Complete Guide to Life Insurance in Canada
See affordable life insurance quotes from PolicyMe and other top companies.
What is life insurance?
Life insurance is a legal and financial agreement between you and a life insurance company, where you pay regular payments and they agree to pay a large lump-sum to your beneficiaries if you die while the policy is active. It’s a powerful and flexible tool of financial agency.
What is it used for? Life insurance is primarily an income replacement product that guarantees your family has a financial safety net if you happen to pass away and are no longer contributing income.
Who is it mainly for? Life insurance in Canada is for anyone with dependents (single parents, couples with or without kids, people supporting disabled children or elderly relatives) whose dependents would struggle without your financial contributions.
Who may not need life insurance? People with no dependents and no debt probably don’t need life insurance. For instance, singles with no children, couples with grown children, retirees with sufficient savings, and people with strong assets may not need coverage.
Is it common to have life insurance in Canada? According to the CLHIA, 23 million Canadians paid for $6 trillion in life insurance coverage in 2024. While some coverage falls under group life insurance plans, 66% of total policies in force are individual plans.
Is life insurance worth it?
Life insurance is worth it for anyone who cares about what happens after they’re gone. The advantages of life insurance include more than just peace of mind: it lets you respond to life’s challenges with more confidence, knowing your family has a financial safety net in place.
With life insurance, you don’t have to maintain a large savings account just to prepare for an unlikely but devastating event.
How does life insurance work?
Strip away the jargon, and you only need to follow 6 steps to understand how life insurance works.
That’s it! If you follow these steps, there’s no reason your loved ones shouldn’t receive a tax-free life insurance payout, if the worst comes to pass.
The vast majority of term life insurance policies pay out if the insured person dies, unless…
You lie on your application! The biggest reason why life insurance won’t pay out is fraud.
What does life insurance cover?
Life insurance covers a lump-sum payout to your beneficiaries if you die, and that money can be used to pay for anything they need:
- Your final expenses (funeral, burial costs)
- Ongoing mortgage or rent payments
- Childcare and future education costs for dependents
- Debt repayment for joint credit cards, loans, or lines of credit
- General income replacement for day-to-day costs
Is life insurance taxable?
In most cases, no, life insurance payouts are not taxable in Canada.
The payouts: The death benefit is a tax-free lump sum that your beneficiaries can spend on anything they need.
The premiums: Your regular payments are paid with after-tax dollars, so insurance premiums may not be claimed as a tax deduction for personal returns.
However, there are some life insurance situations that will have tax ramifications.
If the policy is earning interest and the payout is made in installments, that interest is taxable. If you borrowed against or cashed out more than a permanent policy’s adjusted cost basis, taxes may be due.
Your life insurance options in Canada
Buying life insurance involves making several major decisions. You’ll have to decide who your life insurance policy will cover (the insured), which company to buy from (your insurer), and who should receive the insurance payout (your beneficiary).
Beyond these essentials, the three most important questions to ask yourself are:
- How much insurance do I need?
- Should I get term or permanent life insurance?
- Should my life insurance policy be underwritten?
1. How much life insurance do I need?
- Your options: $5,000 – $25 million
- How to decide: Estimate your family’s debts, living expenses, and financial needs
- Most popular option: $500,000
Your life insurance coverage amount is the size of the insurance payout—or death benefit—your loved ones will receive after you pass away. In Canada, you can buy life insurance policies with coverage ranging from $5,000 to $25 million. According to CLHIA, the average life insurance coverage amount per household is a little over $500,000.
Figuring out how much life insurance you need is simple, but tedious. Add up the total cost of your debts, income, and goals (such as your children’s education), and then subtract your existing coverage, assets, and savings. Or use an online life insurance calculator.
Multiplying your income by 10 or 12x doesn’t take your priorities or existing funds into account. You’re less likely to overpay for life insurance coverage (or end up underinsured) if you spend some time thinking about what you want to accomplish and how much it’ll cost.
