Everything you Need to Know About Life Insurance in Canada
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Much like how you can insure your car or home, your life – and the financial wellbeing of those you love – can also be safeguarded. Today, let’s explore the types of life insurance in Canada, helping you make a more informed and cost-effective decision. Otherwise, what are the risks posed to your loved ones in the event of your untimely death? Will they be negatively affected or appropriately protected? In the case of the former, it’s time to consider which type of life insurance policy is the best solution as well as the ideal amount of coverage, depending on your needs and situation.

What is Life Insurance and Why do I Need It?

Life insurance in Canada ensures that your loved ones can continue living financially secure life even after you are gone. There are many reasons to consider it. For instance, perhaps you’ve married and wish to protect your spouse, or maybe you’ve purchased a home and want your mortgage to be safeguarded. Otherwise, what if you’re starting a family and want to look out for your children’s wellbeing and education costs?
The right life insurance plan lets you leave your loved ones with a non-taxable amount if you were to pass away.

In addition, be aware that life insurance acts as a contract or agreement between you as the policyholder and the provider in question. Some life insurance products can also be used to accumulate wealth and serve as a tool for tax planning.

How Does Life Insurance Work?

Based on your plan when purchasing from a provider, you make payments, also known as premiums, to them. In return, the provider pays out a lump-sum, non-taxable ‘death benefit’ to your loved ones – also known as beneficiaries – after you pass away. 

What are the Types of Life Insurance in Canada? 

There are two options available, each of which will work for you in different ways. The first, term life insurance, gives you insurance coverage for a set period – usually for 10, 15, 20, or 30 years. In exchange for the premiums paid during your term, your policy will provide financial protection to your loved ones if you were to pass away within the timeframe.

The second option is known as whole or permanent life insurance in Canada. As the name suggests, this secures the future of your loved ones by giving them a cash-value death benefit after you die, though it can also be accessed during your lifetime as the policyholder. Unlike the term format, you could pass away young or old and still be guaranteed a lump-sum amount that would be given to your loved ones. This policy is thus more expensive but also delivers guaranteed financial benefits.

Term vs. Whole Life Insurance: What Are the Differences?

Type of Protection

While term insurance is generally best suited to cover temporary but large financial obligations such as a home mortgage, your child’s education, and so on, whole insurance is ideal for those looking for lifelong financial protection. 

Costs Involved

Due to its temporary nature, term insurance is typically more affordable, especially when you buy it at a younger age. During your initial term, your premiums are guaranteed to stay the same. However, if you do renew your coverage when your term ends, the premiums will rise. Another reason for its affordability is that, unlike whole life insurance, a term policy does not build any cash value. 

Whole insurance is, therefore, more expensive, but it will also provide the security of having a premium that does not change with your age or health. Most permanent insurance policies also help build a cash value that you can withdraw, borrow directly against, or even use as collateral for a loan. Of course, withdrawing the cash will usually reduce your death benefit. 

Flexibility

Term insurance can be renewed at the end of your term. Based on your policy terms, it can also be converted into a permanent life insurance policy. Permanent policies are what they sound like, offering lifelong protection. Thus permanent life insurance cannot be converted into term insurance. 

Term vs. Whole Life Insurance: Which One is Better?

Your life insurance policy and coverage depend entirely on your financial responsibilities, short and long-term goals, and aspirations, among other factors. The term approach ensures affordable, temporary financial protection for your loved ones. Otherwise, whole insurance provides lifelong coverage from the financial impact of death. It also provides for needs that are more permanent in nature such as estate planning, investments, and so on.  

How Much Insurance Do I Need?

You should be mindful of how much insurance you specifically need based on a variety of factors. These include your net worth, marital status, any outstanding debts, the size of your household (and whether it is growing), and your income. Other contributing variables include your age, medical background and overall health, gender, and even elements of your lifestyle (such as whether you smoke).

What About Insurance Through Your Employer?

Life insurance in Canada through your employer will be cheaper since you get the benefits of group coverage. However, it rarely provides enough financial protection for your family. Additionally, it is not permanent since you cannot take your coverage with you when/if changing jobs. You may also not have the same kind of insurance as all your employers and may lose life insurance coverage once you retire. Therefore, it is always advisable to evaluate your financial needs and responsibilities before deciding on the type of coverage you require. 

At What Age Should You Get Life Insurance in Canada?

Most people think that they don’t need to get either of these types of life insurance in Canada when they are relatively young and healthy. In fact, you are costing yourself money by doing this; if you do get life insurance when you’re young, you end up saving hundreds of dollars! In your prime years, your insurance premium will generally be lower, so you can lock in a low monthly rate and continue paying that until the end of your term. 

What is the Best Life Insurance Company in Canada?

There are several life insurance companies available for your consideration in Canada including Sunlife, TD Canada Trust, Manulife, Equitable, Desjardins, and others. The list can appear to be endless! Therefore, it can feel overwhelming when trying to choose the best available options for a term or permanent life insurance in Canada. 

The last thing you want is to make an uninformed decision out of sheer confusion, eager to sign up. Life Simpli is here to help. We make it possible for you to compare quotes from over 10 prominent insurance providers in Canada, meaning you can buy the right insurance coverage for your needs and budget within minutes! Our licensed advisors are available 24/7 to provide you with transparent, unbiased advice. There’s no need to postpone signing up for appropriate life insurance in Canada when we can help you ensure financial stability and peace of mind. 

Wondering how much would life insurance cost you right now, or are you unsure about the amount of coverage you need? Get assessed within minutes using our quick assessment calculator

Comparison between life insurance and permanent insurance in Canada.