Different types of life insurance in Canada: 2024 guide

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Alexandre Desoutter updated on 1 December 2023

Applying for life insurance but feeling confused by all the different types? Can't tell your term life insurance from your whole life insurance?

Never fear! HelloSafe has put together this guide to all of the varied kinds of life insurance and associated insurance policies that you can bookmark for reference.

If you're unsure what kind of policy you need, you can use our free comparator and quickly compare the best life insurance plans, get free personalized quotes, and find the perfect plan for you.

Types of life insurance Canada: 5 key takeaways

  • Life insurance breaks down into two main types: term and permanent.
  • Term life insurance covers a specific length of time and is a more affordable option. 
  • Permanent life insurance doesn't have a specific term limit. 
  • Whole life insurance guarantees a payout when the policyholder passes away.
  • Universal life insurance guarantees a payout too, but the amount depends on investments.

What are the different types of life insurance Canada?

In Canada, there are several types of life insurance policies tailored to meet diverse financial needs. Term life insurance provides coverage for a specified term and is often more affordable, while whole life insurance offers lifelong protection with a cash value component that grows over time.

Universal life insurance combines a death benefit with investment options, allowing policyholders to build cash value and adjust premiums. Critical illness insurance pays a lump sum upon diagnosis of a covered illness, offering financial support during challenging times.

Finally, participating life insurance involves policyholders sharing the insurer's profits through dividends, providing potential long-term value. Choosing the right type depends on individual circumstances and financial goals.

Before we dive into these types individually, you can use our free comparator below to compare all kinds of life insurance plans and get free quotes, so you can find a policy that truly fits you.

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What is term life insurance?

Term life insurance is insurance that you buy to cover a set "term", or a number of years, usually between 10 and 30. The amount you will pay in premiums is set at the time of purchase and will remain the same until the term is finished.

If you die within this time period, your "death benefit" will be paid out to beneficiaries of your choice. If you outlive your "term" you will need to renegotiate with your insurance provider to purchase a new term life insurance policy. Your premiums will likely rise (on the basis that you are now older) and you may have to undertake a new medical evaluation.

Good to know

For more information, you can visit our term life insurance guide.

What is term-to-100 life insurance?

Term-to-100 life insurance is a hybrid of permanent life insurance and term life insurance. Like all types of permanent life insurance, it covers you as long as you live and is therefore guaranteed to pay out.

If you reach the age of 100 you can either collect your 'death benefit' (while still alive) or choose to keep the coverage while stopping paying premiums. Like other specialized life insurance policies, the premiums tend to be higher.

What is convertible term life insurance?

Convertible term life insurance allows you to convert a permanent life insurance policy into term life insurance at pre-set anniversaries. This process can be done without you having to requalify with your provider.

The advantage of convertible term life insurance is that it allows you to remain flexible if your life situation changes. This flexibility means enhanced risk for the provider and therefore higher premiums for you.

What is renewable life insurance?

Renewable life insurance is a form of term life insurance that lets you extend the coverage when the term expires. When you renew the policy you will not have to requalify medically, however, as it means the insurer is taking on more risk, your premiums are likely to increase.

There is normally a maximum age for renewable life insurance policies of 85.

What is permanent life insurance?

Permanent insurance is exactly what it sounds like - a policy that, once bought, covers you for the rest of your life. Since permanent life insurance guarantees a payout i.e. a death benefit to your chosen beneficiary, premiums tend to be high.

To compensate for the high premiums there are in-built advantages such as tax advantageous investment. Permanent life insurance includes various subtypes including whole life insurance, universal life insurance, and variable life insurance.

What is universal life insurance?

Universal life insurance is a type of whole life insurance and therefore covers you throughout your life and guarantees a payout. As a form of whole life insurance, it builds up a 'cash surrender value' (CSV) and invests it.

The freedom of universal life insurance is that it allows you to direct the investment of your CSV into whatever investment vehicles you choose: EFTs, stocks, foreign exchange or commodities, etc. The advantage of investing this way is that your CSV returns will remain tax-free until withdrawal.

A universal life insurance policy can be an interesting way of helping excess money grow if you have already maxed out RRSP and TFSA limits.

What is whole life insurance?

Whole life insurance covers your entire life and will pay out to a beneficiary of choice in the event of your death. Some providers offer a whole life insurance policy that covers you in the event of a life-threatening disease.

Whole life insurance will also build up a 'cash surrender value' (CSV) over time which can be used to reduce your premiums. For a more in-depth look at whole life insurance, please see our guide on whole life insurance.

You must note that not all types of insurance may be available across all providers. For instance, types of life insurance in Ontario provided by one company may not be the same as those applied by another in the same province or elsewhere, so it's essential to explore providers and plans.

You can quickly look at the various whole life insurance options and get free quotes based on your unique needs using our comparator below.

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Whole life insurance can be divided into participating and non-participating plans:

What is participating whole life insurance?

