Is Life Insurance Worth It? 2024 guide
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If you're pondering the question, "Is life insurance worth it?" you're not alone. The idea of monthly premiums and contemplating the inevitable can be uncomfortable, leading some to rely solely on good health and financial planning.
Neglecting life insurance could leave a significant financial gap. It's more than just numbers—it's about securing the future for your loved ones, whether it's your children, spouse, or disabled relatives. Life insurance acts as a vital safety net for their well-being in your absence.
So, here's our guide on why it's critical to have life insurance. Once you're convinced, you can compare the best life insurance plans in Canada, get free quotes, and find a policy that suits you best right here using our comparator.
Is life insurance worth it? 5 Key Takeaways
- Financial Protection: Life insurance provides crucial financial support for dependents.
- Early Purchase Advantage: Buying young means lower premiums and longer investment growth.
- Policy Options: Term for immediate needs, whole for long-term wealth growth.
- Universal Flexibility: Tailored coverage with investment, tax, and premium flexibility.
- Seniors Consideration: Even for seniors, life insurance aids financial dependents and planning.
Is life insurance worth it?
Life insurance is worth it for anyone with financial dependents. Whether you’re 55 or 25 a good policy provides the peace of mind that your family has financial protection in the case of your unexpected passing.
When considering whether life insurance is worth it for you and your loved ones, it’s important to remember the different ways your life insurance beneficiaries might use the policy value to navigate uncertain times.
Life insurance payouts can cover the following:
- Income replacements for your family
- Mortgage payments
- Living expenses
- College tuition
- Estate taxes
- Debts
- Funeral costs.
For many term life insurance is enough. For others, it may be worthwhile to purchase permanent life insurance as a means of growing wealth. Life insurance as an investment is possible in Canada, and some people may benefit from policies with a tax-free cash savings component. Others with significant legacies might purchase a policy to cover estate taxes owed by their heirs. We'll explore both in more detail below.
Find a life insurance policy that's right for you and your loved ones right here. Use our comparator below to compare the best life insurance plans in Canada and get personalized quotes in seconds.
Compare the best life insurance companies
What happens if you don’t have life insurance?
The consequences of declining to purchase life insurance can range from inconvenient to disastrous.
- The average cost of a funeral in Canada ranges from $10,000 to $20,000. If you pass unexpectedly and don’t have life insurance, your loved ones will need to dip into their savings to ensure you receive a proper cremation or burial.
- If you’re the primary source of financial support for dependent children, the absence of life insurance places them at risk of severe financial hardship in the event of your untimely death. In addition to coping with the loss of a primary caregiver, your children may be forced to move out of the family home, change schools, or adapt to a radically different standard of living unless their other parent or caregiver can replace your income on short notice.
- Likewise, if you’re the adult caretaker of a dependent parent, life insurance ensures that your relative won’t suffer an interruption in care or diminished quality of life if you should predecease them.
- Finally, a life insurance policy protects your adult family members from shouldering the cost of your medical treatment or end-of-life care. Even with health or disability insurance, hospital and hospice bills can quickly exceed even the most generous legacy, leaving your loved ones financially responsible once you’re gone.
When is life insurance worth it?
In general, the earlier you purchase life insurance, the more you’re likely to benefit. Buying a policy when you’re young and in good health can mean lower premiums. In the case of policies with a cash savings component, you get more time for your investment to grow.
Let’s look at a few examples:
- Brianne is 27, single, and in excellent health. Nevertheless, Brianne purchases a 30-year convertible life insurance policy through her employer and names her sister the beneficiary. Due to her age and her healthy lifestyle, she pays far less in premiums than her co-workers, many of whom waited until their mid-30s to buy life insurance. Should she later have financial dependents, Brianne can always change the beneficiary of her policy by contacting her insurer.
- Brian is 22 and will welcome his first child just a few months after graduating from university. He’s currently job searching, and he purchases a 20-year renewable term life insurance policy with low monthly premiums to protect his daughter in the event of an unexpected illness or accident. Later, once he’s found employment, Brian can purchase an additional policy for more coverage.
