Life Insurance in Canada 2023 | What It Is and How It Works

Life Insurance in Canada: Savings for the Rainy Day

Life happens and no one can predict what will happen in the future. The good news is that you can feel secure knowing that you and your family are protected if you have the appropriate insurance. With life insurance in Canada, you can protect your loved ones from financial hardship, help with final expenses, leave a legacy, and secure your family’s financial future. A life insurance policy is a legal agreement between a policyholder and a life insurance company.

Term life insurance plans have a set number of years before they expire, while permanent life insurance policies are in effect until the insured passes away, the premiums are stopped, or the policy is surrendered. So, it is important to pay attention to their difference when buying life insurance. In this article, we are going to explore life insurance in Canada.

What Is Life Insurance in Canada?

Life insurance is a contract or policy between you and a life insurance company that may be for a set amount of time or the rest of your life. A tax-free cash payment (also known as the death benefit) will be given to your beneficiaries as per the terms of this contract when you pass away. Depending on the type of policy you choose and the amount of insurance you buy, they’ll receive a specific sum.

It’s crucial to remember that the death benefit is only guaranteed if you pay the necessary premiums. This rule applies to the majority of permanent life insurance policies. If a term life insurance policy satisfies all the conditions of the policy, it is not subject to this clause.

Types of Life Insurance in Canada

To accommodate all needs and preferences, there are numerous varieties of life insurance available. The important decision of choosing temporary or permanent life insurance must be taken into account depending on the immediate or long-term needs of the person to be insured. In the following, we will review the types of life insurance in Canada.

Term Life Insurance in Canada

Term life insurance is designed to last for a specific amount of time before expiring. You decide on the term when you buy the insurance. 10, 20, or 30 years are frequent terms for life insurance in Canada. The best-term life insurance plans, strike a balance between long-term financial stability and affordability. Term life insurance in Canada is subdivided into the following categories:

Decreasing term life insurance: this insurance serves as a renewable term life insurance with decreasing coverage throughout the policy’s life at a set rate
Convertible term life insurance: this type of term life insurance in Canada can convert a term policy to permanent insurance
Renewable term life insurance: for the year the policy is purchased, renewable term life insurance offers a quote. The initial cost of term insurance is typically the lowest premium, which rises every year

Once the term is up, many term life insurance policies allow you to renew the contract each year. This is one way to extend your life insurance coverage, but because the renewal rate is based on your current age, premiums may increase dramatically each year. Converting your term life insurance policy in Canada to a permanent policy is a better option for long-term protection. If this is important to you, look for a convertible term policy because this is not always an option on term life insurance policies in Canada.

Permanent Life Insurance in Canada

Unless the policyholder stops paying the premiums or surrenders the policy, permanent life insurance remains in effect for the duration of the insured’s life. In the long run, it will also be more expensive. Permanent life insurance in Canada is further classified into the following:

Whole life insurance: whole life insurance builds up cash value over time to last the insured person’s lifetime. With cash-value life insurance, the policyholder is also free to use the cash value for a variety of things, including borrowing money, paying bills, or paying premiums
Universal life insurance: universal life (UL) insurance is a type of permanent life insurance with an interest-earning cash value component. Flexible premiums are available with universal life. In contrast to term and whole life, the premiums can be changed over time and can be created with a level death benefit or an increasing death benefit
Indexed universal life: Indexed Universal Life (VUL) allows the individual to earn a fixed or equity-indexed rate of return for the policyholder on the cash value component
Variable universal life: this type of life insurance in Canada also called VUL, enables the policyholder to invest the policy’s cash value in a readily accessible separate account. It can be created with either a level or rising death benefit, and its premiums are adjustable

Comparing Term and Permanent Life Insurance in Canada

While term life insurance and permanent life insurance have some key differences, most people looking for low-cost life insurance coverage find that term life insurance best suits their needs. Term life insurance only lasts for a predetermined amount of time and provides a death benefit if the policyholder passes away before the term expires.

As long as the policyholder continues to make premium payments, permanent life insurance remains in effect. A significant premium difference between term and permanent life is also present—since there is no need to accumulate cash value, term life insurance is typically much less expensive.

