Is life insurance worth it for the average Canadian family? The answer will depend on your specific financial situation; but don't worry, we do give you a straight answer and some honest advice.
We spell out when you need life insurance, and when you don’t, with real-life examples to help you decide.
Life insurance is worth it for Canadians that have someone in their lives that’s dependent on their income.
Would your loved ones be able to provide for themselves if you passed away? If not, it’s worth considering life insurance.
The death benefit your family would receive is significantly more than the premium payments needed to maintain your coverage.
If you pass, life insurance provides a lump sum of cash to your dependents.
This money can be used for anything, including:
The reality is that some people genuinely need to invest in life insurance, while others can forget about it (for now). There’s no one-size-fits-all answer to this question.
The point of life insurance is to help your family or other loved ones cope with the financial effects of your passing. This could be your premature passing (term life insurance) or your death at any time (permanent life insurance).
Life insurance can help with the following financial needs:
As personal finance author Dave Ramsey puts it:
Life insurance is a super important part of protecting your family with a long-term financial plan in case anything happens to you. The purpose of life insurance is to replace your income for your family if you die.
You need life insurance if someone in your life depends on your income, so they'd have financial protection if something happened to you.
Here's who needs life insurance:
Coverage is a good idea for anyone with substantial financial obligations; the case for many Canadians.
For example, a family with young children could benefit from having a life insurance policy in place. The loss of income from the death of a parent would have a financial impact on the remaining family members to cover things like a mortgage, outstanding debts, living expenses, childcare costs, etc.
If you're among those listed above, you might be in a life situation where having a policy to help your beneficiary(ies) with a life insurance payout.
You really do need life insurance if you have anyone who depends on you financially, such as a spouse or partner, minor children, permanent dependents like disabled children, elderly parents or a business partner.
These people depend on you financially and if you were to pass away, they might face losing their home, financial stress or a decline in standard of living.
Having a life insurance policy means your dependents have financial security if they need it. This can look like:
The Globe and Mail's personal finance columnist Rob Carrick puts it best:
What would happen to your family if you died suddenly? If you have an up to date will and term life insurance, you can be confident you’ve done your best to provide an answer.
Ready to get term life insurance? PolicyMe offers some of the most affordable rates in Canada, and it takes 20 minutes to apply online (on average).
You likely don't need life insurance if you're single, have no one who depends on you financially, don't have big debts, have significant wealth built up or own a business or real estate that can be liquidated.
In all of these cases, no one is likely to suffer financially if you passed away. There's plenty of money in the bank, no big loans to pay off, assets that can be converted into cash or there's no one who needs your money. Which means you don't need life insurance.
Even if you do have dependents, if you have sufficient financial assets like savings and investments, you probably don't need life insurance.
That said, you'll need to make sure your assets will cover all your future obligations, without your financial support over the years if you weren't there to contribute.
This means no money going into retirement or post-secondary education savings. No money going towards the mortgage. Unsure of how much your future family will need? Try our free life insurance calculator.
But what type of life insurance is most worth it for the average Canadian?
Term life insurance is likely worth it for the average Canadian that needs life insurance.
As the Canadian Life and Health Insurance Association explains it, “Term insurance provides cost-effective, temporary coverage over an insured's younger years.”
It’s affordable protection for a fixed period of time – 10, 20 or 30 years – until you anticipate no longer having dependents or significant debts.
Why a term life policy? Generally, your financial responsibilities will have an end date. Your kids won’t depend on you financially once they grow up. Eventually, you’ll have paid off your mortgage and debts. You’ll also be building up savings and investments during your prime earning years.
Term policies give you just the life insurance coverage you need, so you don’t spend more than you have to.
Want to know how much a term life insurance policy will set you back, month to month? It might be less than you think. PolicyMe has some of the most affordable term policy rates in Canada.
Whole life insurance is probably not worth it for the average Canadian family. The premiums for any type of permanent life insurance policy, whether whole or universal, are costly, up to 4-5x what you’d pay for a term policy.