- Gurmeet is 33 and recently sold the company he founded for a considerable sum. As part of his long-term financial planning, his accountant suggested that he purchase whole life insurance. Not only does the generous benefit ensure that his family can maintain their standard of living should something unfortunate occur, but the cash savings value of the policy allows him to grow wealth, tax-free.
Regardless of your age or investing goals, the right time to purchase life insurance is the moment another person becomes financially dependent on you.
Who needs life insurance?
If you’re young and healthy with no dependents, you may be able to delay purchasing a life insurance policy for a few years. That said, even people in their 20s may have serious financial obligations that make buying life insurance a sensible choice.
For those with additional expenses, such as a mortgage, or financial dependents, life insurance is an essential tool for protecting loved ones and providing peace of mind. If you have student loans, for example, or credit cards for which your parents co-signed, a life insurance payout means they won’t need to dip into savings to pay your debt or funeral expenses.
Even senior citizens with ample retirement savings can benefit from life insurance policies designed exclusively to cover the cost of a funeral and manage estate taxes.
How much life insurance do I need?
The question of “How much life insurance do I need in Canada?” is a personal one, and the answer will vary depending on your financial circumstances and family obligations. A young woman with no children, for example, will likely need less insurance than a 40-year-old man with three dependents.
Expert advice
A good place to start exploring how much life insurance you need is with our life insurance calculator.
When determining how much life insurance to purchase, think first about the expenses your benefit will need to cover. Typical concerns might include mortgage payments, medical insurance premiums, tuition payments and monthly bills. You’ll also want to consider funeral expenses and estate taxes.
Next, consider your existing cash savings and any existing life insurance policies, college savings accounts or retirement accounts. Subtract this amount from your estimated obligations for an idea of how much life insurance you’ll need to protect your loved ones and their future.
If this feels overwhelming, you can also try the DIME method for estimating your life insurance needs. Add up your Debts and other fixed expenses, as well as funeral costs. Multiply your annual Income by the number of years remaining until retirement. Calculate the amount needed to pay off your Mortgage and fund a college Education for your children. The total should give you a well-rounded view of what your family needs to stay financially stable.
Example of how much life insurance you need
Good to know
Christine is 45 with two children. She currently makes $150,000 per year as a sales executive and owns a home with her husband outside of Toronto. When Christine initially purchased life insurance, she was a stay-at-home parent. Now that she’s returned to work, she’d like to purchase additional coverage that reflects her income.
- Debt: Christine has $10,000 in student loans from her MBA and estimates it would cost $15,000 for an appropriate funeral.
- Income: Christine makes $150,000 per year and has always intended to retire at age 65. She estimates her remaining lifetime income at $ 3 million.
- Mortgage: Christine and her husband purchased their home 20 years ago and have diligently kept up with mortgage payments. They have $100,000 left to pay.
- Education: Assuming both of her children decide to attend four-year colleges in Canada, they will need around $30,000, each, to cover tuition.
Christine will need around $3.2 million in life insurance to ensure her family would suffer no financial hardship should she die unexpectedly.
Is term life insurance worth it?
Term life insurance is recommended for people with financial dependents like a child, parent or spouse. It offers several benefits over permanent life insurance, including flexibility and lower monthly premiums. That makes term coverage an attractive option.
Here are some situations where term life insurance could help your beneficiaries.
- Paying the mortgage on your family home
- Caring for dependents including a spouse or children
- Covering university tuition for your children
- Paying for full-time childcare
- Repaying debts
If you’ve already made investments in a Registered Retirement Savings Plan to cover your expenses once you stop working and are primarily concerned about replacing your income until retirement, a term life insurance policy may be the ideal choice.
Let's look at a couple of examples:
For example
Gene is 45 years old and earns $90,000 a year. He and his wife have fully paid up retirement savings plans and college tuition funds for their teenage children, but he’d like to purchase life insurance to replace his income should he pass unexpectedly before reaching retirement. A 20-year term life insurance policy will carry lower premiums than permanent life insurance and protect his family’s standard of living.