2. Should I get permanent life insurance?
- Your options: Term life insurance or permanent life insurance
- How to decide: Evaluate whether you need lifetime coverage, complex estate planning support, or help paying for final expenses
- Most popular option: 20-year term life insurance
The difference between the two main types of life insurance is how long they last:
- Term life insurance covers a set period of your life, typically between 5 and 40 years, during which you need protection for debts and other financial obligations. You can match the length of your policy with the length of your financial plans, including mortgages, business loans, and children’s education.
- Permanent life insurance lasts for the rest of your life (as long as you pay your premiums). It’s ideal for inevitable end-of-life expenses such as funeral costs and estate fees. Whole life and universal life insurance usually include an investment-driven cash fund, enabling you to borrow against your life insurance. Term-to-100 life insurance does not.
Because it offers lifelong protection and a guaranteed payout regardless of when you die, permanent life insurance is considerably more expensive, with premiums 7 to 10 times higher than term life insurance. For most Canadians, permanent life insurance products don’t offer enough benefits to justify the high cost — unless you have dependents who will always rely on your income or have already exhausted more traditional estate planning and investment vehicles.
- As of 2024, 40% of all active Canadian life insurance policies are individual term life policies, while whole and universal life insurance make up just 13% each.
- At PolicyMe, we find that the most popular option for Canadians seeking to protect their finances is a 20-year term — just enough time for your kids to grow up and you to pay off your mortgage.
Because it’s affordable, easy to buy, and tailored to the length of your financial commitments, term life insurance is the better product for most Canadians. At the end of your term, you can adjust your coverage to match your new goals and go shopping for a new policy.
Although often advertised as an investment, whole and universal life insurance usually performs worse than stocks, bonds, and other financial instruments. Many buyers spend a lifetime paying steep premiums only to end up with far more coverage than they need.
3. Should my life insurance policy be underwritten?
- Your options: Fully underwritten, no medical/simplified, or guaranteed issue life insurance
- How to decide: Use no medical as a “Plan B” – try applying for traditional coverage first
- Most popular option: Fully underwritten life insurance
Your life insurance policy should be fully underwritten if you’re relatively healthy. This is how you get the most affordable premiums.
When you submit a life insurance application, all insurance companies use underwriting to evaluate your statistical risk of dying during your policy’s term. They’ll use their underwriting calculations to approve or deny life insurance applicants and to set premiums, i.e., how much you have to pay to maintain your policy. The lower your risk of dying, the higher your chances of being approved, and the lower your premiums.
Both term and permanent life insurance are available with different degrees of underwriting, from most to least thorough:
- Fully underwritten life insurance may involve both a medical questionnaire and exam, although qualifying applicants can skip the latter. Because it provides insurers with the most accurate picture of your health, it often results in lower premiums.
- No medical or simplified life insurance uses only a few medical questions to sort you into one of several broad categories known as risk classes. It’s easy to buy, but you’ll probably end up overpaying for coverage because you’ll be paying for other people’s risk, not your own.
- Guaranteed issue life insurance asks only a few basic questions. You’re guaranteed to receive a policy if you apply, but you’ll pay handsomely for the privilege.
The effort of applying for fully underwritten life insurance is usually worth the risk. Although many Canadians fear a medical exam will lead to them being denied life insurance, 96% of applicants get the coverage they apply for and qualify for standard rates.
That said, if you have serious or chronic health conditions, you may not qualify for competitive rates for fully underwritten life insurance. If that’s your situation, it’s still a good idea to start your application process with fully underwritten insurance and treat no-medical insurance as a last resort.
Always apply for fully underwritten life insurance first. It’s cheaper, it can help you qualify for more coverage, and you can always apply for a no medical or guaranteed issue policy later.
Bonus: Do I need life insurance riders?
Riders often sound great, but they tend to increase premiums out of proportion to the value they offer in return.
Life insurance riders are optional add-ons offering everything from life insurance for children to the chance to share in your life insurance provider’s profits (also known as participating life insurance).
For example, a return-of-premium rider that gives back all your paid monthly premiums if you outlive the term sounds amazing — until you realize that those premiums will be far higher thanks to the rider.
For most Canadians, life insurance riders aren’t worth the added cost. Look instead for plans with complimentary add-ons, such as PolicyMe’s term life insurance, which provides $10,000 of free coverage per child.
How much does life insurance cost in Canada?
