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All About Life Insurance in Canada

Insurance has never been the talk of the town until the Covid crisis struck the world. Every crisis comes with an opportunity and shows us the value of things. Insurance is among one of them. Insurance is simply a buyer paying premiums to protect against some contingency. The company settles the amount as decided in the contract on the happening of that particular event to the nominees. In this article, we will address all you need to know about life insurance in Canada.  

Life Insurance simply protects your family on account of your death. For that, you pay premiums in a monthly, semi-annual, or annual frequency.

Let’s look at the type of Life Insurance in Canada.

Read: How To Choose The Right Life Insurance In Canada?

Permanent Life Insurance

This life insurance plan provides a guaranteed payout on your death. As it says permanent, you have to pay the premiums and it provides the coverage. Since your payout is certain, these plans are quite expensive compared to others. 

While in other plans like term life your payout is not certain. We will come to that in a while. This insurance is also referred to as whole life insurance. 

Types of permanent life insurance policies include:

  •    A life insurance policy that includes an investment component.
  •    A life insurance policy that pays dividends is also known as Participating life insurance.

Read: What Is Comprehensive Insurance & What Does It Cover?

Term Life Insurance

As the name indicates, it provides you with cover for a specific term. There is a chance that your family may not be compensated for your death, as the term might have already gone. 

Let’s understand this with an example. If you took a term life insurance of $1M with a term of 15 years, then your beneficiaries receive a $1M payout on your death within 15 years. Another caveat to be aware of is that your policy remains active only till you pay your premiums. The insurer can void your policy if you stop paying premiums.

Common notations for this policy are noticed in the range of 10 to 30 years. However, you can still purchase this life insurance in Canada until certain ages. Like, you can cover it till the age of 60 or 70. If you as a policyholder are alive, then your family will not receive any benefits.

If you are too afraid of continuing this, then you can convert your term life policy to a permanent one.

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Choosing an Optimal Life Insurance Provider

Before buying any policy, you must do research about the provider. There can be instances when the provider cannot fulfill its obligations and that leaves your family in a tough spot. We will discuss the factors to be looked upon while selecting an insurance provider to make the worth of every premium you pay to purchase life insurance in Canada.

Read: Do You Need Life Insurance in Canada?

The Costing

Costs of taking a policy for the same coverage and amount may vary across providers. Premiums are the starting point while comparing insurance providers. However, cheaper premiums don’t always translate into a better deal. 

You need to read the terms and conditions of the policy and fit yourself into that. There are benefits that are unique to every person; see the benefit you want is included in it. More focus should be on the structure of the policy.

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Financial Security

This is the most pressing factor when it comes to selecting an insurance provider. If the company has enough assets against their liabilities, then they are well placed to meet their obligations. 

There are some factors that you can look into to gauge the financial stability like past records, claim settlement ratio, the rating provided by the independent credit rating agency.

Now, you may ask what if the company fails? Well, in that case, you have a guaranteed 85% payout.

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The Range of Products

There are various insurance products available in the market. Sometimes, it becomes quite difficult to select the one that suits you. Your requirements will vary based on your situation and look out for insurance providers that satisfy your needs. 

Also, the same policy will vary across providers, picking the best looking into all the above factors discussed. Insurance companies provide you with different riders and add-ons to satisfy your additional requirements

Customer Satisfaction

This always plays a pivotal role. If other customers are happy with the insurance product of a provider, then this is a positive sign.

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How much is Life Insurance in Canada Cost?

This is the most informative piece to help you choose the right life insurance in Canada. Insurance providers take into account various factors to come to a final premium.

  • Age: The younger you are, the lower the premium.
  • Occupation: A job that is uncertain or dangerous will demand higher premiums.
  • Gender: Statistical studies have found that women live longer than men and they pay comparatively less for premiums.
  • Health History: This is the basic check any insurance provider does. Not only yours but your family health history is also factored in. If you are a smoker, then your premiums would be higher.
  • Policy term: A longer policy term will have a higher premium.
  • Amount covered: If you opt for higher coverage, your premiums will rise proportionately. You can use publicly available calculators to input various variables and get an estimate of the premium for your policy.

Hence, it all depends on the above factors and insurance providers.

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How to Determine Your Life Insurance in Canada?

The purpose of life insurance is to protect those that are vulnerable in your absence. In other words, you are financially dependent on yourself. You can take into account factors like debts, other liabilities, etc. that are taken care of when you are no more. 

A general contention among experts is that you should take the cover of at least 10x of your annual income. A better approach is highlighted below:

  • Mortgage: Factor in any mortgage payments/balance if you have.
  • Debts: This is one of the most important factors. Calculate debt payments you are obliged to pay excluding mortgage.
  • Education: A step ahead is planning for your kids’ education; you might want to include this amount in your final coverage.
  • Income: How long your family will need financial support is the question you need to answer.

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Simple Explanation with an Example

Let’s take hypothetical figures for the above factors and come up with a rough estimate of the coverage.

  1. Income: Suppose your annual income is $100,000 and you estimate that your family needs this income for the next 8 years: $100,000 × 8 = $800,000.
  2. Education: You estimate your kids’ education expenses to be around $200,000 including the masters’ program, add that amount.
  3. Debt: Your total debt is $50,000.
  4. Mortgage: You owe $150,000 in mortgage payments.

Adding all these: ($800,000 + $200,000 + $50,000 + $150,000) = $1,200,000

Hence this $1.2M is your life insurance cover for say at least 10 years.

Adjust the numbers accordingly and come up with your estimated coverage amount.

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Devanshee Dave

Devanshee is a staff writer at YourFirst.ca. She is a finance enthusiast and has completed her Master’s degree in Mass Communication & Journalism. She has worked as a journalist in a local business newspaper, multiple start-ups as well as finance and economy-related online media houses.

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