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What is life insurance and why is it necessary?

Life insurance forces us to ask ourselves some seriously tough questions. The biggest one being: if you were to face an untimely death, would your family be able to cope with the sudden loss of income? On top of grieving the loss of someone they love, families often face a hefty financial burden when a loved one dies before their time.

Life insurance helps protect the ones you love by providing your family with compensation to pay for the things that your income was taking care of, things like mortgage payments, groceries and bills. Additionally, it can help cover funeral expenses and additional costs associated with your passing. The size of the payout depends on your individual policy, but ideally a life insurance policy should be enough to replace your pre-tax income for five to 10 years.

We know it’s not nice to think about, but life is fragile. If you have dependents who rely on you financially, such as a spouse, children or a family member you care for, you should have life insurance. Find peace of mind by providing a secure financial future for your loved ones. Compare life insurance quotes today.

What are the different types of life insurance in Canada?

There are several types of life insurance policies in Canada, but they generally fall into two categories: term life insurance and permanent/whole life insurance.

Term life insurance

A term life insurance policy provides the policyholder with insurance for a pre-defined period of time, typically one, five, 10, 15, 20 or 30 years, or until a specific age like 60 or 65.

If the term expires and you are still alive, there is no payout. You can decide whether to find a new policy, or to renew the coverage, if that option is available. Term life insurance policies are usually renewable at a higher premium when they expire.

Since term life insurance policies have lower premiums than permanent ones, they are the most commonly purchased type of life insurance.

Permanent life insurance

Permanent life insurance (sometimes called whole life insurance) has no term limit. It will last for your entire lifetime, provided all premiums are paid. The premiums are fixed and are significantly higher than term life insurance.

The main difference between permanent and term life insurance is the cash value of a permanent life insurance policy. The policy’s value increases with each premium payment, and the money can be paid out to the policyholder upon cancellation of the contract. The money can also be used as collateral on a loan, whereas, you cannot borrow against a term life insurance policy.

What type of life insurance is best?

The type of life insurance that is best for you really depends on your circumstances. If you are younger and only need temporary coverage, for example such as until your mortgage is paid off or until your children grow up and become financially independent, term life insurance might be for you.

If you are fairly well off, and you want to use your policy as part of your estate planning, permanent or whole life insurance is the better option.

Let’s look at the advantages and disadvantages of term life insurance and permanent/whole life insurance.

Term life insurance


  • Initially less expensive than permanent life insurance
  • Once the term ends, it can usually be renewed or converted into a permanent policy
  • Less of a commitment than whole life insurance


  • Gets more expensive as you get older
  • Is temporary, and will eventually run out if it isn’t renewed
  • Premiums will increase on each renewal after the term expires
  • It has no cash value to borrow against

Permanent/whole life insurance


  • Has a monetary value that increases over time, can be cashed in, saved for retirement, or used to take out a loan
  • Fixed premiums and a steady death benefit payout
  • Better for people with long-term goals and estate planning


  • Initially, premiums are more expensive than term life insurance
  • Returns and benefits can be complicated and difficult to understand without professional guidance
  • Only begins to earn returns after you have held it for a number of years (20+) and allowed it to build up sizeable value
  • Cannot be converted into any other type of policy

How much does life insurance cost?

The cost of life insurance depends on multiple factors. Let’s assume you are 35, live in Toronto, have an annual income of $75,000, and want to guarantee this income for your family for 10 years. Right away, you want to multiple your salary by ten to figure out how much coverage you need, then we can figure out average premiums.

For $750,000 in coverage, here is an approximation of how much you would have to pay each month with a term life insurance policy. You’ll notice the rates are more than double for smokers:

Term Male (35)
Female (35)
Male (35)
Female (35)
Term (10-year) $34 $25 $78 $56
Term (20-year) $53 $39 $140 $104
Term (30-year) $99 $74 $232 $173
Term 100 $491 $418 $705 $563

What factors affect your life insurance rates?

Life insurance premiums are calculated differently by each insurance company, but some of the most common factors that contribute to the cost of your life insurance policy are:

  • Your age. Premiums are lower when you are younger because the likelihood of death and serious illnesses is much lower.
  • Policy type and coverage. The longer the term of your policy, the more expensive your premiums. This is why permanent life insurance policies cost more than term life policies. In addition, the more coverage you require in the event of your death, the higher your premiums will be.
  • Your gender. Statistically, because of better health and a longer life expectancy, women pay a bit less than men do.
  • Your health history. If you have a health-related condition or a family history of serious illness, you will have to pay more than average.
  • Your lifestyle. Due to the increased risk of cancer and other related diseases, smokers and heavy drinkers incur expensive premiums.

Can I name my young children as beneficiaries?

The law in Ontario states that children under 18 do not have the authority to receive or use the death benefit amount left to them through an insurance policy.

If you want your kids to receive your death benefits, you should name a trustee to look after the money until your children turn 18. Naming your spouse as trustee often makes the process easier, since they are most likely caring for the children when you are no longer around.

Frequently asked questions about life insurance in Canada

What is the process for finding life insurance on RATESDOTCA?

We know that shopping for life insurance isn’t fun, but RATESDOTCA makes the process as easy and painless as possible. Spend a few minutes filling out our simple online form, and we will show you quotes from Canada’s most trusted insurance providers.

