many reasons to take out life insurance. By being responsible and taking the time to find good coverage, you can rest easy knowing that your loved ones are taken care of in case something happens.


Can you sell your life insurance policy in Canada?


It is possible to sell your life insurance policy in Quebec and Saskatchewan, but there are restrictions. There are laws in place that prevent selling insurance policies, and some providers prohibit sales, even in areas that do allow policyholders to sell their insurance plans.

Which type of life insurance is best in Canada?


The best type of life insurance depends on the individual and their needs and preferences. Term coverage is usually cheaper, and it’s beneficial for people who have specific targets, such as covering college fees or providing for the future. Permanent insurance offers more flexibility, longer-term coverage, and the option to benefit from the increased cash value, but it is usually more expensive.

How does age affect life insurance rates?


Age is one of the main factors determining life insurance costs. The older you are, the higher the premium will be.

What is the average life insurance payout in Canada?


The average Canadian life insurance policy is worth $200,000. Some beneficiaries will receive more or less depending on the death benefit. A higher death benefit will increase the value of the payout.

How much does life insurance cost in Canada per month?


The monthly cost of a life insurance policy in Canada ranges from around $15 to over $200. There are several factors to consider, including your age, your health status, the level and type of coverage, extras, add-ons, and the death benefit. For example, younger adults (aged under 40) in good health may pay less than $20 per month on average, but this figure can rise to over $100 per month for those over 60 who smoke and/or have underlying health issues.

About author

Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.

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