The cost of life insurance in Canada starts around $15 per month for non-smoking applicants in good health under the age of 35 (for term life insurance).
But several factors can impact the price of life insurance, driving up that base rate. The riskier your age group, birth sex, habits, hobbies and occupation, the more the price goes up. You’ll also pay higher rates for large amounts of coverage or longer terms, which increase the risk that you’ll die before the policy expires. For a 65-year-old male smoker with a pre-existing medical condition, life insurance quotes can top $300 per month.
We’ve broken down sample life insurance quotes by age and sex to give you a realistic idea of what you’ll pay. Understanding how these factors affect your premiums can help you spot a fair rate — or an overpriced one.
All rates are based on a non-smoker with $500,000 in coverage for a 20-year term policy.
While some of these factors are outside your control, many aren’t. Applying for term life insurance, undergoing a medical exam and avoiding optional life insurance riders can all help you find more affordable life insurance.
What’s the best life insurance in Canada?
PolicyMe and Desjardins rose to the top of our list of best life insurance in Canada.
We identified the 12 best life insurance products in Canada after combining hundreds of thousands of life insurance quotes with customer reviews and in-depth research. Below, we cover the best life insurance options by age, by family needs, and by risk status.
But first, here’s a quick overview of five life insurance companies in Canada that offer affordable prices and a great customer experience:
* We compared each product's yearly costs to the average cost of similar products for the same type of applicant. For term life insurance, we pull premiums for $500,000 in coverage, for permanent and no medical life insurance, we pull premiums for $50,000 in coverage. Your life insurance premium will vary based on your sex, age, health, and policy specifications.
Medical questions and exams don’t always have to be bad; in fact, they can give your insurer a more complete picture of your health and help you qualify for lower rates. PolicyMe’s in-home medical exams take as little as 20 minutes, at whatever time is most convenient for you.
Next steps: Ready to start shopping for life insurance?
When you feel ready to start shopping for life insurance quotes, it’s time to select your life insurance policy. Follow the steps below to get started.
- Choose your term length: Most people opt for a term between 10 and 30 years, but the sweet spot’s different for everyone. Estimate how long your major debts will last and how long your loved ones will depend on your income.
- Add up your coverage needs: You can multiply your income by 10x for a ballpark figure, sum up the total of your debts and expected income, or use a quick online life insurance calculator like PolicyMe’s (it’s free and powered by licensed advisors!).
- Compare quotes: Different life insurers may offer different rates, along with unique perks and complimentary add-ons, like PolicyMe’s automatic 10% first-year discount for couples.
- Consider other insurance needs: If you’re buying life insurance because you don’t have access to group benefits through an employer, you may have other insurance gaps to fill. If you’re also in search of private health insurance, critical illness insurance, or disability insurance, consider looking for an insurer that can meet all or most of those needs in one place.
- Apply for a policy: Some insurers may require an in-person consultation or paper application, but PolicyMe’s process is fully online and usually takes 20 minutes or less from start to approval.
FAQ: PolicyMe insurance
We’re big believers in keeping things simple, so ask us anything and we’ll answer honestly and without the jargon.
You can cash out any permanent life insurance policy with a cash value. Once you surrender your policy—i.e. cancel it—your insurer will give you all or a portion of the cash value to date.
The cost of life insurance is determined by how likely and how soon you are to pass away. Insurers assess these risks by looking at your age, birth sex, health, habits, hobbies, and occupation, among other things.
Some life insurance policies include a living benefit that allows you to access a portion of your coverage if you’re disabled or diagnosed with certain terminal illnesses. You can also borrow against your life insurance policy if it has a sizable cash value.
Life insurance is not mandatory in Canada. You do not have to buy coverage for your family, and neither your place of employment nor your mortgage holder can force you to purchase a policy anywhere in Canada.
You may not need life insurance if you’re single, but your financial obligations and your age are more important than your relationship status. If you have debts, minimal savings, or you may have dependents in the future, then a small term policy can cover final expenses and lock in a low rate now.
Have a question we didn’t answer?
Call +1 (866) 999-7457 from 9AM-5PM EST Monday to Friday or email us. Our insurance expert team is happy to help!
