Different Types of Life Insurance Explained And How To Choose

Choosing the right life insurance is crucial to protecting your loved ones and ensuring their financial security. Whether you're seeking temporary coverage or a lifelong policy with investment potential, understanding your options can make all the difference.

This guide breaks down the different types of life insurance in Canada, helping you compare plans, calculate needs, and select a policy that aligns with your unique goals. With tailored advice and our free comparison tool, we make it easy to find the best policy for you.

What are the different types of life insurance in Canada?

In Canada, several types of life insurance policies are tailored to meet diverse financial needs. Here are the most common ones.

Type of Life Insurance	Coverage Length	Cash Value	Death Benefit	Best For
Term Life Insurance	Fixed term (10-30 yrs)	No	Fixed, only if death occurs during the term	Temporary needs (e.g., mortgage, dependents)
Whole Life Insurance	Lifetime	Yes	Guaranteed	Long-term protection, estate planning
Universal Life Insurance	Lifetime	Yes (interest-based)	Adjustable	Flexibility in coverage and premium
Variable Life Insurance	Lifetime	Yes (investment-based)	Variable, depends on investments	Investment growth with higher risk
Final Expense Insurance (Also known as Funeral or Burial Insurance)	Lifetime	Yes (small)	Fixed, for end-of-life costs	Covering funeral and end-of-life expenses
Group Life Insurance	Term (while employed)	No	Fixed, often limited amount	Basic employer-provided coverage
Mortgage Life Insurance	Linked to mortgage	No	Decreases with mortgage balance	Paying off the home mortgage if the policyholder passes
Joint Life Insurance	Lifetime (2 people)	Yes	Paid after one/both policyholders pass	Estate planning, inheritance for heirs

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

What is Term Life Insurance?

• How It Works: Term life insurance provides coverage for a specific period or “term,” such as 10, 20, or 30 years. If you pass away during the term, your beneficiaries receive the death benefit. Once the term ends, coverage stops, unless you renew or convert it.
• Pros:
  • Affordable premiums for straightforward coverage.
  • Ideal for temporary needs like income replacement or mortgage coverage.
• Cons:
  • No payout if you outlive the term.
  • Lacks cash value or investment component.
• Best For: If you need affordable, temporary protection (say, while raising kids or paying a mortgage), term life is an economical choice that meets those needs.

You can read our full guide on Term Life Insurance to understand the details of its workings, cost, coverage, and more.

You can use our free tool below to compare term life insurance quotes online. It's easy to use and gives you quick results.

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What is Whole Life Insurance?

• How It Works: Whole life insurance provides lifetime coverage with fixed premiums. It has a cash value component that grows over time, allowing you to build savings within the policy. The cash value grows at a guaranteed rate and can be accessed if needed.
• Pros:
  • Lifetime protection as long as premiums are paid.
  • Builds cash value that you can borrow against.
• Cons:
  • Higher premiums than term life.
  • Limited flexibility and investment growth.
• Best For: Whole life insurance suits those looking for lifelong coverage with a savings element. It’s often chosen for estate planning or to leave an inheritance, as it guarantees a payout.

You can read our full guide on Whole Life Insurance to understand the details of its workings, cost, coverage, and more.

You can use our free tool below to compare whole life insurance quotes online. Compare quotes from the best providers in Canada using our special partner links.

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How does Universal Life Insurance work?

• How It Works: Universal life insurance offers lifetime coverage with flexible premiums and death benefits. It includes a cash value component that earns interest, and you can adjust the policy over time based on your needs and market performance.
• Pros:
  • Flexible premiums and death benefits.
  • Cash value has growth potential.
• Cons:
  • Cash value depends on market or interest rates.
  • Premiums may need to be adjusted to keep coverage in place.
• Best For: This policy is for those who value flexibility. If you want lifetime coverage with adjustable features and the chance for cash value growth, universal life insurance can meet both protection and investment goals.

You can read our full guide on Universal Life Insurance to understand the details of its workings, cost, coverage, and more.

What is Variable Life Insurance?

• How It Works: Variable life insurance offers permanent coverage with a cash value component that you can invest in different market options like stocks and bonds. Your cash value and death benefit vary with the performance of these investments, so there’s potential for higher growth—and higher risk.
• Pros:
  • Offers growth potential based on investment performance.
  • Lifetime coverage and flexible death benefit.
• Cons:
  • Cash value and death benefit can decrease with poor market performance.
  • Requires active management.
• Best For: Variable life insurance is suitable for those with a high-risk tolerance who are comfortable investing. It’s a good choice if you want both protection and the potential for investment growth.

What is Final Expense (or Burial) Insurance?

• How It Works: Final expense insurance is a small whole-life policy designed to cover end-of-life costs, like funeral expenses and medical bills. It has a guaranteed payout and builds a small cash value, but it’s primarily focused on providing for funeral costs.
• Pros:
  • Easy to qualify for, even with health issues.
  • Provides peace of mind by covering funeral expenses.
• Cons:
  • Limited coverage amount.
  • Higher cost per dollar of coverage compared to larger policies.
• Best For: This is ideal for seniors or those with end-of-life planning needs who want to ensure their family isn’t left with funeral expenses.