Determine how much money would be needed to maintain your beneficiaries’ standard of living or fulfill the need for which you are purchasing a policy before you apply for life insurance. Think about how long you will require coverage as well. For instance, if you are the primary caregiver and your children are 3 and 5 years old, you would need enough insurance to pay for your caregiving duties until your children are old enough to support themselves.

You could estimate the cost of hiring a nanny and a housekeeper or using commercial child care and cleaning services, and then add money for education. When calculating your spouse’s retirement needs and any outstanding mortgages, don’t forget to take them into account, especially if the partner is a stay-at-home parent or earns significantly less than you.

The death benefit you might want to purchase if you can afford it, is the sum of these costs over the next 15 or so years plus an additional amount for inflation. On the other hand, burial or final expense insurance is a type of permanent life insurance with a small death benefit. The death benefit is available for use by beneficiaries regardless of their names.

Also read: Term life and whole life insurance in 2023 for Canadians!

Factors that Determine Your Life Insurance Premiums and Costs in Canada

Numerous variables affect the price of life insurance premiums. While some circumstances may be beyond your control, you can potentially reduce the cost before (and even after) applying by controlling other requirements. The most important factors that affect cost are your age and overall health, so it is usually best to purchase life insurance as soon as you realize you need it.

You can ask to be considered for a change in risk class after your insurance application has been approved, provided that your health has improved and you have changed your lifestyle for the better. Your premiums won’t increase, even if it turns out that your health is worse than it was when you were first underwritten. Your premiums could go down if your health is determined to be better. Additionally, you might be able to purchase more coverage for a lower price than you originally paid.

Benefits of Life Insurance in Canada

Having life insurance has a lot of advantages. Most people use life insurance to give money to heirs who would face hardship in the event of the insured’s passing. Most life insurance policies have tax-free death benefits. To cover estate taxes, wealthy people occasionally purchase permanent life insurance within trusts. The value of the estate for their heirs is preserved thanks to this tactic.

For wealthy people, the tax benefits of life insurance, such as the tax-deferred growth of cash value, tax-free dividends, and tax-free death benefits, can present additional strategic opportunities. Illegal tax evasion should not be confused with tax avoidance, which is a law-abiding strategy for reducing one’s tax liability.

Who Needs Life Insurance in Canada?

Life insurance benefits are paid out to beneficiaries named in the policy or to surviving dependents after the insured policyholder passes away. People who might require life insurance include the following.

Parents with minor children

Losing a parent’s source of income or ability to provide care may cause financial hardship. Until they can support themselves, children in Canada can be sure they have the resources they need thanks to life insurance.

Parents with special-needs adult children

Children who will always require care and never be independent can have their needs met after their parents pass away thanks to life insurance. A special needs trust that a fiduciary will oversee for the advantage of the adult child can be funded with the death benefit.

Adults owning property together

Whether or not the adults are married, life insurance might be a good idea if one of them could no longer afford the house’s taxes, maintenance, and loan payments if the other passed away. An illustration would be an engaged couple who have gotten a joint mortgage to buy their first home.

Seniors with adult children

Many adult children take time off of work to help an elderly parent who needs assistance. Direct financial assistance is another form of this assistance. Life insurance might be able to help with some costs for the adult child after a parent passes away.

Young adults

Young adults whose parents co-signed for them on a loan or incurred private student loan debt most likely need life insurance in Canada. Such individuals without dependents rarely need life insurance, but if a parent will be responsible for paying off a child’s debt after their death, the child may desire to have sufficient life insurance to pay off that debt.

Children or adult children

Youngsters who want to secure low rates can benefit from life insurance in Canada. Your insurance premiums will be lower the younger and healthier you are. If it is anticipated that they will have dependents in the future, a 20-something adult may purchase a policy even though they are single.

Stay-at-home spouses

Spouses who stay at home in Canada should have life insurance because they are highly valuable financially due to the work they do at home. According to estimates, in 2018, a stay-at-home parent’s economic worth would have been equivalent to a $162,581 yearly salary.

Businesses with key employees

If the loss of a key employee, such as the CEO, would put the company in a precarious financial situation, the company may have an insurable interest that will allow it to purchase a life insurance policy for that individual.

Married retirees

Pensioners in Canada can opt to accept their full pension and use some of the money to purchase life insurance. In this way, they can benefit their spouse rather than having to choose between a pension payout that includes a spousal benefit and one that does not. Pension maximization is the name of this tactic.

