Is Life Insurance worth it in Canada? Explained with examples
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Discover the methodologyLife insurance is one of the most important financial tools available to Canadians. It offers peace of mind and financial protection for your loved ones, ensuring they won’t face financial hardship if you pass away unexpectedly. But is life insurance worth it for everyone? Is term life insurance worth it? Or should you go for a permanent life option? This guide breaks it down for you.
Is Life Insurance Worth It in Canada? Key Points
- Term Life Insurance: Worth it for young families or those with temporary financial obligations.
- Whole Life Insurance: Worth it if you want lifelong coverage and a savings component.
- Universal Life Insurance: Worth it for flexibility and investment opportunities.
- Permanent Life Insurance: Worth it for long-term financial planning and estate transfers.
Why is Life Insurance worth it in Canada?
Life insurance provides a safety net for your family by covering expenses like mortgage payments, childcare, debts, or final costs. In Canada, life insurance is especially valuable because it:
- Offers tax-free payouts to beneficiaries.
- Provides financial stability during uncertain times.
- Covers large expenses like funerals or estate taxes.
For example
If you’re a 35-year-old parent with a $400,000 mortgage and young children, a $500,000 term life policy can protect your family financially if you pass away unexpectedly, covering the mortgage and providing extra funds for their future.
Types of Life Insurance in Canada: Which is worth it for you?
There are several types of life insurance in Canada, each designed to meet different financial needs. Let’s break the main types down:
1. Is Term Life Insurance worth it?
What It Is:
Term life insurance provides coverage for a specific period, such as 10, 20, or 30 years. If you pass away during the term, your beneficiaries receive a tax-free lump sum.
Why It’s Worth It:
- Affordable premiums compared to permanent policies.
- Ideal for covering temporary financial obligations like mortgages or raising children.
For example
You’re 30, recently married, and have a $300,000 mortgage. A 20-year term policy for $400,000 costs around $25/month. This ensures your spouse can cover the mortgage and maintain their lifestyle if you pass away.
Best For: Young families or individuals with specific financial obligations that won’t last forever, such as loans or dependents.
Check out our guide on term life insurance to learn how it works, the costs, pros and cons, and compare the best policies using our free tool.
Compare the top term life insurance options today
2. Is Whole Life Insurance worth it?
What It Is:
Whole life insurance is a type of permanent life insurance that provides lifelong coverage and builds cash value over time.
Why It’s Worth It:
- Guaranteed death benefit for your family.
- Cash value grows tax-deferred and can be borrowed or withdrawn.
- Useful for estate planning and leaving a legacy.
For example
At 45, you purchase a $100,000 whole life policy for $250/month. By the time you’re 65, the policy accumulates $50,000 in cash value, which you can borrow for retirement or emergencies, while your family still receives the death benefit.
Best For: Individuals with long-term goals, like leaving an inheritance or funding retirement, and those who want lifelong protection.
If you think whole life insurance is the right choice for you, check out our guide on the best whole life insurance in Canada for detailed information on how it works, coverage, pros and cons, costs, and more.
When is permanent life insurance worth it?
Permanent life insurance is worth it if you need lifelong coverage, want to leave a legacy, cover estate taxes, or build savings. While it’s more expensive than term life insurance, it offers flexibility and long-term financial security that can benefit you and your loved ones. Always consult a financial advisor to determine if it aligns with your goals and budget.
3. Is Universal Life Insurance worth it?
What It Is:
Universal life insurance, a type of permanent life insurance, offers lifelong coverage with a cash value component that grows through investments. It allows you to adjust premiums and death benefits over time.
Why It’s Worth It:
- Flexibility to change premiums and coverage as your needs evolve.
- Investment options to grow your cash value.
For example
You’re 40, an entrepreneur with a fluctuating income. You purchase a universal life policy and invest part of your premiums in market funds. During slower business months, you lower your premiums while maintaining coverage.
