• Adam Stapley

Life Insurance in Canada

Life insurance in Canada is a challenging subject to discuss for most Canadians. Many are uncomfortable about the idea of their mortality. We carry insurance to cover many of the things we hold dear, but often leave the dearest of all unprotected. This article covers life insurance in Canada, who should buy it, and why. We also discuss the different types of life insurance policies which Canadian life insurance companies offer.

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What are your family's life insurance needs?

What is Life Insurance?

Life insurance is a contract between two parties and a third party, called a beneficiary. The two parties involved are the insured and the insurer. The beneficiary is the person or organization who benefits, should the insured pass away - or become sick or disabled if the owner has a critical illness plan or disability policy.

The purpose of life insurance is generally to help protect your loved ones from the financial impact of your death or disability. This type of protection is important to ensure that financial liabilities such as mortgages, car loans, college tuitions and other financial obligations are covered.


The insured is a person who is the subject of a life insurance contract. The contract may cover several eventualities in which the insurer pays compensation should any occur. Typical insurance coverages include:

  • Death

  • Critical Illness

  • Disability

  • Key Person

An insured person can also designate themselves as the beneficiary of disability or critical illness plans, though not for the key person or death benefits.

Elderly couple with arms around each other's shoulders, staring off in the distance


The insurer is the party that provides a lump-sum payment or several payments to the beneficiary of an insurance contract. The insurer charges premiums to the insured for the duration of the life insurance policy (or portion thereof). This party may also be responsible for managing investments made on the insured party's behalf.


The beneficiary of a life insurance policy in Canada is the person or party who benefits from the loss incurred by the insured. Most Canadians have a simple policy covering death, upon which a lump sum payment goes to the beneficiary of the plan - most often the surviving spouse or other family members.

How Does Life Insurance Work?

An insurance contract can cover a specific timeframe, or act as a permanent policy that stays with the insured throughout their lifetime. The insured makes regular payments, called premiums, to the insurer. The terms of each contract will determine how and when the insurer compensates the beneficiary of the policy.

For policies that only cover the death of the insured, upon their passing, the insurance company will make a lump sum payment to the beneficiary of the plan. This lump sum payment often settles debts, establishes education funds and covers the regular expenses of the insured’s family.

Critical Illness Plans

A critical illness plan provides insurance coverage for Canadians who are diagnosed with a terminal disease. A critical illness plan will often pay the beneficiary before the passing of the insured. In many cases, the insured is the beneficiary of this policy, which can allow for medical care during the later stages of the person’s life.

Disability Policies

A disability policy helps protect Canadians by replacing the income of a person who becomes unable to work due to a disability. This type of policy usually pays a percentage of the income earned during the insured’s career. The average payout for a disability plan is between 60% and 85% according to Statistics Canada.

Who Can Get Life Insurance?

Although the majority of Canadians can be covered by an insurance contract, the costs of coverage can vary widely.

Most life insurance policies include a medical examination to determine the overall health of the individual applying for the coverage. The younger and healthier the applicant, the less expensive the plan will be. If the party insured is at a later stage in life or has pre-existing conditions which shorten their life expectancy, the premiums are higher.

Why Should You Buy Life Insurance?

There are a variety of reasons to buy life insurance in Canada. The driving consideration is whether someone depends upon your income to provide for their basic needs. If the answer is yes, you should consider buying coverage.

Home Owners

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The average mortgage in Canada is already over $400,000. At today’s interest rates, this means that the average Canadian pays around $1,700 per month for their mortgage, plus the additional costs of property taxes, maintenance, homeowners insurance and more. With average household incomes around $90,000, a $1,700 monthly mortgage payment is equivalent to approximately 30% of a household’s after-tax income.

If your family’s income was cut in half, could you still afford a $1,700 monthly payment?


Do you have family members who would have financial challenges if you weren’t around?

Most people purchase life insurance in Canada to protect the ones they love most from financial hardship, should the worst occur. Even without the liability of a monthly mortgage payment, many Canadians want to ensure that the basic needs of their families are met. These needs include post-secondary education, unsecured debts and basic budget requirements.

Business Owners

Many business owners or partners occupy key roles within a company. Without them, the business would fail to perform at its optimal capacity. Given the position these key persons occupy in their company, many business owners purchase Key Person insurance to protect against the loss of their capacity to function in their roles.

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Key Person insurance protects business partners from the loss of a crucial person within their company. This type of plan will typically pay the costs associated with the lost position for up to twelve months during a disability, critical illness or death of the insured party.

What Types of Life Insurance Are There?

Life insurance in Canada meets a variety of needs and budgets. The type of policy you purchase will depend on your long-term needs and financial situation.

Term Life

Term life insurance is the lowest-cost life insurance available to most Canadians. This form of life insurance covers a specific period (10, 15, 20, 25 or 30 years). With this form of coverage, there is no cash value associated with the policy. This type of plan is similar to the coverage you might have for a car or your home, only paying out the predetermined amount during the policy's lifetime.

Permanent Life

Permanent life insurance is like buying a car versus renting a car. As long as you maintain the premiums, this type of policy will stay with you until you pass. There are three main types of permanent life insurance in Canada.

Participating Life

Participating life insurance carries an investment component in which the beneficiary “participates” in the investment gains of the investments made by the insurance company. These investments may include dividends that can pay a portion of the premium or add more insurance as required.

Whole Life

Whole life insurance provides coverage for the duration of your life with guaranteed premiums. Though premiums come at a higher initial cost, you won’t have to worry about increasing premiums as you age or if your health worsens. This type of plan protects you and your family’s budget from increasing premiums while providing you with a long-term quality benefit should the worst occur.

Universal Life

Universal life, also known as Permanent life insurance can be one of the costliest insurance options available. This type of plan usually has two components. The first component is the policy itself. This part of the plan compensates the beneficiary should the insured pass during the prerequisite period of the policy.

The second component of a universal life insurance policy is an investment component. This portion of the plan also acts as a tax-efficient way for Canadians to invest and grow their wealth. This type of plan also holds several tax advantages. One such advantage is the ability to borrow money from the cash value of the policy.


Although thinking about dying can be a challenge for most Canadians, thinking about buying life insurance in Canada is a necessary consideration for everyone. Whether you’re looking to take care of your family’s financial obligations or leave a legacy by donating to a charity upon your passing, the decision to buy life insurance is an important one.

Plans for life insurance in Canada cover more than just death. Critical illness plans can help you maintain a standard of living and pay for the costs of a terminal health issue. Disability plans also provide the same types of solutions if you become disabled. Other policies cover the loss of an employee or business partner who holds a crucial or difficult role within a company.

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