The Best Types of Life Insurance in Canada

Types of life insurance in Canada

There are several types of life insurance options, in Canada and elsewhere. Each is designed with an individual’s coverage needs and budgets in mind, and insurance premiums vary depending on the life insurance plans.

Some types of life insurance policies provide temporary protection while you’re paying off a mortgage or raising kids. Others offer lifetime coverage that can support estate planning and build cash value over time.

"There’s an elephant in the room when it comes to life insurance. Many Canadians seem to believe they need permanent life insurance, but the reality is that permanent life insurance is a very specialized product that only meets the needs of a very small percentage of the population…" —Andrew Ostro, Co-Founder & CEO of PolicyMe

The most common types of life insurance in Canada are:

• Term life insurance
• Whole life insurance
• Universal life insurance
• Joint life insurance
• Group life insurance

We’ll break down how each type works and who it’s best for below. Let’s get into it.

Term life insurance

• Best for: Young families with children, homeowners with a mortgage, people on a budget
• Not ideal for: Families with lifelong dependents or no emergency funds
• Cost range: $25 to $100 per month, depending on the age and policy
• Coverage length: 10–40 years or term 100

Term life insurance is a type of policy that provides you coverage for a fixed period, typically 10 to 40 years. These policies protect temporary financial obligations, like a mortgage or the costs of raising children. 

If you pass away while the policy is active, your beneficiaries will receive a tax-free lump sum payment known as a "death benefit” that can be used for anything, like outstanding debts, funeral costs, or income replacement.

There’s no cash fund, but term life insurance rates are affordable. Some policies offer level premiums (the same for the entire term) and some have a Yearly Renewable Term (YRT), which increases each year as you age. 

Note that term policies may be renewable at the end of the term (for a new term) or convertible (to a permanent policy).

Term life insurance pros and cons

Whole life insurance

• Best for: High-income earners who’ve maxed out other investment options, families with estate planning or inheritance concerns
• Not ideal for: People who want affordable, temporary protection and are still working toward maxing out retirement accounts
• Cost range: $100 to $400 per month
• Coverage length: Lifelong

Whole life insurance policies are a type of permanent life insurance policy. It provides coverage for your entire lifetime. Unlike term life insurance policies, they guarantee a payout to your beneficiaries no matter when you pass away. 

This type of policy also includes a cash value component that grows over time as you pay your premiums. But these features come at a much higher cost (though premiums are stable) than term life insurance, and for most Canadians, the added expense outweighs the benefits.

Whole life insurance pros and cons

Universal life insurance

• Best for: High-earners who have already maxed out their RRSPs and TFSAs, investment-savvy people who want to manage their own policy
• Not ideal for: People who want simplicity and certainty, people who don’t want to manage their own investments
• Cost range: $180 to $700 per month, flexible
• Coverage length: Lifelong

Universal life policies are a type of permanent life insurance with adjustable monthly payments. This policy combines life insurance and tax-advantaged investing by using a portion of your premiums to cover a death benefit and then investing the rest, this approach to life insurance offers more flexibility. 

That said, there’s major complexity and higher risk. This insurance policy type is generally only a good option if you’re very investment-savvy as policyholders are in charge of their own funds. Growth is tax-deferred. 

If your investments perform well, your cash value will grow, and you may even be able to lower your premiums. If they perform poorly, you’ll need to pay more into the policy to keep it active.

Universal life insurance pros and cons

Group life insurance

• Best for: Employees who want low-cost/free coverage as a benefit, to supplement other policies, or who may otherwise struggle to get life insurance
• Not ideal for: People who need a robust policy for peace of mind, or self-employed people who aren’t eligible
• Cost range: $130 to $350 per month
• Coverage length: As long as you are employed 

Group life insurance policies are sometimes part of an employee benefits plan. Many people have this type of coverage through their workplaces, and sometimes at no cost for members. Employers may fully or partially pay premiums.

Although it is undoubtedly convenient, group life insurance often only gives you basic protective coverage—around 1–2x your annual salary. You’ll also lose it if you leave your job, get laid off, or retire (though you may be able to convert your policy and keep it at a higher cost, depending on the life insurance company).

Group life insurance pros and cons

Joint life insurance

• Best for: Couples who want a single payout covering both partners, a one-policy solution
• Not ideal for: Couples who want flexibility and independence, or who have different income levels
• Cost range: $40 to $200 per month, depending on the age and policy
• Coverage length: Term or permanent

Joint life insurance is a single policy that covers two people, usually spouses or common-law partners. Since you’re only paying for one policy, premiums are generally cheaper than holding two separate individual policies. 

Joint life insurance pays out only once, and you have two options. First-to-die policies pay out to the surviving partner if the other partner passes away. Last-to-die policies pay another beneficiary when both partners pass away (ideal for long-term estate planning and inheritance concerns).

