Types of Life Insurance in Canada (Overview)
Types of life insurance in Canada
There are several types of life insurance options, in Canada and elsewhere, that cover a payout to your loved ones if you pass away while covered. Here are all the most common types of life insurance in Canada:
- Term life insurance
- Whole life insurance
- Universal life insurance
- Joint life insurance
- Group life insurance
Other types exist, but they typically address specific situations such as protecting a business partner (buy-sell coverage, key person coverage) or funding certain estate strategies (participating whole life, joint last-to-die coverage).
"There’s an elephant in the room when it comes to life insurance. Many Canadians seem to believe they need permanent life insurance, but the reality is that permanent life insurance is a very specialized product that only meets the needs of a very small percentage of the population…" —Andrew Ostro, Co-Founder & CEO of PolicyMe
This table starts with the simplest and lowest-cost options (group and term) at the top, with more complex and expensive options (joint, universal, and whole) in the rows below.
We’ll break down how each type works and who it’s best for below.
Term life insurance
Term life insurance covers you for a set period (1-40 years) to protect temporary obligations like a mortgage or children’s expenses. Beneficiaries get a tax-free lump sum if the insured person passes away during the term, and term policies can often be renewed or converted.
Bottom line: For most Canadians, term life insurance is usually the best place to start. Individual term life insurance policies are best for young families with short-term needs and financial obligations like joint outstanding debts, or homeowners on a budget.
T00 life insurance
Term-to-100 life insurance is a type of lifelong coverage with fixed premiums and no cash value growth. Your premiums stop at age 100 but your coverage continues.
Bottom line: Term-to-100 can make sense if you know you'll need lifelong coverage but don't need investment features or cash value. Most Canadians may not need permanent insurance, so term life insurance is often the more practical choice.
Whole life insurance
Whole life insurance is permanent coverage that lasts your entire life and guarantees a payout, no matter when you pass away. The policy’s cash value builds over time and is available via tax-deferred withdrawals, but you have to repay it and growth is slow.
Bottom line: Whole life insurance may make sense for people with permanent insurance needs who also value guaranteed cash value growth. Because of the higher cost, it's usually worth considering whether lifelong coverage is actually necessary.
Universal life insurance
Universal life insurance is permanent coverage that has a tax-advantaged investment component, where a portion of your premium payments go toward insurance and the rest is invested. You have to manage your own funds and you must keep the account funded to ensure the policy is active for your whole life; poor investment performance can increase your premiums.
Bottom line: Universal life insurance is best suited to people who want permanent coverage and are comfortable managing the policy's investment component. The added flexibility comes with more complexity than other types of life insurance.
Group life insurance
Group life insurance is sometimes available through your employer as part of a benefits plan, with premiums either fully or partially paid. Coverage is capped at about 1-2x your annual salary and is often tied to your job (so you could lose it if you leave your job, get fired, or retire).
Bottom line: Group life insurance is a valuable workplace benefit and a good starting point for many employees. Since coverage is often limited and tied to your employer, it's worth reviewing whether it would fully support your loved ones if something happened to you.
Joint life insurance
Joint life insurance is one policy that covers two people, usually spouses or partners. There’s only one payout, either first-to-die (where the surviving partner receives the payout) or last-to-die (which is often used for estate planning). It’s difficult to change a joint policy if you ever separate from your partner.
Bottom line: Joint life insurance can simplify coverage for some couples, particularly when estate planning is the priority. Before applying, consider how a joint policy would work if your needs or relationship changed in the future.
With PolicyMe, couples can save 10% when they apply for separate term life policies together—and each policy includes $10,000 in free child coverage per child.
Mortgage life insurance
Mortgage life insurance is for homeowners who want to cover their mortgage with a payout that goes directly to the lender, not to their chosen beneficiary. It ensures your family can stay in their home, but it does not give any flexibility or cash to your loved ones. It’s easy to qualify, but premiums stay high while coverage declines as you pay off your mortgage.
Bottom line: Mortgage life insurance can help homeowners keep their home in the family, but the payout is restricted to paying off the mortgage. If flexibility is important, it's worth comparing it with other types of coverage before deciding.