Other people who may need life insurance in Canada

Wealthy families who anticipate having to pay estate taxes can also benefit from life insurance in Canada. Taxes can be paid and the estate’s full value preserved with the help of life insurance. Also, families are unable to pay for burial and funeral costs.

A small life insurance policy can provide money to pay respects to a loved one who has passed away. On the other hand, people with preexisting conditions such as cancer, diabetes, or smoking might need life insurance in Canada. Be aware, however, that some insurers may refuse to provide coverage for such people or may do so at very high costs.

Also read: Why Younger People Are More Interested in Life Insurance Than Ever!

Things You Need to Consider Before Buying Life Insurance in Canada

Keep in mind that each life insurance policy in Canada is unique to the insured and the insurer. Reviewing your policy document is essential if you want to know what risks are covered, how much will be paid to your beneficiaries, and under what conditions. Below are some key considerations you need to pay attention to before buying life insurance in Canada.

Research policy options and the insurance company

Given that life insurance policies can be very expensive and time-consuming, it’s important to do your research and make sure the company you choose has a strong reputation and financial stability. After all, it could be decades before your heirs begin receiving death benefits.

The amount of death benefit you need

When it comes to financial planning, life insurance in Canada can help you balance your risks and protect your loved ones should the worst happen and you pass away while the policy is still in effect. But there are times when it doesn’t make sense, like when you buy too much or cover people whose income doesn’t need to be replaced. Therefore, it’s crucial to take some considerations into account.

For instance, if your spouse makes a lot of money and you have no children, perhaps it isn’t necessary. It is still crucial to take into account how your potential demise would affect a spouse and how much support they would require financially so they could grieve without having to be concerned about returning to work before they are prepared. To maintain a desired lifestyle or meet financial obligations, both spouses may need their life insurance policies, though.

The reason you are buying life insurance in Canada

While burial costs might need to be paid in the event of a senior or child’s death, these groups don’t have any meaningful income to replace. In addition to protecting their child’s future insurability, parents may want to buy a modest-sized policy for them when they are young. By doing this, a parent can make sure that their child can provide for their future family financially. Only up to 25% of the current policy value on their own lives may parents buy life insurance for their children.

Consistent saving and investing—for example, self-insuring—might make more sense in some cases as a hedge against uncertainty if a significant income doesn’t need to be replaced or if policy investment returns on cash value are too conservative.

How Life Insurance Works in Canada

A death benefit and a premium are the two main elements of a life insurance policy. These are the two parts of term life insurance in Canada, but cash value is also a part of whole or permanent life insurance policies. In the following, we will review the inner workings of life insurance in Canada.

Death benefit

When an insured person passes away, the insurance company guarantees a certain sum of money to the named beneficiaries in the policy. This sum of money is known as the death benefit or face value.

For instance, the beneficiaries could be the insured’s children. The insured will decide how much they want their death benefit to be based on the future needs they anticipate their beneficiaries having. Using its underwriting standards for age, health, and any hazardous activities the proposed insured participates in, the insurance company will determine whether there is an insurable interest and how eligible the potential insured is for the protection.

Premium amount

The cash the policyholder spends on their life insurance is known as a premium. If the policyholder pays the required premiums, the insurer is required to pay the death benefit when the insured passes away. Premiums are based in part on the likelihood that the insurer will be required to pay the death benefit under the policy given the insured’s life expectancy.

Age, gender, medical history, occupational hazards, and high-risk hobbies of the insured are some factors that can affect life expectancy. The insurance company’s operating expenses are also covered in part by the premium. For individuals who are more at risk, permanent life insurance policies with cash value accumulation, and policies with higher death benefits all have higher premiums.

Cash Value

Permanent life insurance has two uses for its cash value. It is a savings account that the policyholder may use for as long as the insured person is alive, and the money accumulates tax-deferred. Depending on how the funds will be used, some policies may contain limitations on withdrawals.

For instance, the policyholder might borrow money using the policy’s cash value and be required to pay interest on the loan’s initial amount. The cash value can also be used by the policyholder to pay premiums or buy more insurance. This cash value stays with the insurance company as a living benefit after the insured person passes away. The death benefit of the policy will be lessened by any unpaid loans against the cash value.