If you separate, it’s difficult to change a joint policy; you’ll need to cancel it and purchase a new individual life insurance policy, likely at higher rates since you’re older.

Joint life insurance pros and cons

Looking for an alternative to joint life insurance?

With PolicyMe, couples can save 10% when they apply for separate term life policies together—and each policy includes $10,000 in free child coverage per child.

Mortgage life insurance

• Best for: Homeowners who may not qualify for traditional life insurance, or who want peace of mind that a house will be paid off if health declines
• Not ideal for: People who want flexibility in naming beneficiaries, who already have life insurance, or who have low-risk financial plans
• Cost range: $20 to $300 per month
• Coverage length: As long as your mortgage is outstanding

Mortgage life insurance is a type of policy that covers the outstanding balance on your mortgage if you pass away. The payout goes directly to the mortgage lender, not a beneficiary of your choice. In other words, the money can’t cover any of your other financial obligations or support your family after passing—though it does guarantee your family can stay in the home you bought, so long as they can afford the ongoing costs.

These policies tend to cost significantly more than the usual term life policy for the same or less amount of coverage (depending on what you owe on your house), and it’s strictly for your mortgage.

Mortgage life insurance pros and cons

Funeral insurance

• Best for: Seniors or people with critical conditions who can’t qualify for life insurance
• Not ideal for: People concerned with long-term income replacement
• Cost range: $25 to $200, depending on age and policy
• Coverage length: Permanent as long as premiums are paid

Funeral insurance, also known as final expense insurance or burial insurance, covers medical bills, burial and any funeral costs that accumulate after someone passes away. This is for people with limited budgets and immediate estate planning needs. 

Coverage typically ranges from $5,000 to $25,000 and this can cover funerals, burials, cremations, and any related fees. It's a form of permanent life insurance, though the payout is usually much less than traditional life insurance policies, as it's only intended to cover certain costs.

Funeral insurance pros and cons

Types of insurance by underwriting

When you apply for life insurance, your insurer needs to assess your risk before deciding how much coverage you get and how much it costs. This process is called underwriting. Depending on the policy, underwriting can get pretty detailed (often requiring medical exams and health records), but sometimes it can be quick and straightforward. There are three types to keep in mind: fully underwritten policies, accelerated policies, and no-medical life insurance policies. 

Fully underwritten policies

Traditional, thorough, fully underwritten policies usually require a complete medical exam, detailed health histories, and sometimes even more documentation about your health. The process can take a while before these policies come online, and you’ll have to answer a lot of health questions along the way. That said, usually that means the lowest premiums for healthy applicants.

Accelerated policies

Accelerated underwriting policies are faster, more streamlined, and rely on data analytics to assess your risk. Insurers will typically look into your prescription histories, motor vehicle reports, and do credit checks. You may be able to skip the medical exam and get approved quickly (between hours and days as opposed to weeks), especially if you’re young and healthy.

No-medical life insurance

No-medical life insurance, also known as simplified life insurance or guaranteed issue life insurance, is ideal for individuals with pre-existing conditions, those engaging in “high risk” activities, or those who cannot undergo a medical exam. While it’s quicker and easier to get approved, these policies usually cost much more and offer a smaller payout.

How to choose a life insurance policy

Choosing the right life insurance policy comes down to your age, your health, your financial situation and your long-term goals. Each affects the cost of your premiums and which type of coverage makes the most sense for you. 

1. Age

Your age greatly influences the cost of your life insurance. Some types of policies, like permanent life insurance, become prohibitively expensive the older you become. 

2. Health

Health can have a major impact on how much you'll pay for premiums, or if certain types of policies will insure you at all.

3. Financial situation

If your family carries any debt, consider a life insurance policy that covers those expenses when you pass away.‍

4. Goals

Do you have permanent financial obligations, like a disabled dependent? Are you willing to pay more for a policy with a guaranteed cash value you can access? Your goals will determine how much life insurance you need.

Life insurance isn’t one-size-fits-all. By taking time to compare your options, you can narrow down the type of policy that truly supports your loved one when they need it most.

The bottom line: Term life insurance is the best choice for most Canadians 

In most scenarios, term life insurance is the best type of policy for the average Canadian family. It’s affordable, gives peace of mind and provides coverage for the period of time you need it the most, like when your kids are young or while you’re paying off your mortgage. 

"Buy term and invest the rest. Cover yourself when you need it most, and at the end of your term, you can reassess your coverage needs." —Stephanie Roux, Licensed Life Insurance Advisor

Term life insurance policies might still be your best option, even if you're interested in the cash value component of whole life insurance. The amount you'll save on premiums is invested at your discretion instead of being tied up in your policy.

FAQ: Types of life insurance in Canada

 

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