Best For: High-income earners or individuals seeking a flexible policy that combines insurance with investment opportunities.
Expert advice
Term life is ideal for affordable, temporary coverage, while permanent options like whole or universal life are best for lifelong needs and cash value growth. Assess your goals and budget to choose the right policy. A financial advisor can help tailor the best plan for your situation. Or use our free tool below to get free, personalized quotes for all kinds of life insurance policies.
Compare the best life insurance companies
How to decide if Life Insurance is worth it for you?
Ask yourself these questions:
- Do you have dependents? If yes, life insurance ensures their financial security.
- Do you have large debts like a mortgage? Life insurance can prevent your family from taking on this burden.
- Are you planning for retirement or estate transfers? Permanent policies help with wealth transfer and tax planning.
- Do you need temporary or lifelong coverage? Term insurance is great for short-term needs, while permanent insurance is better for lifelong goals.
Is Life Insurance worth it for Seniors in Canada?
Life insurance can be a smart decision for seniors in Canada, depending on their financial goals and circumstances. While premiums are higher with age, they can provide much-needed financial security for your loved ones in specific situations. Below, we break down when life insurance is worth it for seniors, the associated costs, and how different types of insurance can help.
1. Covering Final Expenses
Funerals in Canada cost between $5,000 and $15,000, depending on the services chosen. For many seniors, this can be a significant financial burden to leave behind, especially if savings are limited.
- Insurance Option: Simplified issue or guaranteed issue life insurance is ideal for covering final expenses. These policies don’t require medical exams and are quick to approve. Coverage amounts range from $10,000 to $50,000, specifically designed for end-of-life costs.
For example
A 70-year-old purchases a $25,000 guaranteed issue policy for $100/month. This ensures their family can cover funeral expenses, legal fees, and other related costs without stress.
2. Paying Off Debts
Seniors with debts, such as a mortgage, car loan, or credit card balance, risk passing these obligations to their loved ones. The average household debt in Canada is $21,000 (excluding mortgages), and mortgages can add hundreds of thousands more.
- Insurance Option: Term life insurance is the best choice for temporary obligations like loans or mortgages. It provides higher coverage at lower premiums, typically ranging from $100 to $200/month for seniors.
For example
A 65-year-old with a $100,000 mortgage balance secures a 10-year term policy for $100/month. This ensures their spouse can pay off the mortgage if they pass away unexpectedly.
3. Leaving an Inheritance
Many seniors wish to leave a financial legacy for their children or grandchildren. Life insurance provides a tax-free lump sum to heirs, which can be used for education, starting a business, or other future needs.
- Insurance Option: Permanent life insurance, such as whole or universal life, is ideal for leaving an inheritance. Coverage amounts range widely, with premiums starting at $200/month for $50,000 of coverage.
For example
A 75-year-old purchases a $50,000 whole life policy for $250/month. This ensures their grandchildren receive a tax-free inheritance to support their future, such as university tuition, without depleting other family resources.
4. Covering Estate Taxes
In Canada, there is no direct inheritance tax, but significant assets like cottages, investments, or rental properties may incur capital gains taxes. For example, the tax on a $500,000 cottage could reach $100,000 or more, depending on its appreciation.
- Insurance Option: Universal or whole life insurance can provide the liquidity needed to cover estate taxes, ensuring heirs keep their inheritance intact.
For example
A senior with a $500,000 cottage purchases a $100,000 permanent life insurance policy for $300/month. Upon their passing, the death benefit covers the capital gains taxes, allowing their family to retain the property.
5. Replacing Lost Income
If seniors are still earning income through work, pensions, or a business, their passing can create financial hardship for dependents. Replacing lost income helps ensure their loved ones maintain their standard of living.
- Insurance Option: Term life insurance is a cost-effective way to replace income for a set period. For lifelong income replacement, whole life insurance is better suited.