Choose your quote and connect directly with a licensed life insurance expert of your choice. They will answer your questions and arrange for a nurse to visit you to conduct a brief medical exam, which is a standard part of the life insurance process. Insurance companies know you are busy, so the exam will happen at a time and location that is convenient to you (typically at your home).

While it sounds a bit scary, the medical exam is really nothing to stress about. The nurse will check your blood pressure, weigh you, and take a blood and/or urine sample. The whole process takes about 30 minutes. Your samples will be sent to a lab and the results are forwarded to your life insurance company. Assuming the results are consistent with your application, you will then be asked to pay the premium amount you were originally quoted, and your life insurance coverage will begin.

How much life insurance do I need?

Generally, you should aim for life insurance coverage of five to 10 times your gross annual income. Your life insurance should be enough to cover:

  • Funeral expenses
  • Outstanding debts
  • Recurring bills and payments
  • Loans
  • Mortgage payments
  • Income that your dependents rely on

If you are a parent, you will also want to think about your children’s future education, college and university expenses. If you are single, without kids, perhaps you might want to leave something for a parent, or a charity. You may also choose to leave the money to your estate or to a trust. Using the payout to cover outstanding debts means your family won’t have to assume your financial burden if you pass away.

How do I calculate the amount of life insurance I need?

To determine how much life insurance you need, calculate the cost of a financial safety net for your family in the event of your death. How much would you need to leave them with to ensure they have a comfortable future? Some things to consider:

  • Funeral costs: The average cost of a traditional funeral that includes a service, preparation of the body, cremation or interment, visitation, etc. in the province of Ontario is around $5,000, according to the Ontario Board of Funeral Services.
  • Estate planning: Don’t forget attorney charges. Expect to pay anywhere from $1,500 to $3,500 for estate planning.
  • Inflation and taxes: How long should the money last? Add another 3% per year to account for inflation, and calculate in 5% as the after-tax investment yield (what the return of your investments are, after applicable taxes have been paid).
  • Your family’s future financial needs: Dream of sending your children to college? Based on the costs of a Canadian university education (expenses plus tuition), prepare to factor in another $10,000 to $20,000 a year per child.

The government of Canada has a helpful life insurance calculator available to help determine how much coverage you need.

Which life insurance company has the best rates?

This is impossible to answer without first knowing a bit about you, as insurance companies all evaluate risk slightly differently. The easiest way to find the best life insurance rates is to compare quotes online. RATESDOTCA will show you multiple rates side-by-side, enabling you to make an informed decision when choosing a provider.

What is a death benefit?

A death benefit is a tax-free sum of money that is paid out to a named beneficiary following the death of a life insurance policyholder.

How is the death benefit paid out?

Following your death, the beneficiary needs to contact the insurance provider, fill out a death claim and submit it along with the death certificate of the insured. The payout usually happens 30 days after a claim has been submitted. Make sure you have communicated with your beneficiaries the key details of your policy such as the policy number, the face value, term length, and expiration date if it applies.

What happens if the life insurance policyholder commits suicide?

On all life insurance policies, there is a suicide clause exclusion. Typically, it states that if the policyholder commits suicide within the first two years of the policy being active, then the beneficiary receives none of the benefits, and in most circumstances, will be only paid a sum of the premiums paid.

Even if the policyholder commits suicide more than two years after they took out the policy, the beneficiary may still be denied their claim. It is important to understand the terms and conditions associated with your policy. If you or a loved one are considering suicide, please seek professional help. Crisis Services Canada is one organization that offers suicide prevention and support 24/7.

Does life insurance cover accidental death and dismemberment?

Accidental death and dismemberment (AD&D) is not covered by a standard life insurance policy. It can be purchased as a standalone insurance product, or as a rider on your existing life insurance policy.

Does life insurance include critical illness insurance?

No, critical illness insurance is not included as part of a life insurance policy. Critical illness insurance is a type of health insurance that provides a lump-sum payment if you become seriously ill. The illnesses covered differs from company to company, but typically include cancer, heart attack, stroke, blindness, Alzheimer’s, organ transplants and paralysis. Coverage can also depend on the severity of the illness. Critical illness insurance is also not the same as disability insurance. These are all separate types of insurance coverage.

Do I have to take a medical exam?

Yes, medical exams are part of the life insurance process. After you’ve submitted a life insurance application, an insurance representative will review your medical questionnaire. Be honest, as your information will need to be verified during the medical exam. Your insurer will send a nurse to your home to take your blood pressure, weigh you, draw blood and collect a urine sample that will be tested for glucose, cholesterol, tobacco and drug usage, as well as other illnesses. This may sound intimidating, but it is a standard and efficient part of the process.

Over the next couple of weeks, the insurance company will review your medical results alongside your application. They will decide whether to approve your original quote, or adjust it to account for any conditions that were uncovered during the medical exam. In some cases, coverage may be denied at this point if there were serious inconsistencies in your application or the exam revealed a condition that is excluded from the policy you applied for.

Assuming you were truthful in your initial application and the medical confirms that you are in good health, you can finalize your quote, purchase the policy, and rest assured that you have a solid financial plan for your family’s future.

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