When you own participating whole life insurance, your insurance provider will invest your 'cash surrender value' (CSV) and the returns will go back into your CSV. If your provider's assets grow over the year, you will receive these returns (minus the insurance company's management fee) as a 'policy dividend'.

What is non-participating whole life insurance?

When you own non-participating whole life insurance, your insurance provider will invest your 'cash surrender value' (CSV) and use the returns from this investment to return your premiums.

With this policy, so long as the stock market is experiencing positive growth, you should see your premiums reduce each year. As a form of whole life insurance, non-participating whole life insurance covers your entire life and has a guaranteed payout.

What is guaranteed life insurance?

Guaranteed life insurance covers your entire life, without a set term, like permanent life insurance. It is "guaranteed" because it doesn't require medical information to purchase. Its main customers are therefore older people or people with pre-existing medical conditions that might not qualify for other kinds of life insurance.

Typically there is a 2-year waiting period after purchase in which the death benefit will not be paid out. If the policyholder dies in this period, however, premiums would be repaid. The value of these will have been diminished by inflation.

Guaranteed life insurance also typically has a limit for the maximum death benefit to be paid out. This is normally around $25,000. Guaranteed life insurance premiums are usually high as providers take on more risk.

What is no medical life insurance?

Otherwise known as simplified life insurance, no-medical life insurance is a policy for people who are otherwise uninsurable due to advanced age or pre-existing conditions. No medical information is required to qualify though there may be other information asked for by providers about lifestyle.

Due to the enhanced risk for providers, no-medical life insurance premiums tend to be higher and coverage smaller.

Are no-medical and guaranteed life insurance the same?

No, no-medical life insurance and guaranteed life insurance are not the same, although they share some common characteristics. The key difference lies in the level of underwriting and acceptance criteria. No-medical life insurance may still consider certain health factors, while guaranteed life insurance guarantees coverage without any health-related inquiries or exams, making it accessible to individuals with health issues.

We recommend that you compare multiple life insurance policies to understand what exactly suits you best. While it may seem daunting, we've made it easy for you. Use our free comparator below to compare all types of life insurance policies based on your unique needs and get personalized quotes in seconds.

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What is critical illness insurance?

Critical illness insurance is not life insurance but a policy that protects you in case you are no longer able to work. Critical illness insurance specifically covers you if you suffer a debilitating illness like a heart attack, a stroke, or cancer.

This type of policy can help you cover the costs of emergency treatment as well as living expenses that you are unable to pay due to loss of work.

What is disability insurance?

Disability insurance, also known as short-term disability, is not a type of life insurance but protection against loss of earnings due to illness or accident. Disability insurance is provided by many employers as part of the employee benefits package but you can also purchase a private policy.

A private policy typically takes between 1% and 3% of your salary and will pay out between 50% and 67% of your salary in the event of you being unable to work. Coverage duration varies but typically, after 6 months, if you are still unable to return to work you will need to take out long-term disability insurance.

Disability insurance now covers many mental health problems too, such as depression, anxiety, and sleep disorders.

Long-term disability insurance

Long-term disability insurance is a disability insurance plan for when short-term disability insurance runs out and you are still unable to return to work. Unlike short-term disability, long-term disability insurance is always a private policy purchased by an individual. It pays out monthly, untaxed income to help you cover your expenses.

Policies typically cover you from 2 to 5 years and pay out between 50% and 70% of your previous earnings. Long-term disability insurance now covers many mental health problems too, such as sleep disorders, depression, and anxiety.

What is long-term care insurance?

Long-term care insurance is not a form of life insurance but rather a form of insurance that covers the costs of paying for care if you become disabled or incapacitated by old age.

It can, for instance, cover the cost of staying in a nursing home, rehabilitation, or daily assistance with tasks such as dressing, washing, and eating. Long-term care insurance purchasers tend to be people already aware that they are likely to need advanced levels of care at some point in their future.

What is joint life insurance?

A joint life insurance policy can be either permanent or limited by term. This type of policy covers two people (usually spouses or partners) as 'one life'. They are divided into first-to-die and last-to-die. A first-to-die policy will pay out the death benefit to the surviving partner.

A last-to-die policy will pay out the death benefit to a benefit of the partner's choosing when the last of them passes away.

Good to know

Joint life insurance premiums tend to be higher than standard term life insurance.

What is mortgage life insurance?

Mortgage life insurance covers the purchaser's mortgage lender. Unlike traditional life insurance, it does not allow the purchaser to choose the beneficiary.

Mortgage life insurance makes sure that your mortgage will be paid off and that your heirs will own your home if you die. However, it will not give them any other kind of financial assistance or payout. On the other hand, it has fewer requirements than traditional life insurance and may be attractive to people who have been refused term or permanent life insurance.

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Alexandre Desoutter

Alexandre Desoutter has been working as editor-in-chief and head of press relations at HelloSafe since June 2020. A graduate of Sciences Po Grenoble, he worked as a journalist for several years in French media, and continues to collaborate as a as a contributor to several publications.