Life insurance is simple, it offers a tax-free, lump-sum payout to your beneficiaries in the event of your death in exchange for regular premium payments to an insurance company.
But even with its simplicity, life insurance is surrounded by myths: “It’s too expensive!” “It never pays out!” “It’s only for rich people — your employer’s group life insurance is enough!”
These are myths, and PolicyMe’s insurance team is here to break them down and explain the truth behind the misunderstanding.
Myth #1: “My employer’s group life insurance is enough”
The truth: Group life insurance typically offers minimal coverage, often just 1-2x your annual salary. For most Canadians, this isn’t enough. Not even close.
Employer-provided life insurance is a nice benefit to have, but it shouldn’t be your sole source of life insurance coverage. Here are a few problems with the coverage offered by group plans:
What you can do: Instead of relying on employer-provided life insurance, buy an individual life insurance policy. Even a small term policy that’s matched to your actual finances will create a better safety net for your loved ones.
Myth #2: “I don’t need life insurance if I’m young and healthy”
The truth: Locking in low rates while you still qualify for them sets your family up for a more substantial payout down the line.
In this case, the truth is nearly the opposite of the myth: Life insurance is actually for young and healthy people, to protect against the financial consequences that could follow if they pass away unexpectedly. And the younger and healthier you are when you purchase a policy, the more affordable your coverage will be, allowing you to choose the best coverage for your family.
What you can do: Get a quote for life insurance today and see how much coverage your family members could get for a low price.
Myth #3: “Life insurance is too expensive!”
The truth: Whole life insurance is too expensive for most Canadians; term life insurance is not.
More than 1 in 3 Canadians without life insurance coverage (34%) believe it’s simply too expensive — but the average monthly cost of term life insurance for a healthy non-smoker in their 30s is around $20 to $30.
Here’s where the myth comes from:
- Whole life insurance is too expensive for most: Permanent life insurance options like whole life insurance typically cost 7-10x more than term life insurance, making it too expensive for most Canadians.
- Many uninsured Canadians haven’t gotten quotes: Because they assume it will be too expensive, many people don’t bother getting quotes — which could mean missing out on a chance at affordable coverage.
- Health issues can make life insurance expensive: For Canadians with various health conditions, this myth could be true, since medical concerns like diabetes, heart disease, or a smoking habit can raise the cost of coverage significantly. But for healthy nonsmokers, term life is typically affordable.
What you can do: Check your life insurance quotes today and weigh them against your budget. If you’re in good health, don’t smoke, and are under the age of 45, you’re likely eligible for surprisingly affordable premiums.
Myth #4: “Life insurance payouts are taxed in Canada”
The truth: Life insurance payouts are usually not subject to taxes in Canada.
It’s an understandable worry: what if my life insurance payout gets taxed, and my family members only get a small portion? But in most cases, life insurance is considered an inheritance, not income, and thus is not taxable in Canada. Your beneficiaries will receive a tax-exempt, lump-sum payment when your policy pays out.
What you can do: If you have term life insurance, be sure you’ve named a beneficiary to avoid taxes on any potential payout. If your life insurance policy includes a cash value component, take the tax implications into account before withdrawing from that cash value.
Myth #5: “Whole life insurance is a good financial investment”
The truth: Whole life insurance isn’t a good financial investment for most Canadians.
This one might be a hot take, but stick with us: Whole life insurance is a great product that simply doesn’t meet the real-life insurance needs of most Canadians. Here’s why:
- Life insurance is a weak investment tool: A life insurance policy that builds value over time sounds good, but the reality is that the return on investment for whole life insurance is less robust than with traditional investing tools. In other words, you could build more value by investing your money outside of your life insurance policy.
- Most people’s insurance needs are finite: The purpose of life insurance is to prevent your loved ones from taking on the burden of debt or losing income they depend on when you die. Most Canadians can expect their major debts to be paid and their dependents to be grown by the time they reach the end of their life.
- Whole life insurance costs 10x more: Whole life insurance premiums are often 7-10x higher than those for term life because you are guaranteed to die within the policy’s term.
In other words, for most Canadians, buying whole life insurance means overpaying for features you don’t need in a life insurance policy. Unless you have a high net worth and have maxed out all other investment tools and/or have dependents in need of lifelong care, a term life insurance plan will likely be a better fit for your insurance needs.
What you can do: If you feel that whole or universal life insurance may be a better fit for you, speak with a licensed insurance advisor about your options. But if you just want a straightforward, affordable policy to protect your family’s finances in the event of your early death, term life insurance is likely the product you’re looking for.
Myth #6: “I can always get life insurance later”
The truth: While you can buy life insurance as late as your 60s or 70s, premiums increase by about 8% per year with age.
It’s easy to add purchasing life insurance to the long mental to-do list you plan to get to “someday.” But the reality is that buying life insurance can be a quick, low-effort task — and moving it up your priority list could save you a significant chunk of change.
Take a look at the average rates shown in the table below, which compares average term life insurance premiums for men and women from age 30 to age 65, along with the amount of money saved each year by locking in a premium five years earlier. By buying a policy now rather than a year from now, you could save anywhere from $1.50 to $280.24 per year on a 20-year term policy with $500,000 in coverage.
*Monthly premiums shown are for a 20-year term policy from PolicyMe for a non-smoking individual in Ontario with $500,000 of coverage.