For example
A 68-year-old entrepreneur purchases a $250,000 term life policy for $150/month. If they pass away, the payout provides their spouse with funds to cover living expenses and maintain financial stability.
Other types of Life Insurance to consider
Is Mortgage Life Insurance worth it?
Mortgage life insurance ensures your mortgage is paid off if you pass away, protecting your family from losing their home. While this sounds helpful, it has limitations compared to term life insurance.
For example
- You buy a $300,000 home with a 25-year mortgage and mortgage life insurance. If you die 10 years later with $200,000 remaining on the mortgage, the insurance pays only the balance directly to the lender.
- With term life insurance, your family receives a lump sum of $300,000 (or the coverage amount you choose). They can use the payout for the mortgage or other needs, like education or daily expenses.
Key Considerations:
- Flexibility: Term life insurance offers more freedom since your family decides how to use the payout.
- Cost: Mortgage life insurance premiums often stay the same, even though the coverage amount decreases as you pay down your mortgage.
- Recommendation: Term life insurance is usually a better choice for broader coverage at a similar cost.
Is Critical Illness Insurance worth it?
Critical illness insurance provides a tax-free lump sum if you’re diagnosed with a covered illness, such as cancer, a stroke, or heart disease. This payout helps cover treatment costs, lost income, or lifestyle changes during recovery.
For example
You’re 45, diagnosed with a heart attack, and your critical illness insurance pays $100,000. You use $20,000 for advanced treatments not covered by public health care, $30,000 to replace lost income during your recovery and save the rest for future needs.
Key Considerations:
- Benefits Beyond Health Insurance: Public or workplace health plans may cover basic medical costs, but critical illness insurance gives you financial flexibility for non-medical expenses, like paying your bills or hiring help.
- Cost: Premiums depend on age, health, and the coverage amount. For example, a healthy 35-year-old might pay $20–$40 per month for $100,000 in coverage.
- Recommendation: Critical illness insurance is valuable if you want extra financial security during recovery, especially if your savings or benefits are limited.
Both mortgage life insurance and critical illness insurance serve specific needs but should be chosen based on your financial situation, family responsibilities, and long-term goals. Consulting with a financial advisor can help you decide what’s best for you.
How can I buy a life insurance policy that works for me?
If you’re ready to purchase life insurance, here is how:
- Compare life insurance quotes from many providers at once through our website. Get started now right here using our comparator in the earlier sections of this page.
- Directly from the insurer. If you’re confident you know how much insurance you need and the best policy for you, you can purchase directly from the insurer.
- Online. Many insurers make it easy to compare quotes over the Internet, which allows you to shop around for a policy that fits your needs and your budget with minimal paperwork or time investment.
- Through a broker. If you’re struggling to navigate the process of choosing a policy and collecting documents for an application, an insurance broker or agent can help - and maybe net you a discount. Be aware, however, that each agency has its own relationship with an insurer: visiting a life insurance agency in Vancouver might not produce the same quotes as if you were buying life insurance in Toronto.
You can start by comparing personalized quotes from the best life insurance companies right here using our free tool below. It's completely online and you can get instant results.
Compare the best life insurance companies
FAQs on Life Insurance
Yes, life insurance is worth it if you have dependents or financial obligations. It ensures your loved ones are financially secure by covering debts, funeral costs, or income replacement in the event of your death.
You may need life insurance if you have dependents, a mortgage, or other debts that would burden your loved ones after your death. If you're financially independent with no dependents, it may not be necessary.
Costs vary by type, coverage, age, and health. For example, a 30-year-old non-smoker might pay $25/month for $500,000 in term life insurance coverage.
Life insurance can be expensive, especially for permanent policies with cash value. If you don’t choose the right coverage or outlive the term policy, you might pay premiums without seeing a return.
Life insurance can be a good financial tool but isn’t a traditional investment. Permanent policies with cash value can grow savings tax-deferred and provide flexibility, but they’re not ideal if you’re solely looking for high returns.