And if you were about to ask if universal life insurance is worth it, unfortunately the answer for that is also "probably not, if you're like 98% of Canadians."
Many whole life insurance or universal life insurance policies have a cash value component or investment option which may seem attractive. But they’re funded by the unnecessarily high premiums you’d pay.
That money is locked into your policy with limited flexibility for withdrawal, and you risk forfeiting your coverage if you’re unable to continue your payments.
Needless to say, this is not the case for most Canadian families.
You’d be better off paying into a more affordable term insurance plan and investing the rest of your funds on your own. You will have more control over how the money is managed and also be able to choose how and when to use the funds.
This chart gives you a quick visual of how permanent compares to term life insurance paired with investment, when it comes to growth and returns.
An employee (or group) life insurance policy might be worth it for you. But remember that these voluntary life insurance policies usually only pay out the equivalent of about 1-2x your annual salary; likely not even enough to pay off your remaining mortgage. And if you leave your job, your coverage ends.
A term life insurance policy, which can cover your mortgage, debts, and your family’s current and future expenses, is a better bet.
That said, any coverage is better than none at all. If you can't pay the premiums of a more robust policy, you shouldn’t skip getting life insurance altogether. A policy you can afford, even if it's with a smaller payout, will still help to protect your family.
The best age for you to get life insurance is when you have a dependent, whether it’s your children, spouse or other family members. For most people, this is when they get married or start having kids.
We know what you’re thinking: “But I just got a mortgage, and kids aren’t cheap! How am I supposed to afford life insurance?”
But the benefit to getting life insurance at a young age is that your life insurance premiums will be much more affordable.
It’s wise to lock in a low monthly rate when you’re young because it’ll stay at that price for the entire term of your policy.
But what if you’re older? Is life insurance worth it for seniors?
For those in their 50s or 60s, term life insurance premiums will be higher than they would be for those in early or mid-adulthood. But if you have debts and family members dependent on your income, it's worth looking into a life insurance policy, despite the higher cost.
The table below shows the differences in the estimated monthly premium cost for an adult man by age. Securing a life insurance policy early can mean significant savings for the same length of coverage.
Term life insurance premiums are significantly more affordable in early to mid-adulthood; a great reason to lock it in early if you can.
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?
Certified Life Insurance Advisor, Tobin Tuff, shares his recommendations below.
1. Real-life example #1 - Elena, 31 and Feng, 33, in Burnaby, BC
"Elena and Feng need life insurance: if one of them were to pass away, the other would not be able to afford the daily expenses and the mortgage payment every month."
Read more about mortgage life insurance here.
Real-life example #2 - Nicolette, 37 and Stefan, 38, in Montreal, QC
"Nicolette and Stefan need life insurance: both their incomes are necessary to support the two kids and their living expenses."
Read more about life insurance for couples here.
Real-life example #3 - Matt, 20, in London, ON
"Matt doesn’t need life insurance: he doesn’t have people that count on his income to make ends meet."
Read more about life insurance in Ontario.
Real-life example #4 - Asma, 33, in Calgary, AB
"Asma needs life insurance: if she passes, her mother would need to continue payments for the condo and pay for Asma’s funeral expenses. This is a burden Asma does not want to leave behind for her mom."
Read more about life insurance in Alberta.
Real-life example #5: Laila, 24, in Regina, SK
"Laila probably doesn’t need life insurance: she has no debts or dependents."
Real-life example #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."
Real-life example #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."
Do any of these scenarios ring a bell? You can see how much a life insurance policy might cost you in a few minutes, no commitment required.
Is life insurance worth it? Everyone will have a different answer for why life insurance matters to them. If you were to pass, your family deserve the peace of mind knowing the finances will be taken care of. And having this peace of mind may be less pricey than you think.
Learn more at: What is Life Insurance? Everything You Need to Know
Life insurance is a good 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 passed 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 than 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.
Learn more: Is Critical Illness Insurance Worth It?