Is Life Insurance Worth It In Canada? (2023 Guide)

Peer reviewed by
Stephanie Roux
,
Certified Life Insurance Advisor
In This Article

Key takeaways:

  • Life insurance is worth it if you have loved ones financially relying on you or have debts that could be a burden if you passed.
  • A term life insurance policy is generally worth it for the average Canadian with financial dependents.
  • A permanent life insurance policy may be worth it for high-net-worth people with maxed-out investment accounts.
  • Life insurance might not be worth it if you have no dependents or debts.

Is life insurance worth it in Canada?

Life insurance is worth it in Canada for anyone that:

  • has large debts, like a mortgage
  • has loved ones that depend on their income
  • wants the peace of mind of knowing their dependents are financially covered

Term life insurance is generally worthwhile for the average Canadian family's financial needs. As a starting point, here's how much more affordable term life insurance would be versus whole life insurance.

chart comparing average monthly premium cost for life insurance for men and women, for whole and term policies, to help Canadians figure out if life insurance is worth it for them

Do you need life insurance?

If you’re unsure if you need life insurance, start by asking yourself a question: would your loved ones be able to provide for themselves if you passed? To start, we’ve summarized who needs life insurance in this image:

a flow chart that helps you figure out the question: do you need life insurance

Life insurance is worth it for you if you answered "yes" to most of the questions. And it might cost less than you think! PolicyMe has some of the most affordable term life insurance premiums in Canada.

Should I get life insurance?

It’s a good idea to get life insurance if someone relies on you financially. More specifically, here's a look at who should consider coverage:

a chart that answers the question: should i get life insurance

If you passed away, your dependents could be left struggling financially, but life insurance coverage can help prevent that.

For example, this is a breakdown of the economic situation that your loved ones would need to navigate if they lost your income:

These are example questions you should ask yourself when considering life insurance:

Who doesn't need life insurance?

You probably don’t need life insurance if there is no one that will shoulder your financial responsibilities if you pass away. 

But consider this: you may have enough to cover immediate obligations, but what about things like your spouse's retirement or the kids' education?

If your primary income was lost, could your family maintain the existing savings schedule? If you don't think they'll be able to cover all future expenses, then life insurance would be worth it.

What age is best to get life insurance?

The best age to get life insurance is when you first have a dependent. "New" dependents are usually the catalyst behind most life insurance purchases.  

That can be a spouse, kids or any other family member that relies on you. And the age at which you buy your policy can also have significant benefits. The younger and healthier you are, the cheaper your life insurance will be.

Just how much more worthwhile is it to lock in your rate sooner? Here's a comparison of the cost of life insurance by age:

at what age do i need life insurance -- average life insurance cost by age

At what age do you not need life insurance?

The age at which you don't need life insurance depends on your financial situation and the needs of your loved ones. Remember: the point of life insurance is to protect your dependents from financial burden if you were to pass prematurely. 

You may no longer need coverage if you've reached an age where:

  • Nobody relies on your income
  • You’ve paid off your debts 
  • You have enough savings to support dependents

For most of us, this happens sometime around the time that we retire. The average age of retirement was 64 years old in 2022, says Statistics Canada.

This is a good milestone to help you plan for the end of your life insurance needs.

Pros and cons of life insurance

What type of life insurance is worth it?

Life insurance is generally worth it for many Canadians, but specific types of policies are more suitable than others, depending on your situation. We'll be looking at:

  • Term life insurance policies
  • Permanent life insurance policies
  • Group life insurance policies (employee life insurance through work)

Term life insurance: worth it for the average Canadian family

Term life insurance is worth it for most average Canadian families that need life insurance to cover financial obligations and dependents. 

“[It] provides cost-effective, temporary coverage over an insured's younger years," explains the CLHIA.

  • The term refers to the duration of coverage, usually 10, 20 or 30 years
  • If you pass away during the term, your family receives the payout you chose
  • Choose a term based on when you expect to have no dependents or pay off debts
  • Term is cheaper than permanent policies, providing coverage for the years you need it most
  • This makes term policies a worthwhile investment for the average Canadian's needs

Permanent life insurance: worth it for high-net-worth Canadians

Permanent life insurance can be a worthwhile option for Canadians with extremely high income. But it's likely not worth it for the average family. Here's a summary of what you need to know about permanent life insurance:

  • Whole life insurance (a type of permanent coverage) lasts your entire life but is seven and a half times more costly than term
  • Some permanent policies have cash value but are funded by high premiums and are less flexible
  • Death benefit can be used to pass wealth onto your family with tax advantages
  • Can build generational wealth, but it's only worth it if other investments are maxed (i.e. RRSP and TFSA)
  • An affordable term policy combined with self-investing provides more control and flexibility for managing funds
is life insurance a good investment - permanent life insurance vs investing

Group life insurance: worth it for those with fewer obligations

As a rule of thumb, group life insurance is a good supplement to a term policy, but it's usually not enough to cover all of a family's financial needs in Canada. Here's a breakdown of group policies:

  • Group life insurance policies may be worth it, especially if provided for free by an employer
  • Generally, group coverage amounts to one to two times your annual salary
  • Group life insurance alone may not provide enough security to support your family if you pass
  • Coverage will also end if you leave the company

4 scenarios for who does and doesn't need life insurance

Here are some examples of real-life Canadians wondering whether they need life insurance.  Life insurance advisor Stephanie Roux shares her recommendations:

1. Elena, 31 and Feng, 33, in Burnaby, BC

  • Elena and Feng have been married for 2 years, with a $500,000 mortgage on their home
  • Elena works as a financial controller, while Feng is a coordinator at a non-profit

"Elena and Feng need life insurance. If one of them were to pass, the surviving spouse would have to cover the mortgage. And without their partner's income, the other might need help with daily expenses.”