Keep in mind that the insured and the policy owner are typically the same person, but this is not always the case. As an illustration, a company might purchase key person insurance on a key employee like the CEO, or an insured person might sell their policy to a third party in a life settlement for cash.

Top Life Insurance Companies in Canada

Major international insurance companies call Canada home, along with some of the largest financial institutions in the world. In the following, we will introduce you to some of the greatest life insurance companies in Canada. This should serve as a guide to get a piece of brief information on their insurance products and their policies so that you can choose the one that best suits your needs.

Manulife Insurance Company in Canada

A global insurance and financial services provider with its headquarters in Canada, Manulife Financial Corporation, owns Manulife Canada. Both in Southeast Asia and the United States, where they conduct business through their insurance provider John Hancock, Manulife has a sizable presence. They were established in 1887 as the Manufacturers Life Insurance Company, and today they are the biggest insurer in Canada.

A wide variety of individual and group insurance and investment plans are available from them. Manulife also runs Manulife Bank, which provides credit cards, mortgages, chequing, and savings accounts. They also provide insurance for visitors to Canada as well as super visa insurance. Term life products from Manulife come in a variety of forms and have the following functions:

Family Term: Manulife’s flagship term life insurance product enables people to provide their families with the financial security they need to maintain their standard of living, as well as coverage for mortgages, child care costs, and retirement savings. This policy is also automatically qualified to participate in Vitality Go, the insurer’s new initiative that rewards policyholders for committing to a healthier lifestyle. In this policy, Vitality Go is offered without charge
Family Term with Vitality Plus: this issimilar to Vitality Go, but it offers even greater benefits. Increased Vitality Go participation can result in lower premiums, but beware—you may also pay a price if your health goals aren’t met. In addition, your monthly premiums will go up by $6 for this feature
Business Terms is another product to protect business owners and their businesses in Canada.

Assumption Life Insurance Company in Canada

Assumption Life is a leading provider of straightforward and adaptable term life insurance options. Customers looking for non-medical life insurance policies have access to five different options from the company. Assumption Life’s life insurance policies also give you the option to request coverage for higher amounts after undergoing financial and medical underwriting.

With a wide range of products for those looking to qualify without a medical exam, Assumption Life provides the following wide range of term life insurance options:

FlexTerm: For those with rising insurance needs, Assumption Life’s flagship term life insurance product is ideal. You can select between ten, fifteen, twenty, twenty-five, thirty, or thirty-five years of protection, with guaranteed premiums and affordable costs, and coverage ranging from $50,000 to $10,000,000
Golden Protection Elite Term: An excellent option for people whose health prevents them from being approved for insurance policies that are subject to medical underwriting. Depending on their insurance requirements, applicants can select either 10 or 20 years of coverage. If qualified, coverage begins right away after approval
Platinum Protection Term: When looking for non-medical (no exam) life insurance, the Platinum Protection Term plan is the best option for healthy people. During a 19-question medical interview, eligibility is determined. Depending on insurance requirements, there is a choice of 10 or 20-year terms of coverage. until the age of 75, without having to reapply for insurance, Platinum Protection Term can be converted into a permanent whole-life policy
Youth Plus: thispolicy is specifically designed for those between the ages of 15 days and 17 years. Children are given the option to convert Youth Plus into permanent or term life insurance once they reach the age of 25, regardless of their health or insurability.

Sun Life Insurance Company in Canada

The traditional term life insurance policies offered by Sun Life Financial include both medically necessary and non-medically necessary policies with options for permanent conversion. Standard features and optional benefits offered by Sun Life Term products are generally competitive with the market. However, the cost of their premiums might be difficult on your budget. Four distinct term life insurance plans are provided by Sun Life Insurance:

SunTerm: The standard product from Sun Life has features that are common to most term life insurance policies. It is offered with guaranteed level premiums in terms of 10, 15, 20, and 30 years. If your insurance needs change, SunTerm 10 and SunTerm 15 can be exchanged for SunTerm 20 or SunTerm 30
SunSpectraum Term Insurance: comparable to SunTerm, but with a $50,000 minimum level of coverage. If you want insurance for smaller amounts, you might take this into account. It provides the majority of SunTerm’s features. With guaranteed level premiums, there are terms of 10, 15, and 30 years
Sun Life Go Term Life insurance: Simpler to issue insurance with $100,000 to $1 million in coverage levels. It is for people aged 18 to 69, available in terms of 10 or 20 years. You don’t need to take a medical exam to apply online—just respond to a few health questions. The additional features and advantages offered by Sun Spectrum and SunTerm are not present in this product
Sun Life Simplified Term Life Insurance: A non-medical term insurance product with a simple issue for low coverage levels. $50,000, $75,000, or $100,000 are the three options available. The product is suitable for people who may not be eligible for conventional medically underwritten products or other readily available non-medical products because of moderate to severe health concerns.

