Life Insurance Premiums: Cost Ranges, Calculations, How to Save
See affordable life insurance quotes from PolicyMe and other top companies.
What is a life insurance premium?
A life insurance premium is the amount you pay (monthly or annually) to keep your life insurance policy active. The exact amount is specific to you, and it’s based on your age, demographics, risk level, and your policy.
- Monthly premium: Costs more overall, but spreads out the cost each month a year
- Annual premium: Costs less overall, but due in a lump sum once per year
Life insurance premiums are applied to two things. Here’s how each benefits you:
- Shared pool: Part of your premium goes into a fund that spreads the risk among all the policyholders to pay out claims for people who die during their term. For instance, your $30 premium this month is partially going toward someone else’s payout next month (not yours).
- Insurer’s reserves: Part of your premium goes toward the insurer’s guarantee. This is a reserve fund that insurers must maintain to guarantee that you’ll receive a full payout even decades into the future.
You need to pay the life insurance premium to keep your policy active. If you miss a payment, your coverage could lapse and your loved ones would not get a payout.
How are life insurance premiums calculated in Canada?
Life insurance premium calculations are based on risk of payout, policy type, and the company’s cost of operations.
You’ll generally pay less if:
- Your risk levels are statistically lower
- Your policy is smaller
- Your insurer is digital-first (like PolicyMe)
“Your term life insurance rate will be based on two main categories: your personal factors (age, gender, smoking status) and the policy (coverage amount, term length) you choose.” — Erik Heidebrecht, Licensed Life Insurance Advisor
Personal factors that affect your premium
First, your personal demographic and lifestyle information are a big part of your risk assessment. These include:
- Age
- Assigned sex
- Smoking status
- Health & medical history
- Lifestyle & occupation
Based on each factor, companies use statistical data, long-term mortality studies, and pricing models to estimate your unique risk. They want to know how likely it is that they’ll have to pay out on a claim and how large the claim might be.
The riskier your personal profile, the more you’ll pay for coverage. Statistically, older people, men, and smokers have shorter life expectancies.
Policy factors that affect your premium
Next, policy type is a factor in calculating your premium. Policies vary widely:
- Coverage amount
- Term length
- Type of life insurance (term vs. permanent)
The larger the benefit and the longer the term, the more you’ll pay for the coverage. If you look at sample term life insurance quotes in Canada, a $10M permanent life insurance policy has a bigger premium than a $250,000 10-year term policy.
Life insurance companies that have big offices and lots of employees usually charge higher premiums, passing along the extra costs of overhead and administrative fees to the policyholder. Digital-first insurance providers like PolicyMe deliver the same service for less.
Term vs. permanent life insurance premiums
Term premiums are almost always lower than permanent life insurance premiums. Best of all, term insurance is not only the most affordable type of life insurance, but it’s also the smartest choice for most Canadians.
Term life insurance is cheaper because it offers:
- Temporary coverage
- No savings or investment component
Term life insurance covers you for a set period — so you only pay premiums for a set period. It is the most cost-effective way to cover things like income replacement, a mortgage, and dependents during the years you actually need protection. Then, your coverage ends and so do your premiums.
Permanent life insurance premiums are much higher:
- Guaranteed payout
- Complex investment components
And you must pay these high premiums for life. However, this type of coverage can be worth it in cases where your family requires lifelong coverage (disabled dependents) or cash value (complex estate planning needs).
Ultimately, term insurance is cheaper and it offers plenty of coverage so it should be the first step for most Canadians. Permanent insurance is a niche product that costs 5-10x more, so it’s not a starting point for the everyday Canadian family.
Do life insurance premiums increase over time?
Life insurance premiums may increase over time, but it depends on the type of policy you have.
Premiums stay level with:
- A term policy — premiums stay level for the entire term
- A whole life policy — premiums stay level (though high) for life
- A limited-pay whole life policy — premiums stay level until your payoff period is up, then coverage continues but premiums cease
Premiums may increase with:
- Term policy renewals — premiums rise at the end of your term when you renew based on your current age when you get the new policy
- A universal life policy — premiums fluctuate based on insurance costs and investment performance
When a term policy is up for renewal, you can either let it expire or renew your coverage. If you renew, your premium will jump up to reflect your current age (and sometimes health status). Life insurance premiums after renewal will be higher than when you first bought the policy.
To lock in the lowest premium, buy term insurance when you’re younger and healthier. You will pay less overall and avoid steep increases later, when you really need the coverage.
Why did my life insurance premium go up?
It’s normal for life insurance premiums to go up when your policy changes, you get a new policy, or you have a universal life policy.
