Life Insurance Basics

In Canada, there are two types of life insurance policies

  • Term life insurance (lowest up-front cost)

  • Permanent life insurance (lifetime coverage)

Often, your choice of a type of life insurance depends on your goals and needs; the differences in rates and premiums can be surprisingly vast, and that’s why completing our life insurance quotes form is so helpful. Just answer a few basic questions, and instantly our system will provide you with life insurance quotes from many of the top life insurance companies in Canada.

Term life insurance

Term policies typically provide insurance coverage for a short-term or specific period, such as a fixed number of years or a set age or financial commitment like a mortgage and then expire. These policies are designed to cover insurance needs for everyday life in case of premature death like:

  • Maintaining family lifestyle
  • Reduction in family income
  • Insuring a mortgage and other debts
  • School tuition for the children
  • Business continuity and obligations
  • Key-persons, partners, shareholders

Term policies are non-participating and do not include cash values or other non-forfeiture values, so premium costs are always lower than permanent policies while you are younger.

The insurance lasts for a certain period, such as 10, 20, or 30 years. It becomes more expensive as a person ages. Eventually, it is no longer available or affordable—these types of policies payout at claim time the amount of money you are insured.

Types of term life insurance

  • 10, 15, 20, 25, 30, 35, 40 year terms
  • The 20-year term is a popular choice
  • Aso available to age 65, 70 or 75

Tips for buying term life insurance

If your immediate needs are extensive, such as a mortgage, and the family cash flow to spend on life insurance is small, go for coverage that meets your needs. Term insurance is typically the right choice for many Canadians to start; make sure it is renewable and convertible into a permanent policy. This option allows flexibility to make changes later, should your needs or health change.

Permanent life insurance

These policies are designed to meet long-term insurance needs for things like:

  • Enduring family lifestyle
  • Asset and estate protection
  • Estate planning and giving
  • Estate liquidity needs
  • Tax sheltering and planning
  • Planned charitable giving

Permanent insurance policies are essentially made up of the following four components:

  1. Mortality Cost: the pure cost of the life insurance death benefit
  2. Administration Charge: the fee charged for administering the policy
  3. Savings or Investment: the amount left from your deposit after the Mortality Cost and Administrative Charge have been deducted from it. It is also referred to as the ‘cash value,’ ‘fund value,’ or ‘cash surrender value.’
  4. Return on Savings: the amount of interest earned on the savings or investment

Types of permanent life insurance

Term-to-100 provides life insurance coverage to age 100, similar to permanent insurance, but has no cash value (whereas whole life and specific universal life insurance policies do), making it a cheaper alternative to other permanent life insurance products.

It is designed to provide lifetime coverage coupled with a savings benefit. It has a level cost of insurance where the costs do not increase each year. The first premium is the same as what one will pay for the last premium. However, whole life policies do not disclose the cost of insurance, the administration costs, or calculate the returns on the savings portion. The policyholder cannot choose the investment options and the disclosure on the investment return. These policies pay out the coverage amount insured for and the cash value.

It is designed like whole life insurance policies except that the mortality cost and the administrative charges are disclosed. Policyholders have a more comprehensive range of investment options to choose from and how the savings are invested. These types of policies pay out the coverage amount insured and additionally the cash value if any.

Three options when applying for life insurance

  1. Fully Underwritten: In the past, these processes require a lengthy paper application form, a nurse visit and medical exams. However, with the advent of technology, many applications can now be completed over the phone using web-based applications. Many companies accept electronic signatures and also issue life insurance policies electronically for your convenience.
  2. Simplified Policies: These policies involve a few questions, but no exam is involved. The application process is electronic and web-based. Our advisor will guide you through the entire process effortlessly while assisting you in placing the policy with the most suitable insurance company.
  3. Guaranteed Policies: These policies do not require you to answer any questions, and you are guaranteed to be accepted. A few companies offer these policies for quick issuance; the coverage is typically smaller while taking on increased risks. The premium for these policies tends to be higher than fully underwritten policies.

Save up to 40% by comparing life insurance rates

Generally speaking, a term life insurance policy is usually a more cost-effective solution for most people. Still, there are many occasions when a term-to-100, whole life or universal life insurance policy makes much more sense, even though it may cost a bit more. Get yourself a quote to see the cost differences, or speak to our advisors if you would like to get some free, unbiased advice from experienced, independent life insurance professionals.

© 2003-2024, an Internet brand and property of I.D.C. Insurance Direct Canada Inc. All rights reserved. Last updated March 2022.

All product names, trademarks, and trade names are the property of their respective owners. The Insurance Council (BC, AB, SK, MB), Financial Services Commission (ON), Chambre de la Sécurité Financière (QC), The Superintendent of Insurance (NB, NL, PE, NS) are the provincial and federal authorities that regulate, supervise and enforce standards for life insurance professionals. IDC member websites include: Life Insurance Newspaper, Employee Benefits Newspaper

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