Key takeaways:
Life insurance is worth it in Canada for anyone with existing debts or financial obligations and loved ones who depend on their income.
The point of life insurance is to help your family cope with the financial impact of your passing through the payout of a lump sum. The main benefit is peace of mind; knowing that if something happens to you, your dependents will be taken care of financially.
The payout varies in size depending on your policy. It’s designed to cover a variety of short- and long-term expenses for your family and can be used toward anything, including:
The death benefit that your family would get in the event of your passing is significantly more than the premium payments you’d pay over time.
But not all policies or types of life insurance suits everyone in the same way. Because of that, it’s important to ensure that you select the right policy for yourself, your family, and your financial situation.
The bottom line is: there’s no one-size fits all approach to life insurance in Canada.
If you’re unsure if you need life insurance, start by asking yourself a question: would your loved ones be able to provide for themselves if you passed away?
If the answer is “no,” then it’s worth considering life insurance. To start, we’ve summarized who needs life insurance in this image:
How'd you do? Getting coverage might make sense for you if you answered "yes" to most of the questions. And it might cost less than you think. PolicyMe has some of the most affordable term policy rates in Canada.
It’s a good idea to get life insurance if the financial profile above sounds anything like you. More specifically, anyone related to one or more of the following categories:
Having dependents means your passing could leave them struggling, but life insurance can help prevent that. Likewise, life insurance can provide your estate with the money it needs to pay off those debts.
It’s also important to take into account the economic situation that your loved ones would need to navigate if they lost your income.
If you're like the average Canadian, your passing could result in hefty short- and long-term expenses for your family. Here’s how to self-diagnose, starting with systematically looking at a life insurance calculator:
You probably don’t need life insurance if there is no one that will shoulder your financial responsibilities if you pass away.
And life insurance isn't necessary for single or childless individuals. In each of these cases, there would be no financial impact on your family if you passed away.
But high net worth and high-income people with dependents should also consider not just their current financial obligations but the cumulative loss of income over time.
If the answer is no to the above, then life insurance still might be a good idea. Figuring out how much coverage your family needs can be tricky, but we’ve got you covered with our free life insurance calculator:
The best age to get life insurance is when you first have a dependent.
That can be a spouse, kids or any other family member that relies on you. For most people, this is when they get married or have children. New dependents are often the catalyst behind most life insurance purchases.
But the age at which you buy your policy can also have significant benefits.
Life insurance rates are determined by age and medical history. If you’re young and have a clean bill of health, you can lock in a great premium for the length of term that makes the most sense for you (i.e. 10, 20, or 30 years).
The table below illustrates just how much more worthwhile it can be to lock in a rate sooner rather than later.
Prices based on publicly-available rates as of February 2023. Terms and conditions may apply.
Curious about how much term might cost? Lock in your rate with PolicyMe and get some of the most affordable rates in Canada.
The age at which you don’t need life insurance really depends on your financial situation and the needs of your loved ones. Remember: the point of life insurance is to protect your dependents from burden if you were to pass prematurely.
But if you’ve reached an age where:
Then you may no longer need coverage. For many Canadians, this balance of scenarios happens sometime around the time that they retire.
The average age of retirement was 64 years old in 2022, according to Statistics Canada. This is a good milestone that can help you plan for the end of your life insurance needs.
Let’s get into some examples involving real-life Canadians who, like you, are wondering whether they need life insurance. Should they join the ranks of the 22 million Canadians holding $5.1 trillion in coverage?
Life insurance advisor Stephanie Roux shares her recommendations:
1. Elena, 31 and Feng, 33, in Burnaby, BC
"Elena and Feng need life insurance. If one of them were to pass away, the surviving spouse would have to take on the mortgage. And without their partner’s income, the other might need help covering daily expenses.”
2. Nicolette, 37 and Stefan, 38, in Montreal, QC
"Nicolette and Stefan need life insurance. Even without a mortgage, their kids depend on their income.
Their income is necessary to cover anything from daily living expenses, to savings plans, to childcare and tuition.”
3. Matt, 21, in London, ON
"Matt doesn’t need life insurance. No one relies on his income, he has no debts to be covered if he passes away and he has already started an emergency fund.”
4. Asma, 33, in Calgary, AB
"Asma needs life insurance. She has a mortgage that needs to be paid if she passes away. And because her mother has co-signed, she would be responsible for the payments along with any funeral costs.
Any other outstanding debts she may have could also become her mother's responsibility, she doesn't want to burden her with these costs.”
5. Laila, 24, in Regina, SK
"Laila probably doesn’t need life insurance. She has no debts or dependents."
6. Ian, 44, in Moncton, New Brunswick
"Ian needs life insurance. Even though he’s paid off his mortgage, he helps pay his mother’s bills and living expenses. He wants to ensure she would be taken care of financially if he were to pass."
7. Barb, 58 and John, 62, in Barrie, ON
"Barb and John need life insurance. They still have an outstanding balance on their mortgage. Financially, their children are just starting out and may not have the money to support the surviving parent."
Life insurance is generally worth it for many Canadians, but specific types of policies are more suitable than others, depending on your situation.
It’s important to understand the types of life insurance that are available to you, and which ones provide the most benefits at the best cost. Now let’s get into who is the best fit for the main types of life insurance.
Term life insurance is worth it for most average Canadian families that need life insurance to cover financial obligations and dependents.