- Changed your policy? Premiums go up if you increase your coverage or add riders.
- Got a new policy? Premiums go up if you renewed or bought a new policy later in life, as premiums are based partially on age (even if the coverage level is the same).
- Universal life policy? Premiums go up when investment returns are lower than expected or insurance costs rise within the policy.
Insurance providers are supposed to disclose premium changes, so check your policy type and review your statement if you notice a change in your premium.
How much does a life insurance premium cost in Canada?
Life insurance premiums in Canada can be very affordable (especially term policies), starting around $10 per month. It’s a wide range that depends on your age, health, and type of policy.
- $7 per month: A 25-year-old non-smoking female with a 10-year term worth $100,000
- $715 per month: A 45-year-old smoking male with a 30-year term worth $1M
For most Canadians, term life insurance offers the lowest cost per dollar of coverage. You should select an amount of coverage that aligns with your family’s financial future needs, like children’s education. A life insurance calculator can help you understand your insurance needs and life insurance options.
We’ve pulled some starting premiums for term life insurance to give you an idea of what your rate might be.
Life insurance premiums by sex
Here are some sample rates for the cost of life insurance per month by sex. Rates are based on a non-smoker with $500,000 in coverage for 20-year term life insurance.
Life insurance premiums by coverage amount
Here are sample premiums for coverage amounts from $100,000 to $1,000,000 for a 20-year term life policy for a 35-year-old non-smoking applicant:
Life insurance premiums for smokers
Take a look at these rates for $500,000 in coverage for 20-year term life insurance for an applicant that has smoked cigarettes within the last 12 months.
Your exact premiums will be calculated when you apply. These tables include sample rates that illustrate how different factors affect the cost of life insurance for term life insurance policies.
How to lower your life insurance premium in Canada
You can lower your life insurance premiums by buying at the right time and buying smart.
The vast majority of folks should apply for fully underwritten policies first. Premiums will be cheaper and many people qualify for these life insurance plans — around 60% of applicants with PolicyMe are approved with no medical exam.
“No-medical” and guaranteed issue life insurance policies will not help you save money. These premiums are way higher because insurers are taking on more risk factors without assessing your health. This insurance product is not a money-saving strategy — instead, it’s for people who cannot qualify for other coverage. It’s a fall-back option, not a first choice.
Laddering is when you buy multiple smaller term policies of different lengths, each timed to a specific need (like a mortgage or childcare). This is usually cheaper than buying a bigger long-term policy. As each policy expires, you stop paying for it and your premiums go down over time.
The most important thing you can do to lower life insurance premiums is compare quotes before you buy. Premiums for the same coverage might differ wildly from one company to the next.
Are life insurance premiums tax deductible in Canada?
What is not tax deductible: Life insurance premiums are not tax deductible in Canada. Your premiums are paid with after-tax dollars, no matter the type of policy. As a result, premiums cannot reduce your taxable income.
What is tax deductible or tax-free: The life insurance payout, aka death benefit, is a tax-free lump sum in Canada. Cash value growth inside whole and universal life policies is tax-deferred while it’s inside the policy. These funds can be used by your beneficiaries to cover your final expenses or funeral expenses.
Business situations are different from personal policies, however. If a business owns a life insurance policy and it’s serving as collateral for a business loan, then a portion of the premium may be deductible. It’s best to speak with a CPA to understand the regulatory impacts.
Common myths about life insurance premiums
Most people overestimate costs and misunderstand how policies work. The good news is that, for most Canadians, life insurance is cheaper and simpler than expected.
Here are some myths and facts when it comes to Canadian life insurance premiums:
Myth: Life insurance is too expensive
Fact: Term life insurance is often very affordable — especially when purchased young. Get a quote and find out for yourself!
Myth: Group life insurance is enough
Fact: Group coverage is severely limited, with caps based on 1-2x your salary and eligibility tied to your job. For most Canadians, group coverage is simply not enough to cover long-term needs like family income and mortgage repayment.
Myth: I can wait until I’m older to buy
Fact: Premiums rise with age, so waiting usually means paying more overall for the same financial security. You might not even qualify at all, if health issues arise in the future.
49% of Canadian parents say they don’t plan to purchase life insurance coverage within the next five years. Among Canadians without coverage or unsure, about 1 in 4 Canadians have children at home. But 1 in 4 Canadians are not confident that their families would be financially secure if they passed away unexpectedly.
Myth: Permanent life insurance is always a better deal.
Fact: Permanent is usually 5-10x more expensive than term coverage, and most Canadians overinsure with permanent coverage. Term is generally cheaper and offers enough core financial protection in most cases.
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.