If that doesn’t sound like a lot, multiply those savings by 20 to see the cost of waiting to buy life insurance. Women who buy a 20-year term policy at age 30 rather than waiting to age 40 will save $233.20 over the life of the policy; men can save $283 over the same period.
What you can do: Once you know you need life insurance, buy life insurance — don’t wait.
Myth #7: “If I don’t own a house or have kids, I don’t need life insurance.”
The truth: Anyone with major financial obligations or people who depend on their income needs life insurance.
Protecting your children’s financial future is one of the most common reasons to buy life insurance, along with ensuring that your family won’t be saddled with mortgage debt if you die unexpectedly. But many people need life insurance even without a mortgage or children. For example:
What you can do: Work with a licensed insurance advisor or use an online insurance calculator to add up your total debts and the portion of your income that your loved ones depend on. If the amount is significant, the death benefit from a life insurance policy could be worth it.
Myth #8: “The purpose of life insurance is covering funeral expenses”
The truth: The purpose of life insurance is to keep your death from causing financial hardship to your loved ones, whether in the form of steep funeral expenses, lost income, or hefty unpaid debts.
You can use life insurance to cover final expenses such as funeral costs, which can place a significant financial burden on your surviving loved ones. But it’s typically more cost-effective to simply save money for these expenses rather than paying into a life insurance policy over 10+ years.
What you can do: Instead, focus on the expenses you can’t save for, such as multiple years of income or the total balance of your debts. Like most insurance products, life insurance is designed to cover larger expenses like these that are difficult for an average person to save for.
Myth #9: “I only need enough life insurance to cover my mortgage”
The truth: You need enough life insurance to cover all major outstanding debts as well as your annual income and the cost of your financial goals, such as your children’s education.
Some life insurance is better than no life insurance, but your full coverage amount should account for more than your mortgage balance. A mortgage is just one piece of your financial landscape, and focusing only on that piece of the puzzle could leave you underinsured.
What you can do: Instead, think in terms of the DIME method: Debts, Income, Mortgage, and Education. Add up the total of your debts, your annual income times the number of years you’d need it replaced, your remaining mortgage payments, and the cost of your children’s education (if applicable).
Myth #10: “You need a medical exam to get life insurance”
The truth: If you’re in good health, you can likely get life insurance without a medical exam at a competitive price.
Some life insurance providers require all applicants to undergo a medical exam, often with blood draws and other testing, before they’ll approve a policy. But it’s a common misconception that all life insurance companies require medical exams for all types of life insurance.
At PolicyMe, for example, over 60% of policyholders are eligible for instant approval with no medical exam thanks to a strategy known as accelerated underwriting. By using a series of basic health questions to flag any applicants with potential health issues that might impact their insurability, PolicyMe sends most applicants in good health quickly through the process.
What you can do: If you’re in good health and don’t smoke, you can get quick term insurance through life insurance companies like PolicyMe that offer accelerated underwriting.
It’s important to know the difference between accelerated or simplified underwriting, which uses medical questionnaires to evaluate each applicant’s mortality risk, and no-medical or “guaranteed issue” life insurance, which offers approval for all applicants.
While that may sound like a good thing — and it’s the only way for some people with serious health conditions to get insured — it means that insurers simply price all policies based on an assumption of high risk, meaning high premiums across the board regardless of your relative health.
Myth #11: “Life insurance companies don’t pay out!”
The truth: Life insurance policies in Canada are backed by a nonprofit that makes sure every claim is paid out, even if the insurer runs out of money.
Assuris Canada is a nonprofit founded in the 1990s to protect life and health insurance policyholders by offering a payout even if their insurance company becomes insolvent and is unable to issue a claim payment. If you have an active life insurance policy in Canada, it is backed by Assuris.
But in most cases, Assuris doesn’t even enter the picture — because aside from cases of insurance fraud, life insurance claims are almost always paid as long as the policyholder continues paying the premiums.
Where the myth comes from: If you’ve heard that most life insurance policies don’t pay out, you’re likely getting a mangled version of two truths. In the case of permanent life insurance policies, policies may not pay out because the owners don’t keep up with the steep premiums, causing the policy to lapse.
With term life, on the other hand, claims are almost never denied — but because this coverage is designed to be temporary, most policies will expire without a claim even being made.
What you can do: Be honest in your application and make sure that you’re on top of your insurance payments. That’s it! As long as you satisfy these two requirements, any reputable company will pay out if your loved ones make a claim.
The real story: Why Canadians delay getting life insurance
With so many misconceptions about life insurance crowding the public consciousness, it’s no wonder many Canadians delay buying life insurance. But it’s not just misinformation that pushes people away from this vital financial security — according to PolicyMe’s 2025 Life Insurance Gap Report, high living costs play an equally important role in keeping Canadians uninsured.
Our report found that:
- Four in 10 Canadian parents (42%) say life insurance is too expensive.
- One in 10 Canadians (10%) say that the high cost of living has delayed their plans to purchase life insurance.
- One in four Canadians (25%) isn’t confident that their family would be financially secure if they passed away.
With financial insecurity standing between Canadians and the peace of mind that life insurance brings, it’s more important than ever to find the right coverage — that is, needs-based life insurance that covers what you and your family need with no unnecessary coverage, riders, endorsements, or hidden costs. PolicyMe’s own policies emphasize this type of no-frills life insurance to help Canadians meet their financial goals.
FAQs: Life insurance myths
