Life Insurance

Term or permanent life insurance: which do you need?

Term life insurance covers you for a fixed period, usually 10, 20 or 30 years, at a guaranteed premium. It is by far the most affordable option, and it suits the years when the need is largest, while a mortgage is outstanding and children are at home.

Permanent insurance, including whole life, covers you for life and builds a guaranteed cash surrender value you can borrow against. It costs considerably more for the same death benefit, and it is normally chosen for estate planning rather than for income replacement.

How much life insurance do you need?

A common starting point is the remaining mortgage, plus any other debts, plus several years of income to replace, plus anticipated costs such as education. Subtract savings and any existing group coverage.

Group coverage through an employer is worth counting, but with two cautions: it usually ends when the job does, and it is often a multiple of salary rather than a figure based on what your family actually needs.

What affects the premium?

Age, whether you smoke, your health, and the coverage amount and term all affect what you pay. Age and smoking status are the two largest factors.

Premiums rise with age, so the same coverage bought later costs more every year it is deferred.

Do you need a medical exam?

Many policies require a medical, which can mean a nurse visit, bloodwork and questions about your history. Non-medical options exist and are useful where a medical is impractical or health history makes underwriting difficult, but they generally cost more for the same coverage.

Common questions

How much life insurance do I need?

A common starting point is the remaining mortgage, plus other debts, plus several years of income to replace, plus future costs such as education, less savings and any existing group coverage. A needs analysis calculator can give you a figure in a few minutes.

What is the difference between term and whole life insurance?

Term life covers you for a fixed period, usually 10, 20 or 30 years, at a guaranteed premium and the lowest cost. Whole life covers you for life and builds a guaranteed cash surrender value, but costs considerably more for the same death benefit.

Is a medical exam required for life insurance?

Many policies require one, which can include a nurse visit and bloodwork. Non-medical policies are available and are useful where health history makes underwriting difficult, but they generally cost more for the same coverage.

Is a life insurance payout taxable in Canada?

The death benefit from a life insurance policy is generally paid to the beneficiary tax-free in Canada.

Does employer group life insurance cover my family enough?

Group coverage is worth counting but rarely sufficient on its own. It usually ends when the job ends, and it is often set as a multiple of salary rather than calculated from what your family would actually need.