Types of Life Insurance in Canada Explained (Simple Guide)
Types of life insurance in Canada
There are several types of life insurance options, in Canada and elsewhere. Here are all the most common types of life insurance in Canada:
- Term life insurance
- Whole life insurance
- Universal life insurance
- Joint life insurance
- Group life insurance
Other types exist, but they typically address specific situations such as protecting a business partner (buy-sell coverage, key person coverage) or funding certain estate strategies (participating whole life, joint last-to-die coverage).
"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
This table starts with the simplest and lowest-cost options (group and term) at the top, with more complex and expensive options (joint, universal, and whole) in the rows below.
Term life insurance
Term life insurance covers you for a set period (1-40 years) to protect temporary obligations like a mortgage or children’s expenses. Beneficiaries get a tax-free lump sum if the insured person passes away during the term, and term policies can often be renewed or converted.
Bottom line: Term coverage rates are simple to manage and affordable ($25 to $100 per month), even for large amounts of coverage. Individual term life insurance policies are best for young families with short-term needs and financial obligations, or homeowners on a budget.
Whole life insurance
Whole life insurance is permanent coverage that lasts your whole life and guarantees a payout, no matter when you pass away. It builds cash value over time which is available via tax-deferred withdrawals, but you have to repay it and growth is slow.
Bottom line: Whole life policies are very expensive ($100 to $400 per month). Cash value life insurance is not the fastest or safest way to generate wealth, though it could work for some Canadian families who have already maxed out investment accounts.
Universal life insurance
Universal life insurance is permanent coverage that has a tax-advantaged investment component, where part of your premium payments go toward insurance and the rest is invested. You have to manage your own funds and you must keep the account funded to ensure the policy is active for your whole life—poor investment performance can increase your premiums.
Bottom line: Costing between $180 and $700 per month, this type of insurance offers tax-deferred growth for people who are willing to actively manage investments. Universal life insurance may work for people who have already maxed out registered accounts and are comfortable with complex investment management.
Group life insurance
Group life insurance is sometimes available through your employer as part of a benefits plan, with premiums either fully or partially paid. Coverage is capped at about 1-2x your annual salary and is often tied to your job (so you could lose it if you leave your job, get fired, or retire).
Bottom line: Group policies are affordable (free to $50 per month), but personalization options are limited and coverage won’t be enough for most families. It’s better than nothing, but both employees and self-employed people should consider a personal policy with much more coverage.
Joint life insurance
Joint life insurance is one policy that covers two people, usually spouses or partners. There’s only one payout, either first-to-die (where the surviving partner receives the payout) or last-to-die (which is often used for estate planning). It’s difficult to change a joint policy if you ever separate from your partner.
Bottom line: Joint policies can work for couples with different income levels or inheritance concerns. Insurance premiums are between $40 and $200 per month. Admin can be simpler than having two term policies, although it leaves the other party unprotected. Two separate policies may be more affordable if the couple have different health risks.
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
Mortgage life insurance is for homeowners who want to cover their mortgage with a payout that goes directly to the lender, not to their chosen beneficiary. It ensures your family can stay in their home, but it does not give any flexibility or cash to your loved ones. It’s easy to qualify, but premiums stay high while coverage declines as you pay off your mortgage.
Bottom line: For $20 to $300, you’ll pay mortgage life insurance as long as your mortgage is outstanding. No money will go to your beneficiaries. This could be a good fit for people who may not qualify for traditional life insurance, though term policies are more flexible and affordable if you can qualify.
Funeral insurance
Funeral insurance (also called final expense or burial insurance) is permanent coverage capped at a limit between $5,000 and $25,000. This is a simple type of life insurance that is intended to help cover burial costs, funeral expenses, and final medical bills. Premiums are very high and there may be waiting periods and exclusions for pre-existing conditions.
Bottom line: For between $50 and $200+ per month, funeral insurance provides a limited but flexible payout for people with immediate estate planning needs. It is not a long-term income replacement product, though it may be a good fit for seniors or people who can’t qualify for traditional life insurance.
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. These four questions can help you determine which type of coverage makes the most sense for you (and understand the possible cost of premiums).
1. Do you have dependents?
If someone relies on your income or care, then you may need insurance with higher coverage that lasts longer. If you do not have dependents (partner, children, dependent relatives), then you may only need minimal or temporary coverage. How much life insurance would safely cover all your dependents until they become independent?
Cost: The more dependents you want to cover, the more coverage you may need (which costs more).
2. How long do you need coverage?
If your financial obligations are temporary (like a mortgage or raising children), term life insurance is often enough. Align the term with your needs. Longer-lasting coverage may be required for lifelong dependents or permanent needs.
Cost: The longer the term, the higher the price. Lifetime coverage costs a lot more than term coverage (3-10x more). 30-year term policies cost more than 10-year, coverage being equal.
3. What’s your budget?
Simple policies (like term) cost less, while complex policies cost more—and don’t necessarily add more value. Do you have debt that needs covering? Can you afford $60 per month, or only $25? Are you willing to pay more for a policy with a guaranteed cash value you can access?
Cost: Term policies cost less, but it depends on the coverage amount, age, and health of the policyholder.
4. Do you need lifelong coverage?
If you have permanent financial obligations (estate planning, a dependent with lifelong needs), then a lifelong policy may make sense. If your financial obligations will end at some point in the future, then temporary life insurance plans are often enough.
Cost: Lifelong coverage always costs more, due to the guaranteed payout and possible cash value over time.
The bottom line: Term life insurance is the ideal 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
You need facts, not fluff. Our goal is to provide you with honest, trustworthy information to help you make informed decisions. While our content is created with insurance experts, it is for educational purposes only and should not be considered definitive professional financial advice. We recommend seeking the counsel of a licensed financial advisor before making any decisions regarding insurance or personal finance.
Bonnie Stinson is an insurance writer and researcher in Toronto with a decade of experience producing helpful, accurate content for Canadians. They have published resources for some of Canada's most innovative and consumer-trusted companies in the health, legal, and fintech sectors.
Bonnie Stinson is an insurance writer and researcher in Toronto with a decade of experience producing helpful, accurate content for Canadians. They have published resources for some of Canada's most innovative and consumer-trusted companies in the health, legal, and fintech sectors.