Purchasing life insurance is one of the most important financial decisions you can make to protect your family’s future. But for many Canadians, the process can feel overwhelming. Where do you even begin? This guide will outline the essential steps, considerations, and strategies for buying the right life insurance policy tailored to your unique needs and budget.
Step 1: Determine How Much Coverage You Need
The first step is to calculate the coverage amount you need. The goal is to provide enough money to cover your family’s financial needs in case of your unexpected death.
Consider these 5 key factors:
Income Replacement
A primary purpose of life insurance is to replace your income in case of death. Consider how much of your annual income your family would need to maintain their standard of living.
You will want sufficient coverage to continue funding these priorities for your dependents for 5-10 years, or until major milestones such as paying off a mortgage or funding education are met.
Debt Payoff
List all outstanding debts like car loans, credit cards, personal loans, etc. Your life insurance benefit should be enough to pay off all these debts to unburden your family.
Mortgage Balance
Your largest debt is likely your mortgage. Including the full remaining balance in your coverage ensures your family can stay in their home.
Final Expenses
When planning your life insurance coverage, don’t forget to include final expenses. These include funeral, burial or cremation, and other end-of-life costs for both you and your spouse. In Canada, these costs can easily start at $10,000 and can exceeed $20,000. It is wise to budget $20,000 to $25,000 as a safe estimate.
Education Funding
If you have children, consider the future costs of post-secondary education. Tuition, books, housing, and other related expenses can quickly add up over the years. This could also include funding a Registered Education Savings Plan (RESP).
To simplify your estimate, you can use the DIME method, which stands for:
Debt Payoff + Income Replacement x Years Needed + Mortgage Balance + Education Funding
This gives you a rough estimate. You can find our detailed guide on
Step 2: Choose the Right Types of Life Insurance
Once you know the amount of coverage you need, the next big decision is choosing between term life insurance and permanent life insurance.
Term Life Insurance
Term life insurance offers protection for a specific period, or “term,” such as 10, 20, or 30 years. If you pass away during this term, your beneficiaries receive a death benefit. If the term ends and you are still living, the coverage expires (though many policies offer options to renew or convert).
Term policies are more affordable than permanent insurance, allowing you to secure substantial coverage at a low premium. The premium may increase if you renew at the end of the term or if you apply for a new policy later at an older age.
Permanent Life Insurance
Permanent life insurance provides coverage for your entire life, as long as you pay the premiums. It also includes a savings component, known as “cash value,” that grows on a tax-deferred basis over time. There are two main types: whole life and universal life.
While term life insurance is more affordable when you’re young and healthy, permanent life insurance becomes cost-effective as you get older, especially if you need lifelong coverage.
When to choose term or permanent life insurance? Term life insurance is a good choice for covering temporary needs with a defined end date, such as paying off a mortgage or protecting your children until they are financially independent. On the other hand, permanent life insurance is better suited if you want lifelong protection for estate planning or final expenses and value the cash accumulation.
Step 3: Research and Compare Life Insurance Companies
With your coverage amount and policy type in mind, it’s time to find a provider. As you research, you should compare factors like:
- Financial strength: Look for companies with strong financial ratings from agencies like A.M. Best, as this indicates their ability to pay claims long-term.
- Policy options: Consider flexible options that meet your needs, like term lengths, coverage terms, and conversion options.
- Riders offered: Riders enhance your base policy, like disability waivers, return of premium, and critical illness riders.
- Customer service: Review review and complaint data to assess the customer service experience.
Some top life insurance companies in Canada include:
- Sun Life
- Manulife
- Canada Life
- RBC Insurance
- BMO Insurance
- Industrial Alliance
Then, create a shortlist of 2-3 reputable insurance providers offering the features you want.
Step 4: Get Life Insurance Quotes
The next step is to get rate quotes. A quote is an estimate of your premium based on your personal profile. There are several ways to get life insurance quotes in Canada:
- Direct: Contact insurers by phone or via online chat to obtain quotes.
- Online: Visit insurer websites and use quote calculators. You’ll have to enter basic personal details.
- Agent: An independent life insurance agent can provide quotes from multiple companies.
- Broker: A life insurance broker can also source quotes from various providers. You must read this article if you want to find the best life insurance broker in Canada.
Your quotes will be based on factors including:
- Age and Gender: Younger applicants get lower rates.
- Health and Medical History: Your personal and family medical history are key.
- Nicotine Use: Smokers and vapers pay significantly higher premiums.
- Lifestyle: High-risk hobbies or occupations can increase your rate.
