The complete life insurance guide

Life insurance is a financial protection tool that pays a tax-free lump sum to the people you choose (your beneficiaries) if you pass away. It exists to make sure the people who depend on you financially aren't left struggling with a mortgage, ongoing bills, or lost income if the unexpected happens.

There are two broad categories: coverage for a set number of years (term), and coverage that lasts your entire life (permanent). Permanent policies often build up a cash value you can borrow against or withdraw from over time, effectively doubling as a savings tool alongside the protection.

• Replaces lost income so your family can maintain their lifestyle
• Death benefit is paid out tax-free to beneficiaries
• Can cover a mortgage, debts, or funeral costs directly
• Permanent policies build cash value you can access later
• Riders let you customize coverage (e.g., critical illness, disability)

• Permanent policies can carry ongoing management fees that eat into the cash value growth
• Cash value in permanent policies typically grows slowly in the early years
• If cash value is invested, it can be exposed to market ups and downs

A common starting point is 5 to 10 times your annual income, but a more precise approach adds up:

• Outstanding debts (mortgage, loans, credit cards)
• Years of income your family would need replaced
• Future costs (education, weddings, major milestones)
• Minus whatever savings or existing coverage you already have

• Buying a home or taking on a mortgage
• Getting married or having kids
• Supporting aging parents or other dependents
• Owning a business (for succession planning or buy-sell agreements)
• Thinking about estate planning or leaving an inheritance
• Simply being young and healthy — premiums only go up as you age, so locking in early saves money long-term

• Age at the time you apply (younger = cheaper)
• Health status and medical history
• Whether you smoke or use tobacco
• Type of policy (term is generally far cheaper than permanent)
• Length of the term and the coverage amount
• Occupation and lifestyle (high-risk jobs or hobbies can raise cost)

As a general rule, locking in coverage while you're young and healthy secures a lower rate for the life of that policy, so waiting tends to cost more even for the exact same coverage.

Covered

• Natural death (illness, heart attack, stroke, old age)
• Most accidental deaths, including vehicle accidents
• Death benefit can be used for debts, income replacement, funeral costs, or simply passed on to beneficiaries

Usually excluded or restricted

• Suicide within the first two years of the policy (the "contestability period") — after that window, it's typically covered like any other cause of death
• Fraud or misrepresentation on the application (e.g., hiding a health condition)
• Death during certain criminal activity
• Some high-risk hobbies (e.g., extreme sports) may be excluded or require extra riders

Term Life Insurance

Covers you for a fixed period (commonly 10, 15, 20, or 30 years). Lower cost, no cash value, and many policies can convert to permanent coverage later without a new medical exam. Good fit for temporary needs like a mortgage or raising kids.

Whole Life Insurance

A type of permanent coverage with lifelong protection and a cash value component that grows over time, tax-deferred. Premiums are typically fixed for life. Well suited to estate planning or leaving a guaranteed inheritance.

Universal Life Insurance

Permanent coverage with more flexibility — you can adjust your premiums and death benefit over time, and the cash value can be invested for potential growth. More complex to manage than whole life, and typically costs more than term.

Mortgage Life Insurance

Specifically pays off your remaining mortgage balance if you pass away; the payout goes to the lender, not your family directly. Coverage amount shrinks as your mortgage balance goes down.

Group Life Insurance

Often provided through an employer at low or no cost. Coverage is usually modest and ends if you leave the job, so it shouldn't be your only source of protection if you have real financial responsibilities.

Critical Illness Insurance

Pays a lump sum if you're diagnosed with a covered serious illness (like cancer or a heart attack), which can be used for medical costs or income replacement during recovery. Can be bought alone or added to a life policy.

Many insurers offer policies that skip the full medical exam in favor of a short health questionnaire. These are ideal if you want fast approval or have a health condition that could complicate a traditional application. Trade-off: premiums tend to be higher and maximum coverage amounts lower than fully underwritten policies.

Insurers offer senior-specific options, often available up to age 85 or beyond. These can include standard term or whole life, simplified-issue policies (short questionnaire only), guaranteed-issue policies (no health questions at all, but higher cost and lower payout), and final expense/funeral insurance for smaller amounts aimed at end-of-life costs. Locking in coverage earlier in your 60s generally gets a better rate than waiting.

Parents or grandparents can buy a policy for a child to lock in low lifetime premiums and guarantee future insurability, even if the child later develops a health condition. Many of these policies build cash value the child can use as an adult for things like education or a first home.

In Canada, the death benefit itself is paid out tax-free to your beneficiaries — it does not need to be declared as income. The one exception is if you withdraw from or borrow against the cash value of a permanent policy during your lifetime; that portion can have tax implications. Life insurance is also commonly used in estate planning to help beneficiaries avoid probate delays and taxes.

You can name virtually anyone as a beneficiary: a spouse, children, other family, a friend, a charity, or your estate. Beneficiaries can be revocable (you can change them anytime) or irrevocable (changes need their consent). Naming a specific person, rather than defaulting to your estate, generally means a faster payout that skips the probate process. It's worth reviewing your named beneficiaries after major life events like marriage, divorce, or a new child.

If beneficiaries can't be located or aren't aware a policy exists, insurers are required to make efforts to find them, but funds can sit unclaimed for years. Claims are generally still possible decades after a death, though specifics depend on the province and insurer.

Is life insurance worth it?

For most people with dependents, debts, or a mortgage, yes — it's a relatively low-cost way to prevent a financial crisis for the people who rely on you.

Do I need life insurance if I'm single with no kids?

It's less urgent, but many people still get a policy to cover funeral costs, any debts, or to leave something behind, and to lock in low rates while young and healthy.

Can I have more than one policy?

Yes. Many people combine a term policy with a smaller permanent policy to balance affordability with lifelong coverage.

How long do beneficiaries have to file a claim?

This varies by insurer and province, but is typically flexible as long as the policy was active and in good standing.

Can I borrow against my policy?

Only permanent policies build the cash value needed for this, and usually only after a couple of years of premium payments. Any unpaid loan balance reduces the death benefit.