Family Life Insurance: What's the Best Option for You?

What is family life insurance?

Family life insurance is a type of life insurance policy that covers multiple family members under a single policy.

Instead of buying individual life insurance policies for each member of the family, you can buy one policy to cover everyone.

Now here's the truth: family life insurance doesn't exist in Canada.

Some Canadian life insurance companies say they offer "family life insurance," but what they mean is that you can buy separate policies for the parents and then cover their kids with add-ons called riders.

But here’s the good news: life insurance by definition is designed to help your family. Life insurance provides a death benefit that pays out directly to your beneficiaries (i.e., your loved ones) if you die.

The payout from the policy can be used to cover outstanding debts, funeral costs, or to provide for the living expenses of your dependents during a difficult time. For families, the risk is real: 31% of Canadians say they don’t have enough life insurance, and 4 in 10 say their household would face financial hardship within six months if the main breadwinner died. That kind of gap can mean tough choices around housing, child care, and even groceries.

“A lot of people come into the conversation with misconceptions about life insurance. Some expect a one-size-fits-all family policy, but in Canada, coverage can be built through a mix of individual and joint policies depending on your needs.” — Christelle Arouko, Life Insurance Advisor

How does life insurance protect your family?

Life insurance pays out a death benefit to whoever you choose if you pass while you’re covered. Here’s a breakdown of all the things you need to know about how life insurance works to protect your family:

• Naming a beneficiary: the beneficiary (or beneficiaries) will receive the death benefit. You can also use the death benefit to settle your estate, have it donated to a charity, or use it to set up a trust for complete control of how it will be used.

• The death benefit: this is the payment received by your beneficiary. It is tax-free because it is considered a gift under Canadian tax law (though note that some permanent life insurance policies have an investment component that can be taxed—we’ll get into that later).

• The death benefit can be used to cover medical debts, end of life care, and funeral/celebration of life arrangements, helping your family by limiting the amount they would otherwise have to spend if your savings and assets don’t cover the costs.

• If you pass while you’re covered and have a spouse: If you have a spouse as your named beneficiary, the death benefit will go to them. Your spouse also automatically inherits all of your shared assets if they are still alive when you die, unless otherwise specified in a will and last testament. There are no capital gains taxes to pay in this case.

• If you pass while you are covered as a widow or single: Your estate will have to be settled. The death benefit will go to your named beneficiary, usually your surviving children, and can be used to offset the costs of settling your estate.

• Capital gains taxes when you’re the last to die: while there is no inheritance tax in Canada, your estate may owe capital gains taxes on your assets. This is a tax on the amount that your asset has increased in value, and usually applies to homes (many other assets, such as cars, depreciate in value over time, so usually don’t require capital gains taxes to be paid).

• The death benefit can help your beneficiaries absorb the cost of settling your estate, possibly helping keep properties in the family if that is your family’s wish.

Which type of life insurance is best for you and your family?

We’ll be clear. Term life insurance offers a smart choice for the average Canadian family. Here's why term life insurance is the a great option for most families:

1. Affordability: Because you only buy coverage for a certain period (e.g., 10, 20, or 30 years), you pay lower monthly premiums compared to permanent life insurance (can be up to 5 - 15 times lower!).
2. Flexibility: You have the freedom to pick the coverage amount and term length that match your family's needs, wherever you’re at. It’s like renting vs buying a car: You have a policy only while you need it. 
3. Simplicity: Permanent policies can be complicated. Term policies are more what you see is what you get. Sign up for what you need then keep on living life without a second thought, knowing your family is protected.

That’s why we think you should strongly consider term life insurance to protect your family, especially if your dependents rely on your financial support. But let's take a closer look at the different types of life insurance so you can make an educated choice that best suits your needs.

Term life insurance for families

• Think of it like a lease on a car: it lasts for a specific period (like 10, 20, or 30 years). If you're still kicking at the end of the term (and we hope you are!), the policy simply ends.
• It's straightforward and typically the most affordable option.
• This type of insurance can be beneficial for families as it can provide significant financial protection during the years of highest financial obligation, like mortgage payments or child-raising years.
• Coverage duration typically spans from 5 to 30 years. Shorter term lengths and lower coverage amounts (think $100,000 as opposed to a $1M death benefit) are cheaper.