Desjardins Life Insurance Company in Canada

One of Canada’s biggest financial institutions, Desjardins frequently ranks among the top 50 most secure banks and financiers worldwide. With a variety of benefits and riders, Desjardins Insurance offers term life insurance with 4 different terms. Numerous additional riders are available from Desjardins Insurance including children’s protection, accidental death & dismemberment, disability waiver of premiums, and guaranteed insurability benefit. The life insurance products offered by Desjardins are as follows:

Term 10: This is a product for up to the age of 85, and may be extended every ten years. A longer term (term 20 or term 30) may be substituted. For a time up until the age of 70, is convertible to permanent insurance
Term 20: This is a product for up to the age of 85, and may be renewed every 20 years. A longer-term may be obtained by exchange. It has a 70-year age limit at which it can be converted to permanent insurance
Term 30: After the initial 30-year term, it is possible to renew once. Please note that no higher term may be substituted. Until the age of 70, is convertible to permanent insurance.
Term-to-age-65: this product is not extendable. It cannot be changed for a longer term. Till the age of sixty, it is convertible to permanent insurance
Insurability Option: If a couple’s needs change, they can divide their joint permanent coverage into two separate policies. It is available for policies with terms of 10, 20, and 30
Association Option: By adding a new insured, an insured can convert their term insurance into joint last-to-die permanent life insurance.To pay estate taxes or leave a legacy, choose this option. This product is offered for all 4 term lengths.

Beneva Life Insurance Company in Canada

Beneva (formerly SSQ Insurance) promotes distinctive life insurance coverage options, most notably with an integrated Extreme Disability Benefit. Packages with flexible terms offer coverage up to $10,000,000 for 10, 15, 20, 25, 30, 35, or 40 years. Beneva offers a level or declining coverage with decreasing premiums as you pay off debts and need less coverage, in addition to a variety of optional riders.

The Term Plus from Beneva is the company’s flagship product and offers a ton of user flexibility. This policy provides life insurance coverage in addition to special built-in features and adaptable choices that can completely safeguard you from life’s greatest risks. The Term Plus product from Beneva (formerly SSQ Life Insurance Company Inc.) can be combined with optional disability and critical illness coverage to create a powerful combo product solution.

Beneva’s Term Plus is available in a variety of terms on its own, including a 40-year term that benefits business owners. A fantastic exchange program is also provided by Beneva, allowing you to upgrade the term of your original term life insurance policies without providing any proof of insurability.

The exchange must be made between the policy’s first and fifth anniversaries, though. You can increase coverage by up to 25% (or $100,000) to meet any future increases in protection needs thanks to the built-in guarantee of insurability benefit. With straightforward options for life insurance, the Beneva underwriting procedure is quick and simple. If you are between the ages of 18 and 45, there is no medical examination required for coverage of less than $500,000. In addition to the customary level coverage, Beneva Life Insurance also provides a decreasing term insurance product that works best for covering mortgage or loan liabilities.

APLUS Wealth Provides You with the Best Life Insurance in Canada

In return for premiums paid by the policyholder during their lifetime, a life insurance policy guarantees the insurer will pay a certain amount to one or more named beneficiaries when the insured person passes away. A life insurance policy is only as good as the company issuing it in terms of its financial stability. If the issuer cannot, claims may be paid by state guaranty funds. So, it is wise to choose a company that has stood the test of time.

APLUS Wealth is a brokerage geared toward life insurance in Canada. We have reviewed numerous providers of life insurance in Canada hand-picked the best for you and rated the top providers in several categories. You can compare the top life insurance providers in Canada and receive up to 30 free life insurance quotes on the APLUS Wealth app. For more information, our licensed insurance advisors can help you compare, calculate, and buy the best life insurance policy.