Life insurance highlights
- Life insurance is a contract between you and an insurer that provides a financial benefit to your named beneficiaries in the event of your death.
- In Canada, common policy types include term life, whole life and universal life, each with distinct features and uses. See the types section below for details.
- To protect your household fully, you might also consider home insurance, auto insurance, critical illness coverage and disability insurance depending on your needs.
A 2022 report from the Canadian Life and Health Insurance Association (CLHIA) indicates that about 22 million Canadians have some form of life insurance. A 2023 HelloSafe survey of more than 950 Canadians found the main reasons people buy life insurance are to protect loved ones financially, plan for retirement and help fund children’s education.
If you don’t yet have coverage, this guide explains what life insurance is, the main policy types, typical costs, and practical steps to find the right coverage in Canada.
What’s on this page?
- What is life insurance? How does it work?
- Do you need life insurance?
- How much life insurance do you need?
- What are the different types of life insurance? How do they compare?
- How much does life insurance cost in Canada?
- Life insurance add-ons and riders to consider
- How to find the best life insurance in Canada
- Is life insurance taxable?
- When should I get life insurance?
- Why shop for life insurance online?
- Do I need life insurance if I already have mortgage insurance?
- Is a medical exam required to get life insurance?
- Frequently asked questions about life insurance
What is life insurance? How does it work?
Life insurance is a contract between you and an insurance company. You pay regular premiums—monthly or annually—and, upon your death, the insurer pays a lump sum (the death benefit) to the beneficiaries you named in the policy. Beneficiaries can use that money in any way they choose.
The cost of coverage depends on factors such as the amount of coverage you choose, the policy type, your age, health and lifestyle. Typical uses for life insurance proceeds include covering funeral expenses, paying off outstanding debts (mortgage, credit cards, car loans), replacing lost income, funding children’s education, and leaving a gift to a charity.
Importantly, life insurance is intended to protect the financial well-being of your dependents and beneficiaries. It helps ensure they can maintain their standard of living and meet ongoing obligations after you’re gone.
Insurance providers and brokers can help tailor a policy so premiums and coverage align with your budget and long-term financial priorities.
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Do you need life insurance?
Not everyone needs life insurance. If you have no dependents, little debt and sufficient personal savings, you may not need it. To decide, ask yourself:
- Are you in a committed relationship?
- Do you have dependents (a partner, children, or parents who rely on you)?
- Do you have a mortgage and how many years remain?
- Do you have outstanding student loans or other debts?
- Would your family struggle financially without your income?
- Do you want to leave money to a charity or fund future large expenses?
- Are your children’s education savings sufficient?
- How much have you already saved?
If your answers suggest your loved ones would face financial hardship without you, it’s worth getting a quote. Many resources cover scenarios when life insurance is essential and when it may be less necessary.
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How much life insurance do you need?
Choosing the right coverage amount affects both the financial security of your beneficiaries and the cost of your premiums. While the average life insurance payout in Canada is around $200,000, many advisers recommend coverage equal to roughly 10 times your annual income as a starting point. The appropriate level depends on your personal situation.
The DIME method offers a straightforward way to estimate your needs. DIME stands for Debt, Income, Mortgage and Education. A simple formula:
LIFE INSURANCE AMOUNT = Outstanding debt + (Net annual income × years of income replacement) + Mortgage balance + Children’s education costs
Make a detailed list of assets (savings, registered accounts such as RRSPs or TFSAs, investments, and the resale value of property and vehicles) and liabilities (mortgage balance, car loans, credit card debt, funeral and estate settlement costs). Subtracting liabilities from assets will help you determine how much additional coverage your family may need.
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What are the different types of life insurance? How do they compare?
Life insurance in Canada falls into two main categories: term and permanent. Common policy types include:
- Term life insurance — coverage for a fixed period (10, 20 or 30 years). It is generally the most affordable option for most people.
- Term 100 — provides coverage up to age 100. Premiums are generally level until age 100, and coverage is considered permanent, though these plans typically do not accrue cash value.
- Whole life insurance — a permanent policy that lasts your lifetime and builds guaranteed cash value over time.
- Universal life insurance — permanent coverage that includes an investment component. Cash value and premiums can vary depending on investment performance.
Comparing major features
The table below summarizes key differences between policy types.
| Term | Term 100 | Whole | Universal | |
|---|---|---|---|---|
| Type of coverage | Term | Permanent | Permanent | Permanent |
| Coverage period | Fixed term (e.g., 10, 20 or 30 years) | For life (no premiums after age 100 in many plans) | For life (as long as premiums are paid) | For life (as long as premiums are paid) |
| Premiums | Fixed for the term; typically higher when renewed at older ages | Usually fixed until age 100 | Usually fixed | Can change over time within policy limits |
| Death benefit | Guaranteed and level during the term | Guaranteed and level | Guaranteed and level | May vary with cash value performance |
| Cash value | Usually none | Usually none | Guaranteed and grows over time | Depends on premiums and investment results |
Other differences include the ability to surrender a whole life policy for cash value, pay premiums early, or adjust universal life investments. Term policies typically end when premiums stop.