Best for: Term life insurance is great if you want an affordable policy that will cover you until your kids are grown and flown and your mortgage is paid off.

Whole life insurance for families

• This is more like owning a car. As long as you keep up with the payments, it's yours for life. It even builds cash value over time providing financial protection for your loved ones.
• This policy provides families with the benefit of guaranteed death benefits, level premiums, and cash value accumulation.
• An added financial benefit of whole life insurance is the accumulation of cash value over time, which can be borrowed against if necessary.
• This all sounds great, but life insurance is designed to protect your family financially, not build wealth. You're probably better off investing your money in registered accounts like RRSPs and TFSAs, but talk to a financial advisor you trust first.

Best for: If you can afford higher premiums and want lifetime coverage, whole life insurance could be right for you, especially if you're a very high-net-worth individual with complex estate planning needs.

Universal life insurance for families

• This is a flexible option that combines elements of term and whole life. You can adjust your premiums and death benefit as needed.
• It can be advantageous for families as it can adapt to changing financial needs over time, with the ability to adjust the death benefit and premium amounts.
• This policy also includes an investment component, which allows for cash value accumulation that can be invested for further growth.
• It's a bit more complex but offers a lifetime of coverage and potential cash value growth.
• Downside is that if you don't manage it properly, your premiums can go way up and you may not be able to afford to keep your policy anymore.

Best for: Universal life insurance is a bit more complex but offers a lifetime of coverage and potential cash value growth. It's not a set-it-and-forget-it solution, so it's not right for most folks.

Mortgage life insurance for families

• Your premiums are added to your monthly mortgage payment, which is convenient.
• Only covers the balance of your mortgage, and the benefit decreases as your mortgage balance goes down.
• But, payments often stay the same, so you're not getting bang for your buck.
• The payout usually goes directly to the mortgage lender, so your family can't decide what to do with the money.
• You don't have to do a medical, but that means you pay higher prices because the insurer hasn't properly assessed your risk.

Best for: We don't recommend mortgage life insurance, for the above reasons.

“Buying life insurance through a bank usually means mortgage insurance. The payout goes to the bank, not your family, and the coverage amount decreases as you pay down your mortgage.” — Christelle Arouko, Life Insurance Advisor

Joint life insurance for couples

• The joint policy can be a term or permanent policy.
• Sometimes getting one joint policy that covers you and your partner can be cheaper than getting two separate policies.
• 35 and up, joint would be less expensive than individual coverage.

Best for: Those who are really price conscious and don't anticipate splitting up, ever (hard to place a bet on that, but only you know!).

Life insurance for children

• You can get your child term life insurance, whole life insurance or add them as a rider on your existing policy.
• Parents often opt for life insurance for their children to lock in a low rate. Setting up a whole life policy now can secure a consistent premium rate for your child, making it easier to obtain coverage as they grow older.
• That said, most healthy adults won't have trouble getting coverage.
• Also, using the investment component of a whole life policy can potentially increase the payout.
• But, it's likely you'll get more bang for your buck by putting money in a savings plan like an RRSP, RESP, TFSA etc.

Best for: Probably not your child. Getting policies specifically for your children might not be the most effective way to lock in financial security for your family. The first step towards creating financial well-being for your kid is to secure your own life insurance policy.

Should my partner and I get joint life insurance or two separate policies?

Joint life insurance can be cheaper, especially if you're 35 years old and up, but individual coverage is a lot more flexible, according to PolicyMe life insurance advisor Erik Heidebrecht.

Separation and divorce, unfortunately, is not uncommon. A lot can happen in a couple's lives during the 10 to 30 years of a term life insurance policy. And if you happen to part ways, it's much harder to separate a joint policy.

You may be stuck paying for a policy you don't want, with nothing to do but ask the bank to stop payments if your partner won't agree to cancel.

Individual policies? Just change your beneficiary (a straightforward exercise). If you need less coverage, it's possible to do that too, or just cancel the policy if you want.