Parents who serve as primary caregivers may also find term life insurance the best way to protect against unexpected expenses.
For example
Carrie is currently pregnant with her first child. She and her partner agree that Carrie will be a stay-at-home parent for the first several years. After reviewing the cost of childcare in their area, Carrie purchases a 10-year term life insurance policy to cover the expense of private daycare should she pass away unexpectedly.
Term life insurance is often the cheapest life insurance available. It is a nice option for individuals unable to more expensive permanent life insurance options.
Is life insurance taxable?
So, it's common to wonder if life insurance is taxable. In Canada, the death benefit received from a life insurance policy is generally tax-free. This means that when the policyholder passes away, the beneficiaries typically do not have to report the insurance payout as income on their tax returns.
However, it's important to note that any interest or investment income generated within certain types of life insurance policies, such as whole life or universal life insurance, may be subject to taxation. Consulting with a tax professional is advisable for personalized advice on your specific situation.
Is whole life insurance worth it?
Despite higher premiums, whole life insurance is a worthwhile investment. It can give you great peace of mind that your dependents will be okay when you are no longer around. People who could benefit from a whole life insurance policy include:
- High-net-worth individuals: A whole life insurance policy can help you to defer taxes while maintaining access to the policy’s cash surrender value.
- People who want to save for retirement: A whole life insurance policy's cash savings can help you set aside money for later.
- People with a substantial legacy. The benefit associated with a whole life insurance policy can be used by your beneficiaries to offset inheritance.
Whole life insurance policies enjoy the following advantages vs term life policies:
- No term limit: Because they don't expire your loved ones are guaranteed to receive life insurance benefits provided that you continue to pay premiums.
- Fixed premiums: While whole life insurance is more expensive than term, the security of knowing that your premiums are locked in makes financial planning easier.
- Cash surrender value (CSV): The cash savings accumulated over time in a whole life insurance policy can play an important part in your retirement planning. You gain financial flexibility to withdraw money early too. This can be valuable in an emergency or as a downpayment on a mortgage.
- Dividends. Many whole life insurance policies pay cash dividends. They can be reinvested in the policy or go towards premiums.
Is universal life insurance worth it?
Depending on your investment needs and beneficiaries, universal life insurance may be the right choice for you. These policies offer permanent coverage with the added advantages of flexible investment, tax-sheltered growth and premium flexibility.
However, if you'd prefer a less expensive choice and only require coverage for a certain period, you may look into other possibilities, like term life insurance. Whole life insurance offers simpler coverage without having to worry about the performance of your investments.
From an investment perspective, RRSP and TFSA accounts also offer tax advantages.
What are the best life insurance companies in Canada?
Determining the best life insurance company in Canada depends on individual needs, including factors like coverage preferences, budget, and health considerations. Some prominent insurers in Canada include Manulife, RBC, Equitable Life of Canada, Ivari, Sun Life Financial, and Canada Life.
It's advisable to compare policies to find the most suitable option for your unique circumstances. You can do it using our comparator below. Enter what you're looking for in quick and easy steps and voila get over 20 free life insurance quotes in no time right here.
Compare the best life insurance companies
Is life insurance worth it for seniors?
There are situations where life insurance is worth it for seniors in Canada. It is particularly worthwhile for those who still have financial dependants. Seniors may wish to purchase coverage to pay for:
- Debt: Life insurance is a great financial tool for covering large debts like a mortgage payment that you don’t wish to pass along to your beneficiaries.
- Final expenses: Unfortunately funerals are expensive in Canada. Life insurance can make sure that those you leave behind can respect your wishes and foot the possible $10,000+ in funeral expenses.
- Help dependants: if your spouse, adult children or others still depend on you financially, life insurance coverage can make sure that they’re well taken care of.
Be aware that life insurance for seniors is not universally available. It can be prohibitively expensive and many policies are simply unavailable after a certain age.
Watch out!
It is worth noting that policies typically have a two-year contestability period for benefits. If you’re already in ill health you may prefer to speak with a financial advisor to better understand your options.
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.
