What Does Life Insurance Cover in Canada? (List of Typical Expenses)

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What does life insurance cover in Canada? Well, if we're talking term life insurance, it can cover whatever you want!

The following is a list of expenses term life insurance could cover if you, the policyholder, were to pass away unexpectedly during the length of your policy's term. But first, let's get a little more context.

What does life insurance cover in Canada?

The payout from term life insurance can be used however your beneficiaries want. There are no restrictions.

Compare this to typical Canadian mortgage life policies, which will just pay off your mortgage if you pass away during your term length,

Your beneficiaries receive the death benefit as one lump sum, tax-free, which they can spend as they wish.

Typically, life insurance is used to cover:

  • Everyday expenses like groceries, gas, monthly bills etc.
  • Housing costs like a mortgage or rent
  • Childcare
  • Outstanding debt like credit card balances, car loans, business loans or student loans
  • The surviving partner's income, so they can take time off work
  • Your children's education, whether that's private school or college
  • Continuing education for your partner
  • Burial expenses

How much your beneficiaries can spend all depends on how much life insurance you need and how much life insurance you actually buy.

A $1M payout will cover a lot more than a $100,000 payout. That said, the more coverage you buy, the more expensive the monthly premium. Our post on how much life insurance costs in Canada can answer your pricing questions or get a quote from us online in seconds.

Here's what life insurance can cover, and what's it's typically designed to cover, if the policyholder passes.

1. Life insurance can cover your children’s expenses

You don’t need us to remind you that your kids are completely dependent on your income—your credit card bills speak for themselves! As a result, kids are the first thing most people think about when buying life insurance. It makes sense that parents want to be sure that their kids will be safe and that their expenses (for example, shelter, food, and clothing) will be covered if anything happened to them. That’s why having kids is usually what prompts people to buy life insurance in the first place.

Life insurance in Canada should typically cover your children’s expenses until they’re financially independent.

2. Life insurance can cover your partner’s expenses

Most couples save for retirement together. This means both you and your partner put your income towards having the money you need to live a happy retirement (hopefully one that includes a few trips somewhere warm during the winter!).

But if you die, your spouse may have to put most of their monthly earnings towards paying bills, which will leave less money to save for retirement. It’s easy to believe that if you’re no longer alive, your family’s expenses will drop dramatically. But the reality is that many expenses in a marriage don’t decrease by 50% with the loss of one income earner. These include your mortgage payments, property tax, children’s expenses, and much more.

Your life insurance should protect against this loss in retirement savings. In other words, it should ensure that your spouse can still live the retirement they had hoped for if you are no longer around.

3. Life insurance can cover any outstanding debts

Leaving your family with outstanding debts (like a mortgage) can be a big burden on them. After all, most couples take on a mortgage believing that both people will help make monthly payments. So if your income vanishes overnight, your family may be forced to move.

Any good life insurance advice will factor in your debts. This will ensure your family can keep making monthly payments even if you aren’t around to contribute anymore.

4. Life insurance can cover unique needs, such as elder dependents

Good life insurance advice should also consider any unique needs you have. For example, maybe you’re covering the cost of a caregiver for an aging parent. Or maybe you want to support your kid through their undergraduate program in university. If your current income allows you to cover these expenses, your life insurance should too.

You can also learn more about what life insurance doesn't cover.

How can I know what life insurance should cover?

It's important that your life insurance is designed to cover you family's specific financial needs, whether that's covering the mortgage or having money for your kids' college fund.

Considers your needs carefully so you get the right amount of coverage and you don't run into one of two big problems:

  • You leave your family with much less than they need, which means you have too little life insurance.
  • You're struggling to save for retirement because you have too much life insurance and your monthly premium is too high.

That’s why giving you the right life insurance advice is so important to us here at PolicyMe. We want to simplify what is life insurance for all Canadians, because life insurance shouldn't be scary.

Our life insurance advice tool asks about all the major expenses your family could encounter. Then we recommend a life insurance coverage amount (payout to your beneficiaries) and term length that’s right for you.

Our advice tool is 100% online, takes minutes and has no obligation. Still, if you want to talk to someone, our licensed, Canada-based advisors are available seven days a week to talk via phone, chat and email.

Recommended reading: Do I Need An Individual Life Insurance Policy if I'm Single and Childless?

Bronwyn Kienapple

Director of Content Marketing

About the Author

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