What are the best family life insurance plans in Canada?

PolicyMe Term Life Insurance

PolicyMe is known for its family-friendly perks, including:

• 10% discount in the first year for couples who apply together.
• $10,000 in free Child Coverage per child.
• Can be up to 5-10% cheaper than comparable policies, on average.
• Apply online in 20 minutes or less (on average, for eligible applicants). Sign your policy online too.
• Our licensed advisors are available by phone or email to help walk you through your options. We'll even tell you if you don't need life insurance at all!
• Backed by insurance giant Securian Canada for extra security.

Manulife Family Term™ Life Insurance

• Individual policies for each parent, then the option to add child coverage for a fee.
• Gain complimentary access to specific Manulife Vitality benefits, receiving rewards for your commitment to a healthy lifestyle.
• Up to $20M in coverage
• You can only get 10 or 20-year terms.
• Premiums stay the same for the entire term.
• $1,000 towards your family's bereavement counselling costs
• Cash advance if the policyholder is diagnosed with a terminal illness.

Best for: Those who want permanent life insurance and who are high-income earners who want to take advantage of the estate planning aspects of Manulife's whole or universal life insurance options.

Desjardins Family Life Insurance

• You and your partner need to first buy a Desjardins term or permanent life insurance policy.
• Then you can add a term life insurance rider for your partner and cover them up to $25,000.
• Add on a child rider and cover your kids for up to $20,000 each.
• The child rider can be converted to a permanent policy when it expires.

Best for: If you don't want to buy a lot of coverage for one partner. In that case, not buying a full policy for your spouse, but adding them as a rider to your policy, is more affordable. That said, coverage is really minimal, so they must have the means to provide for your family financially otherwise since the death benefit is so small.

What to consider when choosing family life insurance

Family Size and Composition: Your family's size and the ages of family members can significantly influence your choice of life insurance. Larger families or those with younger children may require more comprehensive coverage.

Financial Goals: Align the policy with your family's financial objectives. Whether you aim to cover funeral costs, pay off a mortgage, or ensure financial security for your children's education, choose a policy that supports these goals.

Budget and Affordability: Determine a suitable premium that fits within your budget without causing financial strain. Remember, the aim is to provide financial security, not to become a financial burden. Again, use our life insurance calculator, talk to one of our licensed agents.

Policy Features: Examine the specific features of each policy type. Consider aspects like coverage duration, the potential for cash value accumulation, and the flexibility of premium payments.

Long-Term Planning: Consider how the policy fits into your long-term financial plans. If you are looking at life insurance as a financial planning tool, you might want to consider policies with a cash value component.

Insurance Company's Reputation: Evaluate the reputation and financial stability of the insurance company. Check ratings by independent agencies and read reviews from other policyholders. Our post on the best life insurance in Canada is a good place to start.

Policy Riders: Look into possible policy riders (add-ons) that could enhance your policy, such as a disability waiver of premium or an accelerated death benefit rider.

“Younger families typically need more coverage, especially if they have small children. Think about how long your dependents will need financial support. If you have a two-year-old, you may want coverage that lasts until they turn 18.”  — Christelle Arouko, Life Insurance Advisor

Confused? You have options:

1. Use our life insurance calculator to figure out exactly how much coverage you might need.
2. Talk to one of our licensed advisors to get honest advice tailored to you.
3. Reach out to a life insurance broker to help you compare policies. Ask a friend, or do a quick Google search.

Steps to buying family life insurance

1. Identify Your Family's Needs: Consider your financial obligations, dependent care responsibilities, premium payments, and future plans to determine the amount of coverage your family will need.
2. Research Different Policies: Explore different type of insurance policies, their coverage, premiums, and features. Identify the ones that suit your family's unique needs.
3. Choose a Reputable Insurance Company: Look for a company with a strong financial rating and positive customer reviews.
4. Contact an Insurance Agent: An experienced insurance agent can guide you through the process, explain policy details, and help you understand how much coverage you need.
5. Fill Out the Application: Provide accurate and complete information about your lifestyle, health, occupation, and income