How does Group Life Insurance work?

• How It Works: Group life insurance is typically offered by employers as part of a benefits package. It provides term coverage, and the employer pays all or part of the premium. Coverage is generally limited and may not stay with you if you leave the job.
• Pros:
  • Often free or low-cost coverage through work.
  • Requires no medical exam.
• Cons:
  • Limited coverage amount.
  • Usually terminates if you leave the job.
• Best For: Group life insurance is a good starter policy, especially if you’re young or on a budget. While it’s usually not enough for comprehensive protection, it’s helpful to have while you build additional coverage.

What is Mortgage Life Insurance?

• How It Works: Mortgage life insurance is designed specifically to pay off your mortgage if you pass away before it’s fully paid. Coverage decreases over time as you pay down the loan, and the payout goes directly to the lender to cover the balance.
• Pros:
  • Protects your family’s home by ensuring the mortgage is paid off.
  • Provides targeted coverage for a major expense.
• Cons:
  • Decreasing payout as the mortgage balance declines.
  • Can be limited to mortgage payoff with no flexibility.
• Best For: If you’re a homeowner with concerns about leaving a mortgage burden, this policy offers peace of mind by securing your family’s home.

How does Joint Life Insurance work?

• How It Works: Joint life insurance insures two lives, usually spouses, under one policy. There are two main types:
  • First-to-Die: This policy pays out after the first policyholder dies. Once the payout is made, the policy expires and no longer covers the second person. This type is relatively rare, as it doesn’t provide coverage for the surviving partner.
  • Joint Last-to-Die (Second-to-Die): This policy pays out after both policyholders have passed away. It’s commonly used for estate planning, as it helps beneficiaries cover estate taxes or other financial obligations.
• Pros:
  • More affordable than purchasing two separate policies for each partner.
  • Joint Last-to-Die policies are especially beneficial for estate planning, as they help reduce the financial impact on heirs.
• Cons:
  • First-to-Die policies end after the first death, leaving the surviving partner without coverage.
  • Joint Last-to-Die policies only provide a payout after both individuals pass, meaning there’s no immediate financial support for the surviving partner.
• Best For:
  • First-to-Die: This type may suit couples who need coverage for specific financial obligations upon the first partner’s death, though it’s rare due to limited demand.
  • Joint Last-to-Die: Ideal for couples focused on estate planning who want to leave an inheritance or ensure funds are available to cover estate taxes after both partners have passed.

Each type of life insurance has a specific purpose, and understanding how they work can help you pick the policy that fits your goals and budget. Whether you need short-term protection, long-term savings, or specialized coverage, there’s an option designed for you.

What are the best life insurance companies in December 2024?

Life Insurance Company	Key Coverage	Get A Quote
	Offers both term and permanent life options Up to $10 million coverage Fixed premiums for the term duration 7 Additional coverages	Get a Beneva Quote
	All policy types offered: term, whole, universal, participating life Up to $25 million coverage Multiple term lengths from 10-30 years Option for 90-day free coverage when applying	Get a Sun Life Quote
	Many term lengths and options Convert to permanent coverage anytime Temporary life insurance coverage at a low cost Offers riders like Waiver of Premium and Accidental Death	Get a Empire Life Quote
	Unique pick-a-term 10-40 years Decreasing term good for mortgages Non-medical options through Access Life Term, whole, and universal policies	Get an iA Quote
	Innovative digital insurance delivery and underwriting Offers cash advance if diagnosed terminally ill All policy types, up to $20 million coverage	Get a Manulife Quote
	No medical exam option up to $1 million Guaranteed acceptance permanent coverage Up to $25 million term life coverage Pick-a-term lets you select custom length	Get an RBC Quote
	Very flexible 5-50 year terms available Option to renew term or convert to permanent coverage Guaranteed fixed premiums Up to $20 million coverage	Get a Canada Life Quote
	Permanent coverage without health exam Term, permanent, participating options Monthly premium discounts possible	Speak to a Desjardins Agent
	$100k to $5 million coverage amounts Age 0-80 permanent life available Fixed premiums Lifetime protection, as long as you pay your premiums	Get a BMO Quote
	Competitive pricing on term life Gives back through community benefits Multiple terms and conversion options Child term insurance available	Get a Foresters Quote
	Very affordable premiums Wide range of term lengths Renewable and convertible policies	Get a Quote
	Term, whole life, and universal policies offered Ability to convert term policies to permanent plans Customize coverage with critical illness rider Flexible investment options on some policies Self-directed investment options	Get an Equitable Life of Canada Quote
	Multiple term durations available Universal life policies with cash value Critical illness rider available Term, permanent, and rider options Can layer coverage for comprehensive protection	Get an Ivari Quote
	Guaranteed renewable terms offered Whole life option with lifetime coverage Critical illness rider available Term, permanent, and illness options	Get a TD Life Insurance Quote

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