As the Canadian Life and Health Insurance Association explains, “Term insurance provides cost-effective, temporary coverage over an insured's younger years.”
The “term” in this type of life insurance refers to the amount of time you are covered. Typical options are:
And if you pass within that term while the policy is active, your family would get the payout amount that you chose for the policy.
The length of term you choose should depend on when you think you’ll no longer have dependents relying on you, or the time it’ll take for you to pay down your debts.
Term policies are that they tend to be much more affordable than whole life insurance, while providing coverage during the years you need it most. This makes it worthwhile for the average family.
Whole life insurance can be a worthwhile option for Canadians with extremely high income or earning potential. But it is likely not worth it for the average family.
Here’s a quick summary of what you need to know about whole life insurance:
Whole life insurance provides coverage for the duration of your life. But this comes at a much higher cost, to the tune of 7.5x more than term on average.
Some whole have a cash value component. But that is locked into the policy with limited flexibility for withdrawal and is funded by a hefty premium.
Whole policies can be folded into your estate for building generational wealth. But this is only worth it if all other investments are maxed out (like your RRSP and TFSA), which is not typical for the average Canadian.
The combination of an affordable term policy and self-investing the rest is the better option for most. This provides more control and flexibility for managing and using your funds.
Group life insurance is a good supplement to a term policy but is unlikely to cover all of a family’s financial needs in Canada.
Group life insurance policies, like those offered through an employer might be worth it for some Canadian families. Even more so if coverage is provided for free by your employer. But take note that coverage is typically for the equivalent of 1-2x your annual salary.
As such, it’s not likely that group life insurance is enough on its own to provide the security needed to support your family if you pass. And if you leave the company your coverage will end.
The common through-line of this article is that life insurance is designed to protect your family from the financial consequences of your passing. And for many Canadians, life insurance is a worthy expense.
But that doesn’t mean it’s the only method you can use for financial protection. Here’s a quick summary of some other approaches you can take:
Life insurance is a smart investment for Canadians with people that rely on them financially in the sense that it's a wise purchase. But life insurance should not be used as an investment vehicle for cash value, as it isn't the most efficient way to invest (versus things like the stock market or an RRSP). There are very specific scenarios in which a life insurance policy might be a worthwhile investment vehicle, but for the average Canadian family, this isn't the case.
The main reason you would use life insurance for investment purposes would be for tax benefits. But if your TFSA and RRSP isn't maxed out, you're better off putting your money there.
There is no particular age when life insurance is no longer needed. Your need for a life insurance policy largely depends on your financial obligations. For example, if your mortgage is paid off, if your kids no longer depend on you financially, if you've paid off your debts or if you've already set up a retirement plan.
Life insurance reduces the risk of leaving your family with financial issues. As a regular practice, you should reassess the "risk" regularly to see if your obligations have changed.
The main reason for having life insurance is to protect your loved ones from financial issues if you were to pass away. Buying a life insurance policy makes sure that the people that rely on you for financial support don't have to face monetary losses if you pass away. A death benefit would give them the gift of financial security in a difficult time.
Life insurance is a good idea if someone financially depends on you, like your spouse/partner, kids or aging parents. Only some Canadians need life insurance. If you're single, financially independent and don't have large debts like a mortgage, you can probably skip a life insurance policy.
But if your financial situation has changed recently, it may be time to reevaluate your need for a policy.
You need life insurance for as long as you have someone financially dependent on you. That length of time is different for everyone, but your answer likely won't stay the same forever. That's why we tend not to recommend permanent life insurance.
Term life insurance lets you choose the term length that suits you and your family the best. So you can save money by only getting the amount of life insurance you need.
Your life insurance policy's worth will depend on the type of life insurance you have. Permanent and universal life insurance tends to have a cash value component, which will change over time.
If this question is in the context of selling your life insurance policy to someone else, take note that you are only able to sell your policy in Quebec, New Brunswick, Nova Scotia and Saskatchewan.
No, life insurance is not a scam. It’s a valuable service that fills a real need in Canadian society by offering peace of mind and financial security for those left behind when a loved one dies. But not all life insurance policies will be worth it for everyone, and making payments toward a policy doesn’t always have an upside.
In the event that you do need life insurance, your loved ones will be thankful you made the investment. The key to maximizing the benefit of life insurance is to find the policy, rate, and coverage that makes the most sense for you and your family, and doing your due diligence to ensure that you work with a reputable provider.
Our sources:
Canadian Life and Health Insurance Association. (n.d.). Canadian Life and Health Insurance Association - Canadian Life and Health Insurance Facts, 2022 Edition. https://www.clhia.ca/facts
Canadian Life and Health Insurance Association Inc. (n.d.). https://www.clhia.ca/
Government of Canada, Statistics Canada. (2023, January 6). Retirement age by class of worker, annual. https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1410006001
Payment Delinquencies Increase, Credit Card Demand and Balances are Rising. (2022, December). Equifax.com. Retrieved March 14, 2023, from https://assets.equifax.com/assets/canada/english/consumer-trends-q3-report-en.pdf
Statista. (2023, January 30). Average value of new mortgage loans Canada Q3 2021-Q3 2022, by metropolitan area. https://www.statista.com/statistics/1202954/average-value-of-mortgage-loans-canada-by-metropolitan-area/
Walker, A. (2022, October 19). Funeral Costs in Canada: Questions and Answers. https://eirene.ca/blog/funeral-costs-questions-and-answers
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