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How much does life insurance cost in Canada?
Life insurance premiums vary widely. Monthly rates can range from under $20 to several hundred dollars depending on the policy type, coverage amount, your age, health, and lifestyle. Quotes are individualized, so two people of the same age may receive different prices based on health history and coverage needs.
Below are example averages for a healthy 35-year-old seeking $500,000 in coverage (figures are illustrative and will vary by provider and personal circumstances):
| Policy type | Average male premium | Average female premium |
|---|---|---|
| Term life (10-year term) | $23 per month / $259 per year | $17 per month / $193 per year |
| Term life (20-year term) | $34 per month / $375 per year | $25 per month / $280 per year |
| Term 100 | $313 per month / $3,412 per year | $266 per month / $2,953 per year |
| Whole life | $338 per month / $3,751 per year | $287 per month / $3,194 per year |
To get accurate pricing, gather details about your assets, liabilities, desired coverage, and health history before requesting quotes. Age and health are major factors affecting premium levels.
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Life insurance extras: add-ons and riders to consider
Policies can be customized with riders and endorsements to better match your needs. Common options include:
- Child riders to add coverage for dependent children.
- Critical illness coverage that pays a lump sum if you are diagnosed with a covered serious illness.
- Short- and long-term disability riders or standalone policies to replace income if you cannot work.
- Conversion or waiver-of-premium options in certain circumstances.
If you are self-employed or have limited employer benefits, these add-ons can provide valuable protection. Review any group coverage offered by an employer to determine whether additional private coverage is needed.
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How to find the best life insurance in Canada
Before applying, decide whether you want term or permanent coverage and whether you need riders. Determine how much you can afford to pay in premiums and the amount your beneficiaries will need. Have documents ready to prove identity, income and address—examples include a driver’s licence, passport, pay stubs, and mortgage or lease statements.
When shopping, you can compare quotes directly from insurers, use an independent broker, or use an online comparison service. Brokers can present multiple options and explain differences in coverage and costs. Expect to answer health-related questions and, in many cases, to undergo a medical exam if needed for your chosen policy.
Once approved, premiums can usually be set up for automatic payment and your policy documents provided in digital or paper form.
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Is life insurance taxable?
Generally, life insurance death benefits paid to beneficiaries are not taxable as income in Canada. However, there may be estate-related fees and taxes—such as probate or costs associated with settling an estate—that reduce the net amount received. Planning with an advisor or arranging how benefits are paid can help minimize administrative and tax-related costs for beneficiaries.
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When should I get life insurance?
Many advisors suggest obtaining coverage as early as possible—especially if you have dependents or significant debts—because premiums are typically lower when you are younger and healthier. The primary goal is to protect your loved ones from financial strain after your death, and buying earlier can lock in lower rates.
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Why should I shop for life insurance online?
Shopping online makes it easy to compare products and rates from multiple companies. Aggregator sites and online brokers can quickly show options across providers, helping you find competitive prices and suitable coverage without visiting multiple offices.
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Do I need life insurance if I already have mortgage insurance from my bank?
Mortgage life insurance is designed to pay off the mortgage balance if you die and the lender usually receives the proceeds. It differs from standalone life insurance because it typically only covers the mortgage and may not be portable if you change lenders. A personal life insurance policy offers more flexibility and control over beneficiaries and how funds are used.
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Do I need a health exam to get life insurance?
No—some policies are available without a medical exam, often referred to as “no medical” or simplified issue policies. These can be convenient but may cost more than fully underwritten policies. Many insurers offer different application paths depending on coverage level and your health profile, so compare options to find the best balance of cost and convenience.
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Frequently asked questions
What does life insurance cover?
Life insurance does not dictate how beneficiaries must spend the payout. Common uses include paying funeral expenses, settling outstanding debts (mortgage, loans, credit cards), covering ongoing household bills and replacing lost income so dependents can maintain their standard of living.
What is the average amount of life insurance in Canada?
The average Canadian life insurance policy pays out about $200,000, though many advisers recommend coverage closer to 10 times your annual income. The right amount depends on your personal finances, dependents and future obligations.
What is the average cost of life insurance in Canada?
Average monthly premiums range from under $20 to several hundred dollars, depending on coverage amount, policy type, your age, health and lifestyle. Age and medical history are significant factors in the quote you receive.
Read more about life insurance:
- Term vs. whole life insurance: Which type of policy is best?
- How does age affect life insurance rates?
- Can you sell a life insurance policy in Canada?
- What is a beneficiary?
- What is a viatical settlement?