Guaranteed issue life insurance
Guaranteed issue life insurance is a type of permanent policy that requires zero medical exam. Coverage is usually capped at around $100,000 and you’re more likely to get approved. This is not an income replacement product.
Bottom line: Guaranteed issue life insurance fills an important gap for people who can't qualify for traditional coverage because of their health. If you have the option to qualify for medically underwritten coverage, you'll typically have access to lower premiums and higher coverage amounts.
How to choose a life insurance policy
Choosing the right life insurance policy comes down to your age, your health, your financial situation and your long-term goals. These four questions can help you determine which type of coverage is worth it for you (and understand the possible cost of premiums).
1. Do you have dependents?
If someone relies on your income or care, then you may need insurance with higher coverage that lasts longer. If you do not have dependents (partner, children, dependent relatives), then you may only need minimal or temporary coverage. How much life insurance would safely cover all your dependents until they become independent?
Cost: The more dependents you want to cover, the more coverage you may need (which costs more).
2. How long do you need coverage?
If your financial obligations are temporary (like a mortgage or raising children), term life insurance is often enough. Align the term with your needs. Some type of permanent life insurance may be required for lifelong dependents or permanent needs.
Cost: The longer the term length, the higher the price. Lifetime coverage costs a lot more than term coverage (3-10x more). 30-year term policies cost more than 10-year, coverage being equal.
3. What’s your budget?
Simple policies (like term) cost less, while complex policies cost more—and don’t necessarily add more value. Do you have debt that needs covering? Can you afford $60 per month, or only $25? Are you willing to pay more for a policy with a guaranteed cash value you can access?
Cost: Term policies cost less, but it depends on the coverage amount, age, and health of the policyholder. Rates rise with age so get an insurance quote as soon as you can.
4. Do you need lifelong coverage?
If you have permanent financial obligations (estate planning, a dependent with lifelong needs), then a lifelong policy may make sense. If your financial obligations will end at some point in the future, then temporary life insurance plans with a tax-free payout are often enough to cover your loved ones and your funeral expenses.
Cost: Lifelong insurance costs more, due to the guaranteed payout and possible cash value over time.
Can you have more than one type of life insurance?
Yes, it is perfectly legal (and even smart!) to have more than one type of life insurance in Canada.
Laddering term policies: Many people stack multiple term policies to match different obligations. For example, you could get a 25-year policy to cover your mortgage and a 15-year policy to cover your kid.
Term + permanent: You can combine term insurance for temporary needs with a smaller permanent policy for lifelong coverage.
Group coverage + term: Many people purchase a separate term policy on top of their workplace group coverage. This delivers real financial protection for their families beyond the 1–2x salary cap.
Bottom line: Term life insurance is the ideal choice for most Canadians
In most scenarios, term life insurance is the best type of policy for the average Canadian family. It’s affordable, gives peace of mind and provides coverage for the period of time you need it the most, like when your kids are young or while you’re paying off your mortgage.
"Buy term and invest the rest. Cover yourself when you need it most, and at the end of your term, you can reassess your coverage needs." — Stephanie Roux, Licensed Life Insurance Advisor
Term life insurance policies might still be your best option, even if you're interested in the cash value component of whole life insurance. The amount you'll save on premiums is invested at your discretion instead of being tied up in your policy.
FAQ: Types of life insurance in Canada
You need facts, not fluff. Our goal is to provide you with honest, trustworthy information to help you make informed decisions. While our content is created with insurance experts, it is for educational purposes only and should not be considered definitive professional financial advice. We recommend seeking the counsel of a licensed financial advisor before making any decisions regarding insurance or personal finance.
Bonnie Stinson is an insurance writer and researcher in Toronto with a decade of experience producing helpful, accurate content for Canadians. They have published resources for some of Canada's most innovative and consumer-trusted companies in the health, legal, and fintech sectors.
Bonnie Stinson is an insurance writer and researcher in Toronto with a decade of experience producing helpful, accurate content for Canadians. They have published resources for some of Canada's most innovative and consumer-trusted companies in the health, legal, and fintech sectors.