Gather quotes for the same coverage amount and term from at least 3-4 different providers. Compare them in terms of premiums, coverage amount, exclusions, etc. This will help you find the best fit for your needs and budget.
Step 5: Complete the Life Insurance Application
Once you decide on an insurer and policy, you will complete a formal application.
Here’s what the application process typically involves:
- Fill out a detailed application with personal/financial information.
- Provide your medical history, including doctor’s details, prescriptions, and medical test results.
- Share lifestyle facts like alcohol use, smoking, hobbies, driving record, etc.
- Authorization to access your medical records.
- Review and sign the completed application.
The life insurance application may be completed online or over the phone for no-medical-exam policies. Otherwise, an in-person application with a paramedical exam will be required.
Important note: When you apply, answer every question completely and honestly. If you don’t, the insurer may cancel the policy or deny a future claim, and it may be harder to obtain coverage later.
Step 6: Schedule a Medical Exam
Most fully underwritten policies require a brief paramedical exam, which is paid for by the insurance company. A licensed health professional will visit you at your home or office to:
- Measure your height, weight, blood pressure, and pulse.
- Collect blood and urine samples. These are used to test for nicotine, check cholesterol levels, and assess kidney and liver function, which are all indicators of long-term health.
- Ask questions about your medical history.
- ECG/treadmill tests are performed if you have any medical conditions.
The exam is conducted by a nurse/technician hired by the insurance company and the insurer covers the cost.
Can you buy life insurance without a medical exam?
Yes. Many insurers offer no-medical or simplified-issue policies that provide fast approval. However, the premiums are substantially higher because the insurer is taking on more risk without a full picture of your health. They are best for those with serious health conditions who may not qualify for a traditional policy.
Step 7: Await Application Review and Approval
The final step is to await your application review and underwriting decision. During this stage, the insurer reviews all your information to assess your risk profile and finalize your premium. This can take anywhere from a few days for simplified policies to 4-8 weeks for complex cases.
You will then receive one of three outcomes below:
- Approval – An approval package with your policy documents. Sign and return documents and pay your first premium.
- Decline – A letter stating you’ve been declined coverage and the reasons why. Consider re-applying after 6-12 months if the reasons were temporary.
- Rated Policy – You’re approved, but at a higher premium than quoted due to a higher-than-average risk (e.g., a well-managed chronic health condition). You can accept the rated policy or decline it.
That covers the complete step-by-step process for purchasing life insurance coverage in Canada.
The Bottom Line: Securing Your Family’s Future
Buying life insurance in Canada does not have to be complicated. By following these steps: calculating your needs, understanding your options, and working with a trusted professional, you can navigate the process with confidence.
We also have additional tips for saving on your policy:
- Apply when you are young and healthiest, as this helps you lock in lower rates
- Improve health and lifestyle habits to qualify for the best rates.
- Bundle your policy with other insurance products from the same provider.
- Pay premiums annually rather than monthly to reduce costs.
- Review and update your coverage every few years as your needs and finances change.
While it involves planning and paperwork, the ultimate goal is to secure your family’s financial well-being and provide lasting peace of mind, no matter what the future holds.
FAQs on How to Buy Life Insurance in Canada
When is the best time to buy life insurance?
Locking in a low rate early is the most cost-effective strategy as rates only go up as you age and your health changes. The younger and healthier you are when you apply, the lower your premiums will be for the life of the policy.
How long does life insurance coverage last?
Term life insurance lasts for a pre-defined period (e.g., 20 years). After that, it expires unless you renew it at a much higher cost or convert it to a permanent policy. Permanent life insurance (Whole and Universal) lasts for your entire life, provided you continue to pay the required premiums.
Can I have more than one life insurance policy?
Yes, you can absolutely have multiple life insurance policies. Many people use a strategy called "laddering," in which they buy several term policies of varying lengths and amounts to match their declining financial responsibilities over time. You could also have a permanent policy for final expenses and a term policy to cover your mortgage.
Can I get life insurance if I have a pre-existing health condition?
Yes, it is often possible. Depending on the condition and how well it's managed, you might be approved at standard rates, approved with a higher premium. For serious conditions, a simplified or guaranteed issue policy may be your best option, though they offer lower coverage amounts at a higher cost.
Can I change the beneficiary on my policy?
Yes, you can change your beneficiary at any time, as long as the beneficiary is revocable. You simply need to fill out a form provided by your insurance company. It is a good practice to review your beneficiaries after major life events like marriage, divorce, or the birth of a child.
