Here’s what you need to know about life insurance in Canada.
What is life insurance?
To put it simply, life insurance is a financial safety net for your family. It protects them in the event that you die unexpectedly and your income is no longer around to support them.
When you buy a life insurance policy, you pay premiums each month for the coverage. In exchange, if you die while holding your policy, your insurance company will give your family a death benefit. A death benefit is a tax-free lump sum payment that equals your policy coverage amount (e.g. a $500,000 policy will have a $500,000 death benefit).
Your family can use the money in any way they’d like. For example, they can use it to pay off the mortgage, cover everyday living expenses, or fund your kids’ post-secondary education.
Do you need life insurance?
Life insurance protects your family in case you die while your family is still dependent on your income. So if you have loved ones who depend on you financially (e.g., to make mortgage payments or cover children’s expenses), you need life insurance.
On the other hand, if no one depends on your income, you don’t need life insurance. So if you’re single and don’t have dependents or if you have enough savings to cover your dependents’ expenses, you can pass on getting coverage—lucky you!
Types of life insurance in Canada
When you buy life insurance, you can get one of two types: term life insurance or permanent life insurance.
Term life insurance gives you coverage for a certain number of years (usually, 10, 20, or 30). If you die during your policy term, your family will get your death benefit.
Most young families choose term life insurance because it’s the simplest and cheapest type of coverage. It lets you pay for insurance only during the years when you really need it (i.e., when your family depends on you financially).
In comparison, permanent life insurance lasts for the rest of your life. This means that your family will get your death benefit no matter when you die.
It may be tempting to get permanent life insurance because it’ll protect your family until the day you die. But the reality is that most people don’t need permanent insurance because they’re able to live off their savings once they retire.
Because permanent insurance is much more expensive than term insurance, having permanent coverage when you don’t need it will mean flushing lots of money down the drain.
Here’s how rates for term vs. permanent insurance stack up:
|
Demographic |
$250,000 20-year term life insurance policy |
$250,000 permanent life insurance policy |
|
Male aged 30 |
$18/month |
$135/month |
|
Female aged 30 |
$15/month |
$121/month |
|
Male aged 40 |
$28/month |
$204/month |
|
Female aged 40 |
$22/month |
$178/month |
|
Male aged 50 |
$72/month |
$327/month |
|
Female aged 50 |
$51/month |
$279/month |