2. Asma, 33, in Calgary, AB

  • Asma, a business analyst, owns a condo with a mortgage balance of $250,000
  • Although she makes all the payments herself, her mother co-signed her mortgage

"Asma needs life insurance. She has a mortgage that needs to be paid if she passes. And because her mother has co-signed, she'd be responsible for the payments.

Any other outstanding debts she has could also become her mother's responsibility. She doesn't want to burden her with these costs.”

3. Laila, 24, in Regina, SK

  • Laila is a few months away from completing her studies
  • To stay debt-free, she chose an affordable program, lives at home and commutes to school
  • Her parents are still working and can comfortably provide for their own needs

"Laila probably doesn’t need life insurance. She has no debts or dependents."

4. Barb, 58 and John, 62, in Barrie, ON

  • Barb and John's kids are grown up and have moved out to start their own families
  • Both are still working, but they're hoping to pay off the mortgage before retiring for good

"Barb and John need life insurance. They still have an outstanding balance on their mortgage. Financially, their children are just starting out and may not have the money to support the surviving parent." 

Alternatives to life insurance

The through-line here is that life insurance is designed to protect your family from the financial consequences of your passing. And for many, life insurance is a worthy expense. 

But that doesn't mean it's the only method you can use for financial protection. Here's a quick look at some other approaches:

Next steps: is life insurance is worth it for you?

  1. Take stock of your current obligations, including dependents, debts and your existing emergency funds.
  2. Project how long your dependents will rely on you and how long it will take to pay down your debts.
  3. Choose life insurance options that cover you for the duration your family needs.
  4. Decide on a coverage amount and ensure that the payout is enough to take care of your family and cover funeral expenses.
  5. Make a shortlist of life insurance companies and reach out to them to get quotes. Compare their offers, weighing coverage, flexibility, and premium costs.
  6. Apply to the life insurance company that best meets your needs.

FAQ: Is life insurance worth it in Canada?

Is life insurance a smart investment?

Life insurance is a smart investment for Canadians with people that rely on them financially in the sense that it's a wise purchase. But life insurance should not be used as an investment vehicle for cash value, as it isn't the most efficient way to invest (versus things like the stock market or an RRSP). There are very specific scenarios in which a life insurance policy might be a worthwhile investment vehicle, but for the average Canadian family, this isn't the case.

The main reason you would use life insurance for investment purposes would be for tax benefits. But if your TFSA and RRSP isn't maxed out, you're better off putting your money there.

What is the main reason for having life insurance?

The main reason for having life insurance is to protect your loved ones from financial issues if you were to pass away. Buying a life insurance policy makes sure that the people that rely on you for financial support don't have to face monetary losses if you pass away. A death benefit would give them the gift of financial security in a difficult time.

Is life insurance a good idea?

Life insurance is a good idea if someone financially depends on you, like your spouse/partner, kids or aging parents. Only some Canadians need life insurance. If you're single, financially independent and don't have large debts like a mortgage, you can probably skip a life insurance policy. 

But if your financial situation has changed recently, it may be time to reevaluate your need for a policy.

How long do I need coverage for?

You need life insurance for as long as you have someone financially dependent on you. That length of time is different for everyone, but your answer likely won't stay the same forever. That's why we tend not to recommend permanent life insurance.

Term life insurance lets you choose the term length that suits you and your family the best. So you can save money by only getting the amount of life insurance you need.

How much is my life insurance policy worth?

Your life insurance policy's worth will depend on the type of life insurance you have. Permanent and universal life insurance tends to have a cash value component, which will change over time. 

If this question is in the context of selling your life insurance policy to someone else, take note that you are only able to sell your policy in Quebec and Saskatchewan.

Is life insurance a scam? 

No, life insurance is not a scam. It’s a valuable service that fills a real need in Canadian society by offering peace of mind and financial security for those left behind when a loved one dies. But not all life insurance policies will be worth it for everyone, and making payments toward a policy doesn’t always have an upside.

In the event that you do need life insurance, your loved ones will be thankful you made the investment. The key to maximizing the benefit of life insurance is to find the policy, rate, and coverage that makes the most sense for you and your family, and doing your due diligence to ensure that you work with a reputable life insurance company. 


Sources:

Canadian Life and Health Insurance Association. Canadian Life and Health Insurance Association - Canadian Life and Health Insurance Facts, 2022 Edition. https://www.clhia.ca/facts

Canadian Life and Health Insurance Association Inc. https://www.clhia.ca/

Government of Canada, Statistics Canada. Retirement age by class of worker, annual. https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1410006001

Payment Delinquencies Increase, Credit  Card Demand and Balances are Rising. Equifax.com. Retrieved March 14, 2023, from https://assets.equifax.com/assets/canada/english/consumer-trends-q3-report-en.pdf

Statista. Average value of new mortgage loans Canada Q3 2021-Q3 2022, by metropolitan area. https://www.statista.com/statistics/1202954/average-value-of-mortgage-loans-canada-by-metropolitan-area/

Walker, A. Funeral Costs in Canada: Questions and Answers. https://eirene.ca/blog/funeral-costs-questions-and-answers

Laura McKay

COO & Co-Founder

About the Author

What to read next