Life Insurance in Canada: Have you made the correct choice for your family? 

By Hristina Nikolovska

Special to the Financial Independence Hub

Life insurance is often something people put off until later. We understand: it’s not fun thinking about our mortality. Still, in the wake of the recent COVID-19 pandemic, it’s wise to start doing so.

You may be sure that others are. In 2017, the industry received $2.65 trillion in direct premiums. 

Not sure where to start?

In this article, we’ll give you a quick overview of the Canadian insurance market. From there, we’ll go through the questions you should ask yourself before taking out life insurance.

Current state of Canadian Life Insurance Market

Canada’s top three life insurers by assets are:

  • Manulife: Started in 1887, this giant had assets totaling CA$809.13 billion in 2019.
  • Power Corporation of Canada: Founded in 1925, PCC had assets totaling CA$23,627 million in 2020.
  • Power Financial: CA$22,286 million in 2020. 

How important is Life Insurance to Canadians?

Questions to Ask Before You Sign on the Dotted Line

How Much Coverage Do I Need?

There are a few things to consider when taking out your policy:

  • Are you the primary breadwinner? If so, you’ll need to factor income replacement into the equation. How much will it take for your family to be able to live in comfort once you’ve passed on?
  • Your financed assets: At the very least, ensure that any debt financing assets are repaid. Include the balance of your mortgage, car, and other valuable items that you’re paying off.
  • Other outstanding debt: Make provision for loans, lines of credit, and other obligations to be paid off as well.
  • Your children’s ongoing education: Hopefully, you’ll be there to see them off to college or university. If you’re not, life insurance might ensure that they’re able to attend.

Many Canadians see life insurance as a necessary purchase but underestimate the amount they require. Sit down with your partner or spouse and work out what your family’s future financial needs are.

You may, for example, wish to pay for your daughter’s wedding. Work out what your goals are for your family when you pass.

Is it a good idea to have a separate Mortgage Cover?

The finance company may insist that you cede a life insurance policy to them. These policies pay off the mortgage should you die. The finance company may offer you cheap cover, but these may not always be as good as they look.

Mortgage cover usually expires when you cancel the mortgage. It may also have a value linked to the balance in the home loan. In other words, your cover decreases as your mortgage does.

The problem with having such a highly specialized product is that it’ll cost you more in the long-term. To take out a new life insurance policy when you pay off your mortgage in 30 years will be expensive.

Should you die with these policies in place, the insurer will pay off your mortgage. There’ll be nothing left over for your family unless you have a separate policy. By sticking to one larger policy covering everything, you save on administration fees and get a better discount.

What about Funeral Cover?

Funeral cover is often unnecessary if you have sufficient life cover. It is, however, important to confirm how quickly your life insurer will pay the money out. If their claim processing takes longer than a few days, it might be prudent to have a small funeral plan as a backup.

How do I calculate how much parents will need?

Were you shocked to realize just how quickly expenses added up when your first child was born? Most people are. A good rule of thumb is to consider your current annual costs for:

  • Clothing
  • Food
  • Medical care
  • Education
  • Transportation
  • Leisure activities
  • Child care
  • Housing

Now divide that amount by twelve to get a monthly figure. Consider how expenses might increase as your children grow older and factor that in as well. Let’s say that raising a child costs you $10,000 a year. We’ll leave out college fees for now and assume that your child moves out to start working at 18.

Assuming that inflation during that period is a conservative 1.75%, you’ll need $209,446 per child over their lifetime. If they want to go to college, you’re looking at an extra four years and the school’s fees as well. That brings the total to $292,559 per child.

Assuming you have three children, you’ll need life cover of around $900,000 for their living expenses.  

What type of Life Insurance should I get?

Canadians can choose between several products. These fall under the following categories:

  • Term Life: This is the simplest type of policy. You sign up for a set term and pay premiums. The policy expires at the end of that term and has no further value. It’s inexpensive, simple insurance.
  • Universal Life: This is a more comprehensive type of policy and usually has an investment component. It’s a permanent policy, meaning that it’ll cover you for your whole life. You’re able to select how the company invests the money for you.
  • Whole Life: Whole life is similar to universal life except that the insurer invests the money for you.

Universal and whole life premiums are higher, but the cover never expires. If you require a long-term option, they’re the better pick.

With term life, if you live beyond the policy date, they don’t pay anything. Should you wish to take new cover at that time, it’ll be pricey.

Final Notes

That wraps up our basic article on life insurance in Canada. You now know how to select the correct amount of coverage and policy for your needs. All that’s left now is to work out which company suits your needs. 

As the founder and team lead at BalancingEverything, Tina Nikolovskauses her SEO expertise and love for the written word to deliver simple and reliable financial information to anyone with a device connected to the internet. When not doing that, you’ll find her admiring traditional Middle Eastern architecture and food, before she hops to another corner of the world.






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